The G20 summit in Osaka, Japan, in late June this year saw China and the United States announce an international breakthrough in the trade war between the two sides, with the US president claiming that negotiations are "back on track". Two tariffs on Chinese goods and deregulation have prevented US companies from buying from Huawei, China's outlawed telecommunications giant. Markets have rebounded and media reports hailed the move as a "ceasefire" agreement.
But the supposed cease-fire is an illusion, among the many other illusions known as the Beijing-Washington diplomacy. The war is the most intense, and the guns never stop firing. In September, after a summer of heated rhetoric, the Trump administration increased tariffs on Chinese imports by $ 125 billion, prompting China to respond by imposing tariffs on US imports worth $ 75 billion.
The United States may be preparing to impose more tariffs in December, bringing the total value of Chinese goods subject to punitive tariffs to nearly half a trillion US dollars, comparable to the value of half of Chinese imports to the United States, while supposed to equal Retaliatory tariffs imposed by China account for 69% of the value of total imports from the United States.
If all these fines come into effect, the average US tariff on Chinese imports will be 24 percent, up 3 percent from the figure two years ago. China's average tariff on imports from the United States will be 26 percent, compared with an average of 6.7 percent imposed by China on other countries.
The parties to this trade war may move away from the abyss. Numerous high-level negotiations have been held without any real prospect of compromise, with Trump believing that tariffs would bring China to its knees and change alleged US unfair trade practices. China may be intent on changing its stance on issues such as buying more US goods, opening its markets to more US companies, and improving the protection of intellectual property laws [1] in exchange for removing some of the recently imposed tariffs, but not to the extent it has demanded. Using Trump management. Meanwhile, China hopes that its reprisals will inflict more economic pain on the United States to force Washington to reassess its position.
The figures indicate that the United States is not the winner of the trade war. Although China's economic growth has slowed, tariffs have hit US consumers more than their Chinese counterparts. As fears of a new economic recession mount, Trump must be mindful of the fact that the current approach puts the US economy at risk, poses threats to the international trading system, and fails to reduce Trump's disgusting deficit.
Trump may retreat from his policy of self-destruction with China, but the Sino-US rivalry will continue beyond his presidency.Many media coverage tries to portray it as a clash between two personalities, Trump's temperament in the face of the intransigence of President Qi Jinping and the Communist Party of China. But the dispute is structural. The current prices imposed by the trade war reflect the structural realities underlying the relationship between China's economy and that of the United States. It is worth tracking this dynamic as the two superpowers try to find another choppy balance for years to come.
Think of lobsters
The trade war did not produce the desired results for the United States, as Washington increased tariffs on imports from China in 2018. But in the same year, Chinese exports to the United States increased by 34 billion US dollars, or 7% from last year. US exports to China fell by $ 10 billion, or 8%.
In the first eight months of this year, Chinese exports to the US fell by just under 4 percent from the same period last year, while US exports to China continued to contract by 24 percent. Rather than narrowing the trade gap, tariffs have been accompanied by a 12 percent increase in the US trade deficit with China in 2018 (up to $ 420 billion) and an additional 8 percent in the first eight months of this year.
There are at least two reasons why Chinese exports to the United States have not declined as much as the Trump administration dictated. The first is that there is no acceptable alternative to many products the United States imports from China, such as iPhones and drones intended for personal use, forcing customers. Americans are testing those tariffs in the form of price increases. The second reason is that, despite recent news, many American goods manufactured in China will not leave China until soon, as many companies rely on supply chains that only exist in China. (In 2012, Apple tried to move its Mac Pro from China to Texas, but the difficulty of supplying the small pieces that assemble the device as a single piece prevented the manufacturing process from being completed.)
The losses suffered by the economy at the import level are more pronounced in the case of the United States than in the case of China
Export-oriented manufacturers want to leave China, but not to the United States. According to a survey conducted by the American Chamber of Commerce in Shanghai in May, less than 6% of US businesses plan to leave China and return to the United States, while 60% of US companies said they would prefer to stay in China.
The import-related economic losses are more pronounced in the United States than in China, as economists at the Federal Reserve Bank of New York and elsewhere found that tariffs in 2018 did not push Chinese exporters to cut prices. The biggest blow. Since tariffs lead to higher import prices from China, the US consumer will choose to buy alternatives (if available) from other countries, which may be more expensive than Chinese imports before tariff increases, but are cheaper than some commodities after tariff increases. The price difference between Chinese imports before tariff hikes and alternatives to other Third World countries constitutes what economists call the "excessive burden" [2] on the economy or "heavy loss".
Economists believe that this excessive burden, which comes from current tariffs on $ 200 billion of Chinese imports, will reach $ 620 per household, or $ 80 billion a year, representing 0.4 percent of GDP. If the United States continues to increase these tariffs as planned, this loss will more than double.
