November 13, 2016

US China Trade Wars in the near term and long term

President elect Trump claimed during his campaign that he would designate China as a "currency manipulator," imposing a 45 percent tariff on imported Chinese goods. He has also urged opposition to TPP and globalization.

Experts at a seminar held by the Center of China and Globalization think opportunities can be found to improve the China-U.S. relationship.

An Gang, a senior editor and journalist at World Affairs, holds the view that Trump's promises to cut taxes for enterprises and return manufacturing jobs to the U.S. are likely to pose the most major obstacles for China-U.S. cooperation under his leadership. However, Trump also said he would improve the infrastructure of the U.S., and Chinese companies may have a chance to participate in this effort in the future, according to An.

Zhou Xiaojing, former director of the Asia-Africa Development Research Institute under the Development Research Center of China's State Council, also believes that Trump's success may bring more favorable than troubling news for China-U.S. relations. However, China should still make preparations and take measures to handle pressure on the RMB exchange rate and China-U.S. trade.

How a Tariff and Trade conflict could go down

Trump mentioned imposing a tariff of 45 percent on all imports from China. But he later avoided specifics — and he has limited power to do so anyway. The law allows him to impose tariffs of no more than 15 percent, and for as long as 150 days, on all imports, unless a national emergency is declared. Other laws allow him to impose tariffs on targeted goods.

Should Mr. Trump want to signal an aggressive stance quickly, he could move against imports of steel and aluminum from China. The Obama administration has been preparing to file a World Trade Organization case against China over claims that it subsidized aluminum exports. And the United States, Japan and the European Union already complain that Chinese government subsidies have produced a bloated domestic steel industry that they say dumps millions of tons of excess goods on world markets each year.

China is more vulnerable given the sheer amount of stuff it sells to America. For more than a decade, China has consistently exported about $4 worth of goods to the United States for each $1 of goods that it imports. Exports to the United States represent about 4 percent of the Chinese economy; American exports to China are only about two-thirds of 1 percent of the United States economy.


“We don’t have many things in the toolbox for retaliation, because we export more than we import,” said Mr. He, the former Chinese commerce ministry official.

Still, China could inflict pain on sensitive areas that provide American jobs, like Boeing’s jetliners.



General Motors and Ford Motor consider China a big contributor to sales. They mostly manufacture in China to supply the domestic market. But much of the design and engineering work is still done in the United States. China could hurt the automakers by adopting domestic policies that help their big European rivals, notably Volkswagen and Mercedes-Benz.

U.S. exports to China were only $116.2 billion while imports from China hit a new record of $481.9 billion


The United States imports consumer electronics, clothing, and machinery from China.

A lot of the imports are from U.S.-based companies that send raw materials to China for low-cost assembly. When they are shipped back to the United States, they are called imports even though they are profiting American-owned companies.

Long Term China is shifting out of low end exports

New China has bigger and bolder goals than cheap products China intends to create its own national champions to compete with, and even supplant, America’s.

The government has backed that plan with ample subsidies and other support for Chinese firms that are developing new technologies and products, from electric cars to semiconductors. A national industrial strategy called “Made in China 2025” is designed to promote the manufacturing of high-tech ships, medical devices, robotics and other advanced equipment. Local governments dole out cash and other goodies to budding entrepreneurs.

Foreigners need not apply. International companies attest that the Chinese government has become less welcoming and the business environment more hostile. They run up against mysterious regulatory investigations, go-slow bureaucratic practices and old-fashioned investment barriers that hamper their businesses. Trump’s policies would give China cover to reinforce this approach.

Trump’s anti-trade sentiments will also permit China to expand its economic and political influence in Asia at the expense of the U.S.

China to push its own proposed Asia-wide trade pact in its place. As Mark Williams, chief Asia economist at research firm Capital Economics put it in a Nov. 9 report: “If the U.S. is less engaged in Asia, Beijing will have an opportunity to shape regional political and economic integration on its own terms.”

SOURCES - Bloomberg, NY Times

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