‘’When The Two Lions Fight’’, It Is The Lions That Suffer, A Case Of China USA Trade War

Posted by: lukwago J in Economy October 5, 2018

On July 6, U.S. President Donald Trump’s administration officially instituted 25 percent duties on $34 billion worth of Chinese goods. China, for its part, responded by implementing retaliatory tariffs on the U.S. shortly afterward. The following week, the U.S. released a list of Chinese goods with an annual trade value of about $200 billion that may be subjected to 10 percent tariffs.

Consequently, the Chinese industrial activity and output has decelerated by the Purchasing Managers’ Index (PMI) to a worrying 50.8 for the month from 51.3 in just August, this disaster of figures has been reported by the National Bureau of Statistics while the Bloomberg Economist reported a figure below 51.2 and despite the figures reflecting just a slowdown, they are close to the 50-point mark that defines and distinct an economic expansion from contraction The Softening demand began to have an impact on the company’s production said Caixin analyst Zhengsheng Zhong .

The trade war couldn’t have come at a worse time for China, which is glappoling and suffering a debt menace and could force her to ease its monetary agenda and policy or going back to the drawing table to enact fresh fiscal measures as have already been suggested in which case all remedial salvage plans are just so non-pleasurable to an economy that had finally began to concentrate in ear nesting and curbing credit growth from 2017 It must be noted that this trade war is coming at the heels of a record 12.65 Trillion Yuan ($ 1.88 Trillion) in loans in 2016 as the government encouraged credit-fueled stimulus to meet its ambitious economic growth target, this has stirred worries of credit explosion and financial risks from the rapid increase in debt “The rise in US-China trade tensions have raised concerns about the strength of external and domestic demand in (the second half of 2018) via direct and indirect effects on services such as logistics, wholesale trade, and trade finance, as well as on business sentiment and investment,” the analysts wrote.

China’s dilemma: Beijing is seeking to implement relatively tight monetary policy to force financial deleveraging, but it also needs easier monetary conditions to support growth. “Over the last 15 years, whenever credit growth has risen more than warranted it has fueled concerns over financial stability and that has seeped into depreciation pressures on the currency,” the note said. “Consequently, the current monetary policy stance will need to be carefully balanced.” LION 2 The battle between U.S. and China, perhaps no companies are more affected than American automakers that are running and manufacturing their cars in China.

Biggest American business groups in China

AmCham China and AmCham Shanghai, jointly issued a survey Thursday that showed widespread impacts from the U.S.’s tariffs on China, and the resulting Chinese tariffs on the U.S. Costs have sky rocketed and profits nosedived, and the situation would only get worse if Trump follows through with his threat to levy tariffs on a further $200 billion worth of imports from China, respondents said—74.3% said they expected to be negatively affected by that broadside, and 67.6% said they expected to take damage from the Chinese response. The Trump Administration is facing plenty of opposition toward fresh tariffs at home, too, with companies such as Cisco and Hewlett-Packard recently pleading with U.S.

Trade Representative Robert Lighthizer to change tack. Small businesses are being hurt by the rising cost of imports from China, and many expect the next tranche would start being felt in American consumers’ wallets. Unfortunately for Trump, it’s not the 80s anymore.

Twenty years ago, the situation might have been different. China was dramatically underdeveloped, and it wanted access to Western technology and manufacturing techniques. China has most of what it needs now, and what it doesn’t have it can easily obtain from vendors outside the U.S. While the American market looked enticing a few decades ago, it is relatively mature, and today the newer emerging market countries have become much more interesting to Beijing. This kind of economic war could have effects probably be felt by companies like Walmart, which import billions of dollars of cheap goods that are bought mostly by the people who voted Trump into office.

The prices on almost all of these items would quickly skyrocket beyond the reach of the lower economic brackets—not because of manufacturing costs, but because of the tariffs. The result would be an economic war of attrition that China is infinitely better positioned to win. China’s foreign currency reserves now stand at more than $3 trillion. In contrast, the U.S. has foreign exchange reserves that hover at around $120 billion. Trump’s tariffs would automatically trigger penalties against the U.S. in the World Trade Organization (WTO), and might even lead to the WTO’s collapse, which would lead to higher tariffs against U.S. exports.

While it might take a while for that to happen, the turmoil would be catastrophic for American business and employment. China, on the other hand, will emerge relatively unscathed. In fact, the importance of the U.S.-China relationship is already being challenged by other players. Apple’s iPhone sales in China are running into competition from local Chinese manufacturers, and Samsung is more than happy to fill any void that the Chinese can’t deal with. Likewise, the Chinese would happily shift their trillion dollars in future aircraft purchases to Airbus, a European firm that is already building a plant in China to finish assembly of large, twin-aisle jets. As for automobiles, most Chinese would just as soon drive a Mercedes, BMW, or Lexus as a Ford.

THE GRASS DOES NOT ACTUALLY SUFFER

So far, the new barriers to trade have had very little impact on the world economic activity — the announced measures affect a fraction of the world economy. Gabriel Sterne, head of macro research at the consultancy Oxford Economics, calculates that, even if recent threats come to pass, high duties would still apply to just 4 per cent of world imports.

Nevertheless, Mark Carney, Bank of England governor, spoke this month of “tentative evidence of tariffs having an impact on trade flows.” He added: “You see it in capital goods orders, you see it in some slowing on trade, you pick it up from conversations.” Mr. Sterne at Oxford Economics estimates that an escalation of the trade conflict could lead to a cumulative loss of 0.7 per cent in global gross domestic product by 2020. “The odds are they the US have a couple of years before the results are really felt.” But eventually, he argued, a confrontation could cause up to 1m job losses in the US, while driving up consumer prices and undermining productivity. Thou economics cannot rule out collateral damage for some economies that are caught in the cross-fire Other Asian economies are intricately linked to China’s fortunes, through their highly connected supply chains. And what hurts Beijing can also hurt countries further afield, like South Korea, Taiwan – or Singapore, DBS Bank says that’s true. The analysis it has done shows that South Korea, Malaysia and Taiwan – all trade-dependent production hubs – could lose up to 0.6% of economic growth this year. But this is still not the worst possible scenario, as the minister points out.

And as Ms. Fulwood explains, in general these sort of strategies – of raising tariffs and attacking, rather than co-operating and communicating – “tend to backfire, because they tend to reduce growth everywhere, and make everyone more defensive”. But this can be taken to be an emotional economic general sweeping sentiment.

By Niyonzima Fred Job

Email: [email protected]

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