Why China “holds all the aces” in a full-blown US-China trade war
The Trump administration announced on Friday it will impose a 25 percent tariff on up to $50 billion in Chinese goods in an effort to protect U.S. intellectual property and technology.
China in retaliation said it will introduce taxation measures of the same scale and strength.
The objective is to reduce the size of the U.S.--China trade deficit from an estimated $370 billion to $200 billion by 2020.
The administration says these alleged IP appropriations along with corporate espionage have cost the U.S. economy between $225 to $600 billion a year.
While this may hurt China in the short-term, it has other markets to sell to in Asia and elsewhere.
On Friday the Trump administration announced it will impose a 25 percent tariff on up to $50 billion in Chinese goods in an effort to protect U.S. intellectual property and technology. The decision brought an immediate backlash from Beijing. China in retaliation said it will introduce taxation measures of the same scale and strength. As the world's two superpowers inch closer to a trade war, market experts are asking: Is this a game the United States can win?
I suspect the real answer is twofold: In part, the president wants to be seen as reversing the loss of jobs and intellectual property to China between 2001 and, say, 2010. But since that horse has left the barn, he needs some other animals to round up.
His stated objective is to reduce the size of the U.S–China trade deficit from an estimated $370 billion to $200 billion by 2020.
There are two obvious ways to play this: (1) China could buy more U.S. goods and services, and/or (2) America could buy fewer Chinese goods and services. Both come with drawbacks for the U.S. economy and the American people. It is hard for U.S. companies to ramp up to export more to China when they are operating at full capacity and have close to no unemployment.
But before evaluating the policy prescriptions for this problem, we must first consider the starting point, which is flawed. The current $370 billion deficit estimate does not account for value-added. When looking at the value-added content of Chinese exports, the U.S. deficit with China is actually only half of what it seems. And if we then add back the U.S. surplus in "invisibles" and how much money the United States brings back from investments in China, the U.S.–China deficit shrinks from 2 percent of U.S. GDP to 0.8 percent, a report from Oxford Economics revealed.
In the case of the Apple iPhone, this means that China's exports balance accounts for the full $500 iPhone value, when China adds only approximately $15 to $30 of the value to the phone. Most of the iPhone value accretes to Samsung in Korea ($150) and to Apple — the brand owner and engineer. This highlights how the normal accounting of trade flows is inherently distorted under the current trade-deficit estimates. So maybe the deck has only 25 not 52 cards.
The iPhone example also points to an area of weakness in the president's policy prescription: If the United States introduces tariffs on China's high-tech goods, U.S. companies and consumers could indirectly end up footing part of the bill. This is because the high-tech industries that Trump's tariffs are focused on is where Chinese value-added has the lowest share. If Trump were really interested in impacting the true trade imbalance and not just the misleading headline estimate, he would introduce tariffs on those sectors where China's value-added is highest. This would include sectors like textiles, where 75 percent of value-added is really "made in China."
This brings us back to the president's other objective, which is to gain political credit by addressing historical areas of imbalance in the U.S.–China trade relationship. A key area of focus here is China's appropriation of the intellectual property (IP) of American businesses. This comes from three activities: corporate espionage, cybertheft and technology in exchange for market access.
The latter results from a longstanding Chinese policy that requires any foreign company wishing to do business in China to first form a joint venture with a Chinese firm. A common complaint about these joint ventures is that they open the door for Chinese companies potentially to steal trade secrets and then use that IP to build and grow Chinese industries in everything from cars and phones to medicine.
The U.S. government estimates that these alleged IP appropriations, along with direct corporate espionage, which go back as far as the 1990s, have cost the U.S. economy a lot, somewhere between $225 billion to $600 billion a year. China indeed appears to have been the better poker player.
While these are valid concerns that should be addressed, it's too little too late. The truth is, China no longer needs these joint-venture rules in many industries, with several sectors and companies already competitive with their counterparts in the United States. In fact, in April 2018 China agreed to ease its rules on foreign auto companies operating in China, a clear signal that the quality of Chinese cars, including autonomous and electric vehicles, is rapidly increasing. It also just announced that foreigners would no longer need specific permissions to invest; they would just be prohibited from investing in a "negative list" of industries.
What is China trying to accomplish?
