US – China Standoff

Review of press coverage about trade war that broke out between China and the United States on Friday

On Friday at midnight, the United States duties on $34 billion of Chinese imports entered into force. In response, China imposed tariffs on American goods.

In two weeks, US tariffs will spread to other Chinese imports worth an additional $16 billion. Earlier, President Donald Trump said that he was ready to expand the list of goods subject to import duties until their total amount reaches $550 billion, the entire value of Chinese imports.

We present a review of opinions on the flaring trade war between China and the United States.

According to Oxford Economics, the tariffs will knock around 0.1 to 0.2 per cent off each country’s growth rate this year. Given the size of the US economy is $19.4 trillion and the Chinese economy is $12 trillion, this adds up to a loss of between $30 billion and $60 billion. It isn’t quite clear whether this figure refers to a combined loss for both China and US or individual losses for each of the two countries on their own.

The assessment coincides with the opinion of the Chinese leadership. Ma Jun, a member of the Chinese Central Bank's monetary policy committee, told China Daily that if the exchange by trade blows remains limited to $50 billion, it will slow growth by 0.2%.

The New York Times points out that the escalation of trade war will ripple through global supply chains, raise costs for businesses and consumers and roil global stock markets, which have been volatile in anticipation of a prolonged trade fight between the United States and almost everyone else.

The problem, the newspaper points out, is that it is unclear how, or whether, the trade war might conclude. Someone will have to blink first in order to avoid a protracted fight. If this happens, the Bank of England believes, the US would be the biggest loser, with a 5 per cent hit to growth.

Although the Trump administration is waging trade wars on multiple fronts, including traditional allies, it’s the standoff with China that can disrupt world economy the most and hurt American companies, writes New York Times.

The introduction of tariffs on Chinese components makes American manufacturers less competitive as compared to those countries that do not impose tariffs on Chinese goods.

According to studies conducted by the Peterson Institute for International Economics, tariffs imposed by Trump will first of all hit America itself. The researchers point out that duties have damaged international supply chains of components, which makes US technology companies less competitive. Although President Trump's concern for the way China treats American intellectual property is completely justified, imposing tariffs is not the right way for solving this problem.

Similar considerations are expressed by the Federal Reserve Bank of San Francisco that points out that only 2.7% of China's imports are consumer goods. All the rest are components for American manufacturing companies.

Several media publications indicate that the Achilles' heel of American business is the sale of consumer goods and the main threat comes not from the Chinese Government but from the boycott of American goods by Chinese consumers.

In the past, such boycotts proved extremely painful for those against whom they were declared.

For instance, writes Bloomberg, when relations with South Korea deteriorated last year, Yang Bingyang, a former model and social media star, called to boycott Korean products. Hyundai Motor Co.’s market share in China was cut almost in half within a month. Lotte Shopping Co.'s local sales tumbled 84 percent from the March to June quarters of 2017 after local authorities shut stores alleging fire safety violations, and the chain is now pulling out of China altogether.

According to the Russian business portal, the trade war between China and the United States can play into Russia's hands. The confrontation/disagreements between the US and China, might boost Russian exports of food, primarily soybeans and other agricultural products, to China.

Published: July 7, 2018