China imposed 25 percent tariffs on its imports of American lobsters in July 2018, causing a 70 percent drop in US lobster exports
Meanwhile, Chinese consumers are not paying more for US imports. According to a study by the Peterson Institute for International Economics, China has raised its tariff rate since the beginning of 2018, with average tariffs on U.S. imports rising from 8.0 percent to 21.8 percent, along with a reduction in average tariffs on other trading partners from 8.0 percent to 6.7 percent. China has imposed tariffs only on US goods that can be substituted by imports of other countries at similar prices, and has even slashed tariffs on US products that cannot be purchased elsewhere by much more, such as semiconductors and medicines. Thus, the price of Chinese imports of the same products has generally declined, despite the rise in the value of US import tariffs.
Perhaps the best example of China's smart calculations is in the case of lobsters, as China imposed 25 percent tariffs on its imports of American lobsters in July 2018, causing a 70 percent drop in US lobster exports. At the same time, China has slashed tariffs on Canadian lobsters by 3 percent, so that Chinese consumers are paying a lower price for lobsters, which come essentially from the water itself.
Inevitable disability
China has demonstrated greater efficiency than Washington in minimizing damage to consumers and the economy, but all trade war would have favored Washington if its confrontation with China had achieved Trump's goals. The US president believes China is "stealing" the United States, and wants to reduce the overall US trade deficit by changing China's trade practices. But the collection of Chinese import tariffs has had a different effect, reflected in the US general trade deficit, which, according to the US Bureau of Statistics, rose by $ 28 billion in the first seven months of this year compared to the same period last year.
The truth Trump does not want to believe is that the US trade deficit stems not from the trading practices of its trading partners, but from the spending practices of the United States itself, where the United States suffers from a trade deficit that runs through 1975, generally and with most of its trading partners. . Over the past 20 years, US domestic spending has always exceeded its gross domestic product, resulting in negative net exports, or what we call a trade deficit. This deficit has changed over time but has been fluctuating between 3% and 6% of GDP. Trump wants to raise exports to reduce the deficit, but trade wars inevitably call for reprisals that lead to lower exports.
Moreover, increasing the level of exports does not necessarily reduce the trade deficit unless accompanied by a reduction in spending on consumption and investment within the country. The best way to reduce the trade deficit is to grow the economy faster than parallel domestic spending, and that is only by encouraging innovation and raising productivity, but the trade war does the opposite: it hurts the economy, stunts growth, and stunts innovation.
Even China's total surrender in the trade war will not lead to a turn in the overall US trade deficit. But if China buys more from the US, it will buy less than other countries that will sell this difference to either the US or its competitors. For example, let's look at the American company Boeing and its European rival Airbus; for now, both companies are operating at maximum, if China buys 1,000 more aircraft from Boeing, and 1,000 less than Airbus, the European aircraft manufacturer will be bound. By selling these 1,000 aircraft, either to the United States or to other countries that might buy them instead of Boeing, China is aware of this, which is one reason why it does not impose tariffs on US-made air vehicles, whatever the outcome of this war, the deficit will not change. Significantly.
An adaptable China
The trade war has not hurt China so far, partly because Beijing was able to prevent import prices from rising because its exports to the United States were less affected than expected. This pattern will change as US importers are reluctant to buy from China and go to other third world countries in order to avoid tariff payments, but assuming that China's GDP will continue to grow up to 5% to 6% each year, the effects of this move away from the Chinese market will be Modest.
Some observers question the accuracy of Chinese figures on economic growth, but independent and multilateral research agencies have set China's GDP at between 5% and 6% per year. Skeptics overlook the larger picture that the Chinese economy is slowing down as it moves to a consumption-based model. . Some manufacturers will leave China if high tariffs remain permanent, but the importance of such developments should not be overestimated.
Apart from the concern caused by Trump's tariffs, China is gradually moving away from export-led economic growth.Exports to the United States as a proportion of China's GDP have steadily declined from a peak of 11% in 2005 to less than 4% by 2018. China's total exports amounted to 32 percent of China's GDP in 2006, halving the figure to 18 percent by 2018, well below the 29 percent average of the OECD industrialized countries.
China's leaders have long sought to steer the country's economy from an export-oriented economy to a consumption-based model. Certainly, the trade war inflicted heavy psychological losses on the Chinese economy, as the Chinese market panicked when tariffs were first announced in 2018, especially as economic growth slowed due to tightening of credit. The stock market suffered a blow, down 25%, and the government then tried to find a quick exit from the trade war.
China has not experienced economic recession in the past 40 years and will not go through one in the foreseeable future, because its economy is still in the early stages of development.
But as the dust cleared, the extent of the actual damage became apparent. Confidence in the market was renewed and stock indexes rose by 23% on the Shanghai Stock Exchange and 35% on the Shenzhen Stock Exchange by September 12, 2019. The Chinese economy's resilience to the trade war may help. In explaining why China sticks to its negotiating position despite Trump's escalation.
China has not experienced an economic recession in the past 40 years and will not go through one in the foreseeable future, because its economy is still in the early stages of development, with GDP per capita in China still one sixth of that of the United States of America. Because of the decline in savings and rising wages, the engine of China's economy is shifting from investment and export to private consumption.