For China a trade war with the United States is likely to be more like the loss of a five-of-spades than the queen-of-hearts. China exports more than $2 trillion of goods a year, only about $400 to $500 billion of which goes to the United States. (On a value-added basis, only two-thirds of that is "made in China".) While the United States is indeed China's biggest trading partner, China has plenty of other markets to sell to, including the increasingly wealthy regions of Southeast Asia and India.
China also has made significant inroads into Latin America and Africa via its funding of major government-sponsored and private infrastructure projects, an investment that could pay significant dividends down the road, since these potential consumers would already be familiar with many Chinese brands.
"China exports more than $2 trillion of goods a year, only about $400 to $500 billion of which goes to the United States."
The early results show this plan is paying off and China is already emerging as a global leader in AI, renewable energy and electric vehicles, among other sectors. This technological advancement is tied to the recent trade talks in that China is increasingly incentivized to protect its own IP rather than trying to steal foreign IP. We are reaching the critical crossover point in China where the return on IP theft is falling toward zero and the return on IP protection may soon rise above zero.
The reality is that many of the Trump administration's articulated demands are things that China is already doing, albeit at a somewhat slower pace. The United States wants China to buy more American goods and services — and so does China. Trump wants to impose stiff tariffs to prevent China from flooding the American market with increasingly less expensive technological products, like smartphones, computers and related accessories, which collectively comprise China's biggest exports to the United States. And China agrees — they want to export higher value-added goods, especially those with a high innovation content. Interests are much more aligned than either country wants to admit.
The Chinese gover*ment believes the problem they are trying to solve is how to be a vibrant economy over the next 20-plus years and to be the global leader in dynamic industries with technology self-sufficiency.
On the other hand, the United States has not acted as if the problem they are trying to solve is how to create a dynamic economy based on innovation that keeps the United States vibrant over the next 20 or 30 years. It looks a bit more like the United States is trying to improve domestic polling numbers before the midterm elections in November 2018.
—By Teresa Barger, co-founder and CEO of emerging markets activist fund Cartica Management
本文作者：特里萨•巴格(Teresa Barger)，新兴市场维权基金Cartica Management的联合创始人兼首席执行官
Saint Paul yesterday
God bless President Trump
In a trade war with the US China cannot win. China buys very little from the US. How can China retaliate? The only thing that China buys in large quantities is T-bills, which they buy to keep the $ high relative to their currency so that their products are cheaper in US $'s. The US makes it easy for the Chinese by running large Federal Deficits that need to be funded with borrowed money. US citizens do not save enough to lend to the US government. Lowering Federal deficits is hard to do politically. Increasing the saving rates of Americans is also hard to do and has negative impact on the economy. Probably the easiest solution is to find an alternative to source low cost products. The obvious alternative is India, which is embarking on an aggressive development program. If push comes to shove in trade China will be the big loser but it will not happen overnight.
Terry booth yesterday
China is an autocracy, not a capitalist democracy. It is a strategic thinker, planning for the long term. It is stealing our manufacturing techniques and technologies that we have developed, costing us trillions of dollars over time. Now, they are beginning to flex their military muscles with some of these thefts. China is expansive and an empire builder. They are insidious, and determined. China is long term, the most dangerous adversary the West has.
Green 21 hours ago
The Chinese ultimate goal is the world conquest. Towards the east, it will acquire the South and the East China Sea, go into the Pacific and defeat the United States in the near future. Towards the west, it will conquer Europe and Africa with one belt one road strategy. We can understand the behavior of China well with this perspective.
For preventing such a dark future, we should contain China now by economic strategies. Financial policy to wreck China's economy must be carried out.
Even if our economic losses with it are very big, it is better than the World War 3.
Trump created many jobs delivering Chinese goods and pizzas.
the US has no workers to fill those jobs. the trade with CHINA does create jobs for the US.
Citizens of all the advanced nations in the world are able to buy anything and everything they need or desire. And many import very little from China. The Chinese want to punish the USA for making them treat US trade fairly. They just reported that they want to defeat us, and they want us to "remember the pain". They are our enemy. We should only trade with nations that are not our enemy. Such as Canada, all of Europe, South Korea, Taiwan, Japan, Australia, etc.
