Protectionism will hit US companies hardest
Editor’s Note:
As the US and China are the two largest economies in the world, tension in the bilateral trade relations between the two countries has drawn a lot of attention. By announcing plans to impose tariffs on up to $60 billion-worth of more than one hundred categories of Chinese products on Thursday following the steel and aluminum tariff decision, US President Donald Trump has pushed the two countries to the brink of a trade war.
What impact will US protectionist policies have on both countries and the international trade system? What countermeasures will China take? The Global Times sought enlightening insights from speakers at the annual China Development Forum and a leading economist.
Wang Shouwen, Chinese vice commerce minister and deputy China international trade representative, at the China Development Forum 2018
Sino-US trade relations are mutually beneficial. From the establishment of diplomatic relations up until now, bilateral trade has increased more than 230 times. The trade relationship has played a significant part in propping up the US job market, lowering US inflation, and helping the US explore overseas markets. Certainly China has also benefited from it.
Quite obviously, some frictions are an inevitable part of a complicated trade relationship. But the important point is how these frictions are dealt with. Both China and the US are responsible countries and World Trade Organization (WTO) members.
If there are frictions and contradictions, the two sides can cope with them under the WTO framework.
Among the recent trade disputes are the US Section 232 national security investigations into Chinese steel and aluminum imports, which China considers to be a violation of WTO rules, and not in accordance with either US or Chinese interests.
US imports of Chinese steel products account for less than 3 percent of its entire steel imports. How could such a low percentage of steel imports pose a threat to US national security? If the Section 232 investigations are based on national security, then why did the US grant exemptions for some countries?
We therefore reckon the Section 232 investigations violated WTO rules. China’s benefits have been eroded and we need to safeguard our interests on the basis of WTO rules. We don’t want a trade war with the US – we don’t want a trade war with any country. But if China’s interests are damaged, we will have to take the necessary measures in response.
We hope it will be possible for the two countries to sit down and talk, and to resolve the disputes. There are no winners in a trade war.
Pascal Lamy, former director-general of the WTO, at the China Development Forum 2018
Compared with other developing countries, China’s growth in the international trade system has been so rapid that it can’t be considered in the same terms as India, Senegal or Botswana. That doesn’t mean the US is right to say China should have the same trade system as the US. That would be unfair. China is still not a developed country.
If the US is seeking higher tariffs on Chinese products to get China to negotiate, which is possible, China still has ample room for negotiations.
The WTO also has ample room to improve its rules. The US surely has a view about how to improve WTO rules; so do China, India and Australia. There’s ample room for improvement as regards WTO rules or multilateral trade system rules.
If the US measures are not aimed at improving WTO rules or multilateral rules but instead would lead to the collapse of multilateral organizations, then different preparations are needed.
Simon Baptist, global chief economist and managing director of The Economist Intelligence Unit Asia, in a recent research note
The latest tariffs do seem to be more thoughtfully calibrated than the steel and aluminum ones. Important US allies are not accidentally affected: the sectors are actually of strategic importance to the US, and technology is an area that really matters to China, so they may seem punitive.
The US has been one of the top destinations for Chinese overseas direct investment (ODI) over the last five years, despite the policy and media focus on the Belt and Road initiative. So the coming restrictions on investment could be the most painful part for China.
In the technology field, the US can hurt China more than the other way around. Nonetheless, China is going to be a giant in the technologies of the fourth industrial revolution such as AI, robotics and automation. The US moves could slow that, but they won’t stop it.
China will respond in kind. And this will also keep Japan and the EU more neutral in any escalation. The initial list of products proposed by China should be seen as a minimum opening retaliation, showing that China will prefer to keep any trade war contained and within the WTO parameters, but it has clearly left the door open to expand these if US actions escalate.
China will start taking regulatory action against US firms in China as a preferred strategy, thus keeping the moral high ground on trade but still having an impact.
Excluding consumer goods such as iPhones from the tariffs won’t protect US consumers from price increases. China is so integral to global supply chains for many products that a good portion – but not all – of the tariff impact will be passed onto US consumers. US firms will be the bigger losers.
Automation is likely to be the best tool available: The combination of tax cuts and a reduction in workers needed for manufacturing will ultimately mean that it makes more sense to produce goods nearer to the source of demand, and for a lot of firms that will mean in the US.
Trump’s policies of increasing government spending will, in the short run, likely mean more imports from China.