A decentralized look at the U.S.-China trade war

For the time being, it is highly unlikely that the Trade war between Beijing and Washington will be resolved. In May 2019, Trump increased tariffs on Chinese commodities (worth $200 billion) from 10% to a whopping 25%. So far, the US has imposed tariffs worth about $250 billion on China, while China has retaliated with tariffs on US goods estimated at well over $100 billion.

It would be pertinent to point out that trade disputes have not been restricted only to Washington and Beijing. Imposition of tariffs has been a bone of contention with numerous US allies, including Japan.

Of late, trade issues have resulted in major differences between New Delhi and Washington. Even though there are convergences between both countries on numerous strategic issues, resolving the differences between both sides on trade-related matters is likely to be an onerous responsibility.

In response to tariffs imposed by Washington, New Delhi retaliated, and has imposed tariffs, estimated at $200 million, on 29 commodities (including apples, almonds, and chickpeas). India’s decision was a response to Washington’s decision to impose tariffs, of 10% and 25% on aluminium and steel, in May 2018. Last year, New Delhi refrained from imposing tariffs, but did raise import taxes on a number of US goods to 120% after Washington declined to exempt New Delhi from higher steel and aluminium tariffs. The key propelling factor for India’s recent imposition of tariffs was the US decision to scrap the Generalized System of Preferences (GSP) for India from June 5, 2019. India benefited immensely from this scheme, as it allowed duty-free exports of up to $5.6 billion from the country.

Pressure on Trump

Even though no solution is in sight, there are a number of lobbies in the US, especially trade groups and US businesses, which have been repeatedly urging the Trump Administration to find a solution to the current impasse with China.

Only recently for instance, 600 companies, including Walmart, in a letter to the U.S. President, urged him to resolve trade disputes with China, stating that tariffs were detrimental to the interests of American businesses and consumers. The letter was sent as part of the ‘Tariffs Hurt the Heartland’ campaign.

To underscore the detrimental impact of trade wars on the American economy some important estimates were provided. The letter stated that tariffs of up to 25% on $300 billion worth of goods could lead to the loss of two million jobs. Costs for an average American family of 4 would also increase an estimated $2000 if such tariffs were to be imposed.

Reports indicating the challenges to the US economy and FDI from Chinese companies in US

A number of surveys and reports illustrate the profound challenges which the US economy is facing, as well as a drop in FDI from China.

The University of Michigan’s consumer sentiment index also revealed a drop in consumer sentiment from 100 in May to 97.9 in June. This was attributed to trade wars between China and the US.

According to a survey released by the China General Chamber of Commerce USA, investment by Chinese companies in the United States has witnessed a significant decline since 2016 (including a sharp drop in 2018 and early 2019).

A number of important events have been held recently, where efforts were made to draw more Chinese investments to the US. One such event was the Select USA Summit. Speaking at the Summit, US Commerce Secretary Wilbur Ross stated:

We welcome investment from any place as long as it’s investment that poses no challenges for national security.

US states and FDI

What was clearly visible at the Select USA Summit was the fact that a number of US states pitched for expanding economic ties with China, and drawing greater Foreign Direct Investment.

The state of North Carolina sought to attract investments in areas like IT, aviation, and biotech. The US headquarters of Lenovo are in the state of North Carolina. Trump’s trade wars have hit the state in a big way, and one of the sufferers has been soy bean farmers. As a result of a 25 percent imposition of tariffs, the price of a bushel of soy beans has dropped to $8, from $10 in 2018.

Other US states brought to the fore the impact of tariffs on their respective economies. According to a senior official from the state of Louisiana for instance, it has suffered immensely as a consequence of the imposition of tariffs. Agricultural commodities from Middle America to China are imported through export terminals in Louisiana. Don Pierson, the senior official from Louisiana, said that the agricultural economy of the state, as well as the logistics economy of the state, have taken a hard hit as a consequence of the trade wars. Pierson also spoke about the possibility of exporting LNG from Louisiana to China. Chinese companies in the state of Louisiana, which include Yuhuang Chemical Group (Shandong’s), have made major investments. Shangdong’s decided to invest $1.85 billion in a methanol production complex (this was one of the largest Chinese direct investments in US). Wanhua Chemical Group invested over $1 billion (1.2) in a chemical manufacturing complex in southeastern Louisiana.

A number of Chinese companies have also begun to realise that there is need to adopt a nuanced approach, and are still tapping certain US states for investment.

Another important event was the Select LA Summit. The Los Angeles Mayor Eric Garcetti, and Lenny Mendonca, chief economic adviser to the California governor, assured overseas investors of all possible support from the town of LA, as well as the state of California.

