Trade
Trump might lose the US–China trade war
Author: Yan Liang, Willamette University
The US–China trade war originated from US President Donald Trump’s ‘America First’ agenda. It is the centrepiece of his administration’s challenge to multilateralism and reflects the country’s failure in global leadership. Alas, Trump’s trade war is destined to fail.
The trade war is based on an overestimation of the damages it will inflict on China. China’s economy is no longer heavily dependent on trade, as it was just 10 years ago. In 2008, China’s net trade surplus accounted for 8.3 per cent of GDP. By 2018, that figure was only about 1.3 per cent.
China’s household consumption share of GDP has grown rapidly, though it is still quite low at around 40 per cent (compared to 68 per cent in the United States). The average growth rate of private consumption was 8 per cent between 2000 and 2018, compared to just 2.2 per cent for the United States.
Since 2015, consumption has contributed to over 60 per cent of China’s GDP growth, while net exports have contributed to less than 10 per cent. Given China’s demographic changes, urbanisation and the growth of the digital economy, it is likely that, as Martin Wolf argues, ‘over the next decade a mass consumer society will emerge in China’.
Declining exports to the United States will at most shed half a percentage point of growth from China’s GDP. More importantly, the Chinese government has enough policy space to bolster domestic demand and offset the negative impacts of trade, given its relatively low debt-to-GDP ratio of 50 per cent.
The Trump administration also overestimates the impacts of the trade war on foreign investment in China. Despite outcries over companies moving away from China, such claims are simply not borne out in data. In a US–China Business Council survey, 97 per cent of US businesses in China stated that they are profitable. 87 per cent had not relocated or had no plan to relocate their activities. Some companies which moved from China to countries like Vietnam soon found themselves facing skilled labour shortages or limited infrastructure and had to move back to China.
Export-oriented investors may consider leaving China due to heightened export costs as a result of the US tariff hike. But market-oriented investors produce and sell in China to avoid tariffs. Around 35 per cent of US companies are adopting the ‘in China, for China’ strategy, including Tesla and Microsoft. There is simply no evidence that companies are leaving China in droves.
Meanwhile the Trump administration’s departure from multilateral globalism has involved attacking several trading partners. It has distanced itself from strategic allies, even calling Germany and Canada national threats for sending their steel to the United States. The United States also backed out from the Trans-Pacific Partnership, giving China more room to ally with important trading partners. Even though China’s exports to the United States dropped by 8 per cent in the first half of 2019, its overall exports inched up by 0.1 per cent.
The trade war even undermines Trump’s own economic and political bases of domestic support as tariffs on imports are a tax paid by US importers and consumers. It is estimated that Trump’s tariffs on Chinese imports will cost US households on average US$1000 annually.
One may argue that jobs will be saved or created if the tariffs reduce imports and lure US companies back home. Unfortunately, this is still wishful thinking. The United States has transitioned out of a manufacturing economy since the 1980s. Between 1980 and 2000 the manufacturing sector shed 2 million jobs, while from 2000 to 2016 it lost another 5 million jobs. The US economy has transitioned into a service-based economy and it is this structural transformation that accounts for the great majority of manufacturing job losses.
While tariffs imposed on Chinese imports may cause US companies to shift some production locations away from China, they are not returning to the United States but moving to Vietnam, Cambodia and other low-cost countries. Moreover, US companies rely heavily on Chinese suppliers for their global supply chain. The added tariff costs will force them either to relocate the global supply chain — a costly move — or cut back on investment and expansion. By some estimates, Trump’s tariffs would shed half a percentage point from US growth.
By Trump’s calculations, taking on China is a politically gainful act. But as the ‘easy and quick to win’ trade war drags on, more doubts have been raised about…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
- China’s November 2024 Economy: Navigating Mixed Signals and Ongoing Challenges
- Ukraine war: 10% of Chinese people are willing to boycott Russian goods over invasion – new study
- Australia Can Enhance China’s Credibility in the CPTPP
- Gordonstoun Severs Connections with Business Led by Individual Accused of Espionage for China
- China Dismantles Prominent Uyghur Business Landmark in Xinjiang – Shia Waves
- China Expands Nationwide Private Pension Scheme After Two-Year Pilot Program