The descending order in percentages of total Chinese exports to other nations throughout the world ----- USA-19% Hong Kong-14% Japan-6% SouthKorea-5% Vietnam-3% India-3% Germany-3% Great Britain-3% Netherlands-3% Russia-2% Malasia-2% Singapore-2% Indonesia-2% United Arab Emiratyes-2% Philipines-2% Australia-2% Mexico-2% Canada-1% Saudi Arabia-1% Iran-1% Turkey-1% Italy-1% France-1% Spain-1% Poland-1% Belgium-1% Bangladesh-1% Brazil-1% The rest are all less than 1/2%
中国对其他国家和地区出口总额的比例，按降序排列——美国- 19%，香港-16% ，日本-6%，韩国-5%，越南--3%， 印度-3% ，德国-3% ，英国-3%， 荷兰-3% Russia-2% 马来西亚-2%， 新加坡-2%， 印尼-2%， 阿联酋-2% ，菲律宾-2%， 澳大利亚-2%，墨西哥-2%，加拿大-1% ，沙特阿拉伯-1%，伊朗-1%， 土耳其-1%， 意大利-1%， 法国-1%， 西班牙-1% ，波兰-1%， 比利时-1% ，孟加拉国1% ，巴西-1% ，其余所有国家占比不足 1/2%
Robert Hughes 18 hours ago
So we as Americans have let our trade imbalance get so bad that now other countries have economic power over us on the international market? And people are okay with that and want Trump to do nothing?
Unfair trade balances against America are bad for American jobs in certain sectors . Obviously steel and aluminum . It is unfair to the American workers in these two sectors of our economy . President Trump is trying to strike some kind of a balance not to cripple American steel and Aluminum . Don't like it ? Tough , elections have consequences ..
I don't mind paying more. I want American made products. I have order many thing thru PCH and most of it defective. I will stop buying anything thru PCH, because all items are made in China.
Oh wait I get it....the little plastic do-dads the Chinese sell in Claire's and Dollar Stores will be hungrily snapped up by Vietnamese people hungry for Christmas ornaments inspired by "Frozen" characters.....Oh snap....the Chinese really do hold all the cards. Better to cave now, Donald.
William 20 hours ago
Walmart won't know what to do with this tariff !
Lib Divorced From Reality 20 hours ago
China was on the verge of financial collapse in 2015-2016. They build empty cities with borrowed money they don't have. In a producer/consumer world...the US is the consumer and China is the producer. The producer needs the consumer...the consumer can always go elsewhere.
This is totally globalist propaganda.
Now would be an excellent time to trust the patriotic instincts of president Trump. The interests that have turned the US media into marionettes,...……. not so much.
CorinthoMutTrex 7 hours ago
1 Billion vs 1 Million. Who's holding ace ?
Or China could stop mandatory IP transfer and co-ownership. That is really the core issue Trump has with China. If that can be resolved, he might not car so much about Chinese tariffs being lopsided. IP theft is the primary loss of revenue.
Kurt 7 hours ago
If the US companies foot the bill the US consumer will pay more. I have no problem with buying more expensive American goods. We would not buy as often but, the products would be more durable.
Hooch 17 hours ago
the U S sent the factories and the technology to china and now there is no turning back. t rump wants to save the jobs of the ZTE china owned corporation. now that is some real bull shi$$%%^^.
Dawwwggg 16 hours ago
that it probably true. I ordered several items from Amazon recently. ALL of them were made in China. When I worked for the Fed. Gov. ALL of the t.v. sets and other electronic devices were..you guessed it...made in Japan or China.
WHOCARES 14 hours ago
US is trying whatever it takes to slow down China's growth even with the price of hurting Americans. By the American First is same as Made in China 2025 which means my priority is my national interest.
Wal-mart will go under.
ANDY L 8 hours ago
the US doesn't even produce consumer electronics..how can they justify putting tariffs on Chinese hitech goods to prevent a flood of cheap Chinese electronics products? china is moving towards a consumer and service economy. they are investing billions in automating their factories with robots. manufacturing will still be in china.
what is china supposed to buy off us thanks to american companies moving production to china we dont make anything here anymore
China does not hold all the Aces! The US could clearly do without cheap chinese goods! Yes, we would pay more, but we would not really miss out on anything!!! Walmarts, Target, and the like would have problems. But I think it would be a boon for local businesses. They would be able to move to new goods and supliers much quicker. And that just might be good for the US!!!