More pain than gain: How the US-China trade war hurt America

[tom bhayya]

The trade war caused economic pain on both sides and led to diversion of trade flows away from both China and the United States. As described by Heather Long at the Washington Post, “U.S. economic growth slowed, business investment froze, and companies didn’t hire as many people. Across the nation, a lot of farmers went bankrupt, and the manufacturing and freight transportation sectors have hit lows not seen since the last recession. Trump’s actions amounted to one of the largest tax increases in years.”

A September 2019 study by Moody’s Analytics found that the trade war had already cost the U.S. economy nearly 300,000 jobs and an estimated 0.3% of real GDP. Other studies put the cost to U.S. GDP at about 0.7%. A 2019 report from Bloomberg Economics estimated that the trade war would cost the U.S. economy $316 billion by the end of 2020, while more recent research from the Federal Reserve Bank of New York and Columbia University found that U.S. companies lost at least $1.7 trillion in the price of their stocks as a result of U.S. tariffs imposed on imports from China.

 

Numerous studies have found that U.S. companies primarily paid for U.S. tariffs, with the cost estimated at nearly $46 billion. The tariffs forced American companies to accept lower profit margins, cut wages and jobs for U.S. workers, defer potential wage hikes or expansions, and raise prices for American consumers or companies. A spokesperson for the American Farm Bureau stated that “farmers have lost the vast majority of what was once a $24 billion market in China” as a result of Chinese retaliatory actions.

Meanwhile, the U.S. goods trade deficit with China continued to grow, reaching a record $419.2 billion in 2018. By 2019, the trade deficit had shrunk to $345 billion, roughly the same level as 2016, largely as a result of reduced trade flows. It should be noted that, while the U.S. deficit with China decreased, its overall trade deficit did not. Trump’s unilateral tariffs on China diverted trade flows from China, causing the U.S. trade deficit with Europe, Mexico, Japan, South Korea, and Taiwan to increase as a result.

China also felt economic pain as a result of the trade war, though apparently not enough to capitulate to the Trump administration’s core demands for major structural reform. Indeed, as the trade war dragged on, Beijing lowered its tariffs for its other trading partners as it reduced its  reliance on U.S. markets. The final deal that both sides announced on January 15, 2020, largely resembled the offer Beijing had put on the table from the start — increased goods purchases plus commitments on improved intellectual property protection, currency, and forced technology transfer.

Missing from the deal was any forward movement on subsidies, state-owned enterprises, and China’s uses of industrial policy to advantage its own firms over foreign competitors. Progress on market access also proved underwhelming outside of the financial sector. These and other challenges were put off for a phase two negotiation, which Trump recently said is not under consideration.

[tom bhayya]

WAS THE TRADE WAR WORTH IT?

The two sides declared a truce in the trade war at an ornate signing ceremony at the White House involving President Trump and Chinese Vice Premier Liú Hè 刘鹤, the 11th ranked member in the Chinese leadership. Although the full text of the agreement has not been made public, reports say the agreement commits China to purchasing an extra $200 billion in American products over two years above 2017 levels. The text of the agreement that has been made public shows China committing to protect American intellectual property, halt coercive technology transfers, and refrain from using currency devaluation as a trade weapon. It also included an enforcement mechanism that would allow for the imposition of import tariffs if disputes are not resolved.

In the six months since the deal was signed, the prospects of China meeting its purchasing targets have dimmed considerably. According to Bloomberg calculations based on Chinese Customs Administration data, China in the first half of 2020 had purchased only 23% of the total purchase target for the year. While part of this is attributable to trade flow disruptions caused by COVID-19, much of the gap owes to the impracticality of the agreement from the start. In the phase one deal, as described by Brad W. Setser and Dylan Yalbir at the Council on Foreign Relations, China committed to purchasing roughly $60 billion more in U.S. goods than it had in 2017 — roughly $180 billion in U.S. goods this year. Yet U.S. goods exports to China currently are significantly below what they were in 2017.

In other words, Beijing essentially paid for the deal with a promise of a windfall in purchases of American goods. It appears that President Trump accepted an IOU as a declaration of victory.

Time will tell if the innovations in the agreement on enforcement will succeed where others have failed, and much will depend on China’s willingness to translate agreements into law and, crucially, enforce them. Yet the key question for the United States — especially today, as the U.S. economy is in its worst state since the Great Depression as a result of the COVID-19 pandemic — is if the economic costs it paid for those enforcement agreements were worth the billions of dollars lost in value, the hundreds of thousands of jobs lost, the stagnation of U.S. manufacturing, and the devastating effects of the trade war on American farmers.

Ultimately, the phase one agreement disappointed because it, along with the trade war, severely damaged the U.S. economy while failing to make significant progress in fundamentally resolving the structural imbalances of the U.S.-China trade relationship.

[Sreeven]

Start ainda Biden agenda

[tom bhayya]

1 minute ago, Sreeven said:

Start ainda Biden agenda

thats old article db economists kosam vesa 

[Sreeven]

2 minutes ago, tom bhayya said:

thats old article db economists kosam vesa 

Tooch