Lose-lose game of world economy: U.S.-China trade dispute
Editor's note: Alessandro Golombiewski Teixeira is a National Thousand Talent Distinguished Professor of Public Policy at the School of Public Policy and Management, Tsinghua University, and a professor of International Business at Schwarzman College in Tsinghua. He is a former Special Economic Advisor of the President of Brazil and former minister of Tourism, and minister of Development, Industry, and Foreign Trade of Brazil. He was alsopresident of the World Investment Association – WAIPA. The article reflects the author's views, and not necessarily those of APD.
Many politicians, scholars and businessmen understand that sometimes domestic affairs will intervene in a state's foreign policy. Although we tend to argue that many dangerous issues could arise from these situations, especially with economic globalization, perils arise more frequently than we would imagine.
After many years of fast economic growth, serious trade tensions have emerged between the United States and China with the potential for disastrous outcomes, as the two are major players in global trade and investment.
It is easy to understand the reasons behind this economic battle. During his election campaign, Donald Trump repeatedly asserted that if elected, he would impose up to a 45-percent tariff on Chinese imports. His policy sought to force China to reduce its trade surplus with the United States (in 2018, China exported 539.5 billion U.S. dollars but only imported 120.3 billion U.S. dollars with a surplus of 419.1 billion U.S. dollars) to show that he would be a skillful negotiator and a promising president who would put America's interests first.
In 2018, Mr. Trump imposed tariffs on a wide array of Chinese goods, after which the Chinese government responded in kind by slapping tariffs on the U.S. imports as well.
Although some American political analysts would argue that this was the right move for domestic politics, it represents a poor policy for economic growth, hurting not just the U.S. economy, especially the agriculture sector, but also the world's.
Members of a U.S. delegation for trade talks with China arrive at a hotel in Beijing, China, May 3, 2018. /VCG Photo
The result of this political maneuver has cost the United States an annual loss of over two billion U.S. dollars in export revenue. For example, the tariff war has reduced the exports of the U.S. soybean and many other crops to China. This situation led U.S. farmers among others to put pressure on Mr. Trump to open negotiations with China and resume soybean exports and to re-establish the other agriculture markets affected by the trade standoff.
Ironically, the trade impasse had a major, and in some cases positive, impact on some other countries. For instance, China purchased a third more soybeans from Brazil in 2018 than the previous year.
Unfortunately for Mr. Trump, we no longer live in the 1980s or 1990s when China was a dependent developing economy that lacked Western investment and manufacturing technology.
Through sound industrial and innovation policies, China has become a productive powerhouse and not just in low- and medium-technology intensity products; currently, China is leading the 4th Industrial Revolution in many hi-tech industries such as sensors, robotics, artificial intelligence, big data applications and satellite communications.
It is clear that if we analyse the structure of American international trade that America needs China more than China needs America.
A recent report by the U.S. Chamber of Commerce notes that Mr. Trump's tariffs on 250 billionU.S. dollars worth of Chinese goods was eroding the competitiveness of America's information technology sector – including companies that manufacture computers, electronics and telecom equipment, as well as those that provide services like cloud computing, computer-aided design and customer relations. The effects are already felt by companies such as Walmart, Nike, HP, IBM and Apple.
Robert Lighthizer, U.S. trade representative (C), leaves a hotel in Beijing, China, February 14, 2019. /VCG Photo
Mr. Trump is now getting closer to his re-election date and entering uncharted territory. He has already demonstrated his ignorance of the world trade economy as his policies are not only hurting his domestic economy but also the international economy.
The UN Conference on Trade and Development's (UNCTAD) annual report shows that Mr. Trump's trade war is directly responsible for losses of 5 percent in world private investment and 2.5 percent in world consumption. If this trade dispute persists, the forecast for the world's trade growth originally estimated at 3.8 percent would likely be reduced to 3 percent by 2023.
Also, another important point is that Mr. Trump's tariffs might trigger penalties against the United States in the World Trade Organization (WTO), and could even lead to the WTO crumbling due to the fact that its two largest trading members are locked in a tariff war.
The importance of the U.S.-China relationship is much broader than a strategic, bilateral economic relationship. This dispute is already impacting the world aggregate demand, which amplifies the world's economic problems.
Regarding current economic situations of different regions and countries, any weakening of aggregate demand in rich countries, driven by a tariff battle, combined with wage compression, fiscal austerity, macroeconomic instability and factors related to lack of investment, will lead to another global crisis, or at least, to a strong deterioration of macroeconomic conditions, with governments and central banks having less space to intervene than in previous crises.
Clearly this is no longer a win-lose or win-win game: It is now lose-lose. However, two main questions remain unanswered: How much will domestic politics influence the world economy? And how much will we have to lose for just one more term of Mr. Trump in power?
(CGTN)