As a result, the pace of economic growth in the country is expected to slow, as the IMF expects China's actual GDP growth to decline from 6.6 percent in 2018 to 5.5 percent in 2024, while other estimates suggest the figure has fallen to even lower levels. But despite the possibility of a decline in China's growth rates, the contraction of the Chinese economy is still unlikely in the foreseeable future. Private consumption, which was rising from 35 percent of GDP in 2010 to 39 percent last year, is expected to continue to drive China's economic growth, especially at the moment. China is expanding social safety net and welfare allocations, freeing private savings for consumption.
While the US economy enjoyed the longest expansion in history, the cycle of decline and deflation is on the horizon this period, where GDP growth fell by 2% in the second quarter of this year, compared to a decline of 3.1 in the first quarter. The trade war would lead to a decline of at least half a percentage point of US GDP, slowing enough growth to bring the country into recession, which could prompt Trump to stop the war.
China and the United States are highly interdependent, each representing the largest trading partner, and any attempt to separate them economically will have catastrophic consequences for both.
So this is one sensible way to end the trade war. Its fallout has not yet knocked on the doors of Americans, but a turning point will occur when the economy begins to suffer losses. If the trade war continues, it will jeopardize the entire international trading system, which depends on the global division of labor, according to each country's competitive advantage. Once this system is no longer trustworthy, that is, when it is disrupted, for example, by boycotting and the hostile measures of trade wars, the two countries will separate from each other.
China and the United States are closely interconnected economically, with each other representing the largest trading partner, and any attempt to separate them economically will have catastrophic consequences for both and the world as prices rise for the consumer, global economic growth slows, supply chains disrupt, and the difficulty will increase. On a global scale, the digital divide, in technology, in the Internet, and in telecommunications, will hinder creativity on a large scale to limit the prospects and aspirations of technology companies.
Bright sides
Trump's trade war does not appear to be aimed at reducing the trade deficit, but his administration sees tariffs as a way to slow China's economic rise. At the center of this exercise is the perception that the Chinese regime's association with economic activities poses a unique threat to the United States. Robert Lighthizer, the US trade representative, insists that the goal of tariffs is to get China to review its way of doing business. The paradox is that the Chinese private sector has been particularly hurt by the trade war, accounting for 90% of Chinese exports (43% of which are foreign-owned companies).
Continued trade war will weaken the private sector, which could prompt China to commit to buying larger quantities of US goods as part of the settlement. But this will be through the government, not the private sector. The United States should realize that securing such a commitment will simply prompt the Chinese government to maintain a strong presence in economic affairs. The Trump administration's trade policy threatens to weaken its stated objectives, and U.S. officials should reconsider their analysis of the Chinese economy.The belief that a unique "economic model" of economic development imposes an alternative and threat to liberal economic systems is a madness that lacks any historical contexts or introductions.
China can only maintain its economic momentum by implementing structural reforms in its economy so that it moves into a more liberal and open direction of the market.
China has achieved rapid growth over the past 40 years by moving away from the old system of state control of the market. Today, the market plays an enormous role in resource allocation, and the private sector accounts for more than two-thirds of the economy. But the sector controlled by the government is very large, inefficient, wasteful and dying, it is more lethal than an advantage for the economy. It is also a growing source of divergence between China and the West, which fears, for compelling reasons, that the Chinese government will unlawfully subsidize and support state-owned enterprises. These measures need to change, and this applies to China and its partners alike.
China can maintain its economic momentum only by carrying out structural reforms in its economy to move to a more liberal and open direction of the market.It should ensure equal access to trade and investment in its markets, and develop a better system for intellectual property protection. These measures will accelerate the reforms initiated by China 40 years ago, which have led to the rise of a vibrant private sector in China and the integration of the Chinese economy into the global market.
Accelerating the process will not be without side effects, and it will meet the resistance of the country's private stakeholders. But the changes will benefit both China and its trading partners, including the United States. Beijing and the United States should share these goals in trade negotiations, and if both sides succeed, both will win the war.
It is in the interest of both sides to move from zero-minded thinking and to draw a phased end to the rift of the trade war. The best solution is not to bring the barriers closer, but to tear them apart and further liberalize trade. To maintain its global dominance and leadership in the technological arena, the US needs China, the world's fastest growing consumer-based economy. To maintain the momentum of its economic rise, China needs to implement further reforms and continue opening up to the global market. Ultimately, a combination of cooperation and competition within a rule-based system will bring the greatest potential for both countries and the global economy as a whole, as all trading nations have learned throughout history.
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Footnotes
[1] China is accused of massive thefts on intellectual property issues, such as patents, trademarks and many creative productions.
[2] In an economy, a heavy loss (also known as overload or inefficient allocation) is the loss of economic efficiency that can occur when a balance of a good or service is not achieved or is not achievable.
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Translation: Farah Essam.
This article is translated from Foreign Affairs and does not necessarily reflect the Medan website.