Tag Archives: Trade war

The Unwinnable Trade War

By Weijian Shan – There are at least two reasons why Chinese exports to the United States have not fallen as much as the Trump administration hoped they would. One is that there are no good substitutes for many of the products the United States imports from China, such as iPhones and consumer drones, so U.S. buyers are forced to absorb the tariffs in the form of higher prices.

The other reason is that despite recent headlines, much of the manufacturing of U.S.-bound goods isn’t leaving China anytime soon, since many companies depend on supply chains that exist only there. (In 2012, Apple attempted to move manufacturing of its high-end Mac Pro computer from China to Texas, but the difficulty of sourcing the tiny screws that hold it together prevented the relocation.)

Some export-oriented manufacturing is leaving China, but not for the United States. According to a May survey conducted by the American Chamber of Commerce in Shanghai, fewer than six percent of U.S. businesses in China plan to return home. Sixty percent of U.S. companies said they would stay in China.

The damage to the economy on the import side is even more pronounced for the United States than it is for China. Economists at the Federal Reserve Bank of New York and elsewhere found that in 2018, the tariffs did not compel Chinese exporters to reduce their prices; instead, the full cost of the tariffs hit American consumers. As tariffs raise the prices of goods imported from China, U.S. consumers will opt to buy substitutes (when available) from other countries, which may be more expensive than the original Chinese imports but are cheaper than those same goods after the tariffs. The price difference between the pre-tariff Chinese imports and these third-country substitutes constitutes what economists call a “dead-weight loss” to the economy.

Beijing’s nimble calculations are well illustrated by the example of lobsters. China imposed a 25 percent tariff on U.S. lobsters in July 2018, precipitating a 70 percent drop in U.S. lobster exports. At the same time, Beijing cut tariffs on Canadian lobsters by three percent, and as a result, Canadian lobster exports to China doubled. Chinese consumers now pay less for lobsters imported from essentially the same waters.

The uncomfortable truth for Trump is that U.S. trade deficits don’t spring from the practices of U.S. trading partners; they come from the United States’ own spending habits.

The United States has run a persistent trade deficit since 1975, both overall and with most of its trading partners. Over the past 20 years, U.S. domestic expenditures have always exceeded GDP, resulting in negative net exports, or a trade deficit.

The shortfall has shifted over time but has remained between three and six percent of GDP. Trump wants to boost U.S. exports to trim the deficit, but trade wars inevitably invite retaliation that leads to significant reductions in exports.

Even a total Chinese capitulation in the trade war wouldn’t make a dent in the overall U.S. trade deficit. more>

A primer on how Chinese law might enforce a US-China trade deal

By Jamie P. Horsley – As recently as early May, optimism ran high that the United States and China were nearing an agreement to resolve their escalating trade dispute. But talks have hit an impasse, with both sides announcing new rounds of tariffs over the past few days.

In an interview on Fox News Sunday, White House economic adviser Larry Kudlow explained that a key point of contention is U.S. insistence that Chinese commitments be “codified by law in China, not just a State Council announcement.” According to Kudlow, the U.S. seeks “very strong enforcement provisions” to correct past Chinese behavior on trade, which he characterized as unfair, nonreciprocal, and sometimes unlawful.

Various U.S. media reported that the Chinese side was averse to the idea of a foreign country dictating Chinese law. Instead, negotiators from Beijing reportedly offered to codify the agreement through regulatory and administrative actions. The standoff raises an important question: If the other substantive issues can be resolved, would an agreement be enforceable even if it falls short of being codified in national laws?

National laws, local regulations, State Council regulations, and rules are all part of what is collectively called “legislation” (lifa). National laws (falü) are adopted by China’s National People’s Congress (NPC) and the NPC Standing Committee pursuant to formal procedures—including public notice and comment—set forth in the Legislation Law.

Similarly, local regulations (difangxing fagui) are adopted by the people’s congress operating in a particular province or autonomous region. State Council regulations (xingzheng fagui), which are legally binding and enforceable, are also governed by the Legislation Law and subject to public comment and other procedures stipulated in State Council implementing regulations (colloquially, the “Rulemaking Regulations”).

The same applies to rules (guizhang), which are promulgated by central departments and local governments. more>

Globalization at a Crossroads

By Gordon Brown – Whether or not one realizes it, 2018 may have been a historic turning point. Poorly managed globalization has led to nationalist “take-back-control” movements and a rising wave of protectionism that is undermining the 70-year-old American-led international order. The stage is set for China to develop its own parallel international institutions, auguring a world divided between two competing global-governance systems.

Whatever happens in the next few years, it is already clear that the 2008-2018 decade marked an epochal shift in the balance of economic power.

Whereas around 40% of production, manufacturing, trade, and investment was located outside the West in 2008, over 60% is today.

For decades after its formation in the 1970s, the Group of Seven (G7) – Canada, France, Germany, Italy, Japan, the United Kingdom, and the US – essentially presided over the entire world economy. But by 2008, I and others had begun to discern a changing of the guard. Behind the scenes, North American and European leaders were debating whether it was time to create a new premier forum for economic cooperation that would include emerging economies.

These debates were often heated. On one side were those who wanted to keep the group small (one early US proposal envisioned a G7+5); on the other side were those who wanted the group to be as inclusive as possible. To this day, the results of those earlier negotiations are not fully understood.

The current trade conflict between the United States and China is symptomatic of a larger transition in global financial power. On the surface, the Trump administration’s confrontation with China is about trade, with disputes over currency manipulation thrown in for good measure. But from Trump’s speeches, one gathers that the real battle is about something bigger: the future of technological dominance and global economic power.

While Trump at least detects the growing threat to American supremacy, he has ignored the most obvious strategy for responding to it: namely, a united front with US allies and partners around the world. Instead, Trump has asserted a prerogative to act unilaterally, as if America still rules over a unipolar world. As a result, a trail of geopolitical ruin already lies in his wake. more>

Preparing for the Trump trade wars

By Bill Emmott – Next year, Trump can be expected to turn rhetoric into action on two main fronts. The first is China, which Trump has singled out as the greatest trade exploiter of the US. Unless the North Korea standoff escalates critically, he will likely initiate anti-dumping actions against Chinese industries – notably in steel – deemed to be selling their goods below cost; and he will probably launch a broad assault on intellectual-property violations in China.

These measures will almost certainly provoke retaliation from China. China feels stronger than ever in the Trump era, and in the eyes of Chinese cadres, not responding forcefully would be a sign of weakness.

The other main front for Trump is the World Trade Organization, which America helped establish in the early 1990s as a successor to the post-war General Agreement on Tariffs and Trade. Robert Lighthizer has gone on record to describe the WTO’s dispute-settlement system as harmful to America. And already, the Trump administration is blocking the appointment of new judges to WTO arbitration panels. If it maintains that policy, the WTO’s entire dispute-settlement system will be crippled within months. more>

Obama’s Climate Betrayal

By Elizabeth Kolbert – Some international disputes are significant for symbolic reasons, others for substantive ones. The current conflict between the United States and the European Union over airline-emissions limits is both. Unfortunately this means that the U.S. is doubly on the wrong side. The Obama Administration ought to be applauding the Europeans. Instead it’s threatening a trade war.

The conflict over the limits, which are scheduled to take effect on New Year’s Day, has been brewing for nearly fifteen years. In highly condensed form, it runs as follows..

Now, by trying to block others’ attempts to tackle the problem, the U.S. is behaving in a manner that seems best described as unforgivable. more> http://is.gd/5X3FcP