Issue of the week: the deepening trade war
Investors have hitherto shrugged off the sabre-rattling – perhaps that was short-sighted
Here we go again, said Dominic Rushe in The Guardian: the Us/china trade dispute is back on. Markets globally were “roiled” this week when President Trump announced plans to slap a further $200bn’s worth of tariffs on Chinese goods, days after signalling a $50bn package of levies. A senior Trump official accused China of “theft”; Beijing accused the US of “blackmail”. The escalating tensions jolted investors for the first time in months, as fears of an all-out trade war took hold. While currencies gyrated and commodity prices tumbled, a sharp sell-off in Chinese shares rippled across the world. The Dow Jones blue-chip index saw “its gains for this year wiped out” as investors headed for safe havens, said The Daily Telegraph. As Karen Ward of Jpmorgan put it: “We have no compass. This is not about the economics, this is about short-term political ambition.”
Trump “seems convinced that Beijing will blink first”, said Patrick Hosking in The Times. And on one level, the sums suggest he has the better hand: the US imports $505bn of goods annually from China, almost four times the value of goods that China imports from America – giving Trump “more scope to disrupt Chinese exporters than vice versa”: if he keeps expanding the list of tariffs, “he wins”. But there are flaws in this argument. First, while US jobs may be protected in the short run, US consumers will be worse off. Secondly, if Trump goes ahead, “the pain could fall disproportionately on some of his strongest supporters”. Besides, deep-pocketed China very likely “has more patience to sit out a protracted trade war than the US” – and “the advantage of a one-party system, with none of the electoral complications that could backfire on Trump”.
America’s beef with China is mostly about Beijing’s industrial and regulatory policies, which the White House claims “confer unfair advantages on Chinese companies” and “represent forced technology transfer”. Hence the targeting of China’s advanced technology sectors, such as robotics, aerospace and AI, said George Magnus in the FT. As things stand, “China requires foreign businesses to participate in joint ventures in which they have no control”. The involvement of “party representatives” in the management of both state-owned and private companies is also a concern. Trump is right to highlight these abuses. But there are certainly “better ways to pressure China than inconsistent policies based on whim and impulse”. If a fully-fledged trade war is to be avoided, Trump “should stop acting like a day trader” and set an agenda. But that requires “a marked course correction”, which “he seems unwilling to make”.