Impact of trade disputes and Washington’s stance vis-à-vis Huawei

US states and Chinese provinces have been at the forefront of improving economic ties between both countries. Both are likely to suffer as a consequence of not just the trade war between both countries, but also the US ban on Huawei. The tech company, according to a report published in 2016, contributes 7% of the GDP of the town of Shenzhen (Guangdong province). Affiliates of Huawei provide employment to an estimated 80,000 people, while a research facility in a nearby city of Dongguan, provides employment to well over 3,000.

Conclusion

In conclusion, it is important for all stakeholders, not just businesses from both countries, to play their role in resolving economic and technological disputes between China and the US. It is also important for Chinese provinces as well as US states to play a pro-active role in reducing tensions. Both governments, while realising the importance of federating units, have set up official dialogues and set up other mechanisms for sub-national exchanges. It is important that these platforms now contribute towards reducing the divergences between both countries. While all eyes are on the political leadership of both countries, it is important to realise that the stakeholders in the US-China relationship are not restricted to Beijing and Washington DC.

Nightcap

  1. Modern China: From the Great Qing to Xi Jinping Connor Gahre, Origins
  2. Modern America: Flirting with isolation Henry Nau, Claremont Review of Books
  3. Modern Britain: Success and failure with inequality Chris Dillow, Stumbling & Mumbling
  4. Can American dads have it all? Ross Douthat, New York Times

Nightcap

  1. Espionage and the Catholic Church Aaron Bateman, War on the Rocks
  2. Can globalization be reversed? John Quiggin, Crooked Timber
  3. Getting rich is glorious (scroll down) Pierre Lemieux, Regulation
  4. Africa’s lost kingdoms Howard French, New York Review of Books

Nightcap

  1. Just another story about a UCLA Bruin Wayne Drehs, ESPN
  2. A history of black voting rights in the US Pippa Holloway, Origins
  3. What is origin of China’s success? Branko Milanovic, globalinequality
  4. One final look at the Heisei Era Alex Martin, Japan Times

Italy and the Belt and Road Initiative

There has been a growing scepticism with regard to the Belt and Road Initiative (BRI) project in many quarters, due to the lack of transparency with regards to terms and conditions as well as the economic implications for countries which are part of the project. A report published in April 2018 by the Center for Global Development (CGD) in Washington flagged 8 countries (including Pakistan, Maldives, Laos, and Djibouti) where the level of debts are unsustainable.

Apart from the red flag raised by a number of researchers, the removal of Pro-China leadership in countries like Malaysia, Maldives, and Sri Lanka has also resulted in problems with the BRI project, and China’s economic dealings (which are clearly skewed in favour of Beijing) with other countries is drawing more attention.

The most vocal critic of China’s economic links has been Malaysian Prime Minister Mahathir Mohamad. During a visit to China in August 2018, Mahathir, alluded to China’s trade relations with poorer countries as ‘a new version of colonialism’. Mahathir later on denied that his statement was targeted at China or the BRI. The fact is that the Malaysian Prime Minister did scrap projects estimated at well over $20 billion (which includes a rail project, East Coast Link, as well as two gas pipelines).

Top officials in the Trump Administration, including US Vice President Mike Pence, have also been critical of the BRI project for a variety of reasons. The major criticism from US policy makers has been the economic ‘unsustainability’ of the project as well as the point that the project is skewed in favour of China.

Italy to join BRI Continue reading

Nightcap

  1. Austin City Limits Kevin Williamson, Claremont Review of Books
  2. Boredom and the British Empire Erik Linstrum, History Today
  3. The little-known war crime in Tokyo Hiroaki Sato, Japan Times
  4. China’s “Hundred Schools of Thought” Ian Johnson, ChinaFile

The nature of the China-US-Vietnam economic triangle

While addressing a joint press conference in Hanoi, after his summit with North Korean Leader Kim Jong Un, US President Donald Trump spoke not just about the Summit, but also the current state of US-China relations. Trump criticised his predecessors for not doing enough to address the trade imbalance with China, while also making the point that he was all for China’s economic progress and growth, but not at the cost of the US.

If one were to look beyond the Summit in terms of the US-Vietnam economic relations, top US companies – Boeing and General Electric – sealed some important deals.

Given the focus of Trump’s visit (which was the Summit with Kim), perhaps these deals did not draw the attention they ought to have. The fact is that the US has begun to recognise Vietnam’s economic potential, as well as its geopolitical significance in Asia. This long note will give a backgrounder to Vietnam’s economic growth story in recent years, highlight some of it’s key strategic relationships, and then examine the nature of the China-US-Vietnam economic triangle.

Vietnam’s growth story: The key reasons Continue reading