TAIPEI (Taiwan News) – Only several days after the most recent round of sanctions went into effect, many are already speculating on the best approach to ending the trade conflict of increasing tariffs between the U.S. and China.
A Japanese report published by the Nikkei Shimbun suggests that the quickest and most painless way to settle the trade conflict on good terms is for China cut its losses early, and express a willingness to lower duties on U.S. imports. China should make good faith efforts to balance the trade deficit with its largest trading partner.
However, the report’s analysis suggests that while such a move on China’s part would be best for the national economies, consumers, and work forces of both nations, it is very unlikely Beijing will choose the sensible option, because doing so would result in a tremendous loss of face for Xi Jinping, and by extension the Chinese government.
According to a July 9 AP report, after only a weekend Chinese exporters are already “scrambling” to cope with U.S. tariffs. The Trump administration is using the tariffs as a means to coerce China into reducing its own tariffs on U.S. imports, which have been a key component of China’s economic policy since it opened its economy to foreign trade decades ago.
The Nikkei report notes that current tariffs ordered on both sides only target roughly 10 percent of reciprocal total trade between both countries, so even though the trade war is underway, the current situation is not nearly as damaging as the conflict may yet become.
Many commentators have noted that in the event of a protracted trade conflict, the U.S. has the lion’s share of advantages.
Currently Trump has only instituted the tariffs on steel, aluminum, and most recently the 25 percent tariffs on 35 billion worth of Chinese products. However Washington is threatening, and may follow through on ordering 25 percent tariffs or higher, on up to 500 billion worth of Chinese products, likely to be implemented in successively larger amounts each round.
Unless China is able to negotiate new trade deals with other trade partners very quickly, which would likely necessitate drastic reductions on import duties anyways, and preferential treatment for large economies that could actually absorb the glut of Chinese products being tariffed by the U.S., then a sustained drought of trade with the U.S. could spell doom for many Chinese companies.
Further, the result of establishing new trade deals under such haste and duress would possibly end up in a worse deal for China, or at best, approximate the same losses as a “quick surrender” to the initial U.S. demands being made.
The Nikkei report emphasizes the “quick surrender” really is the best option to protect many of China’s domestic industries and the millions of low wage workers who are employed in factories producing U.S. bound goods.
It is also worth considering that the longer the trade conflict continues, the more likely China will be undercut and overlooked by foreign investors who would otherwise be eager to build factories in the country to capitalize on China’s established role as a base for the global supply chain in many industries.
Workers assembling smartphones in Guang'an, Sichuan (Associated Press Image)
Nations like India and Indonesia are likely hedging their bets on just such an outcome.
In light of the data, and the current state of the global economy, analysts suggest that it is in China’s interests to make concessions to the U.S. sooner rather than later.
Otherwise, China’s risks compromising the future of its entire Belt and Road Initiative and at worst, a serious economic downturn that could result in social upheaval.
Some Chinese media outlets have characterized the trade conflict as an effort by the U.S. to “contain China’s growth.” From some political vantages, a trade war could indeed be leveraged to do just that, but it is hyperbolic to insist such is the primary aim of the Trump administration.
A simple review of trade data over the past 30 years is evidence enough of an extremely clear trade imbalance, and the massive deficit which the Trump administration is attempting to redress.
The situation over the past few decades has served to benefit China’s development tremendously, while also negatively impacting U.S. manufacturing, with a positive result being the greater availability of very affordable Chinese products for U.S. consumers. This has allowed Chinese industries to grow at remarkable speeds, thanks in part to the absence of affordable foreign competitors’ products available to Chinese consumers.
As the Nikkei report notes, China has used this unbalanced trade relationship to its advantage for a long time, and now Beijing must recognize that it has become overly reliant on an open and exceedingly permissive U.S. market, while sheltering its own industries with unbalanced and unfair import taxes.
The Trump administration has chosen to rectify this and Beijing has a decision to make.
They can take the easy path of a ”quick surrender” but will lose face and the confidence of many Chinese citizens. Or they can stick it out and risk not only losing the majority of their largest export market, but also risk undermining their global competitiveness and attractiveness as a manufacturing base in the global supply chain.
Chairman Xi speaks at the National People’s Congress in Beijing, March 20, 2018 (Associated Press Image)