Showing posts with label global trade. Show all posts
Showing posts with label global trade. Show all posts

Tuesday, January 14, 2020

Trade War Temporary Truce: Phase 1

As part of the deal, the United States agreed to cancel the 15-percent tariffs that had been scheduled to take effect on December 15 on $160 billion worth of Chinese goods, and to halve an earlier set of tariffs on another $120 billion worth of goods. In exchange, China agreed to increase its purchase of U.S. products by $200 billion in the next two years. ....... To reach the next phase will require each side to determine what fundamental concessions it might be willing to offer the other. ........

Trump’s 25 percent tariffs on $250 billion of Chinese imports will remain, as will China’s retaliatory tariffs on U.S. goods.

..... Washington presented several Chinese pledges as concessions to U.S. concerns about Beijing’s trade practices. But these promised measures are either vague or extensions of policies already in place. Indeed, China had initiated most, if not all, of these measures—including steps to reform foreign ownership limits, currency exchange policies, and intellectual property protections—well before the trade war began. ........ As early as 2017, China had begun lifting foreign ownership restrictions—limitations that prevented foreigners from having controlling interests or, in some cases, any interest at all in firms operating in China—in many industries, ranging from financial services to the automotive sector, with the aim of removing all limits in a few years. In financial services, including banking, securities, asset management, and insurance, majority foreign ownership was allowed for the first time in June 2018, and ownership limits (now at 51 percent) are set to be completely removed in 2020. Ironically, the pace of change might have been faster if not for the trade war, which forced China to withhold some reforms. ......... Since 1994, China’s central bank has usually intervened to prop up the yuan, not to weaken it. ....... Regarding intellectual property, China has significantly tightened rules and enforcement in recent years. Beijing set up specialized intellectual property courts in three major cities in 2014 and intermediate-level tribunals in 17 provinces in 2017. In the last four years, China’s Supreme Court has issued guidelines and policies on the judicial protection of intellectual property rights. These have strengthened the courts’ jurisdiction over intellectual property infringement cases and provided a framework for damages. The Supreme Court inaugurated its own permanent intellectual property court on January 1, 2019. ........... China’s total intellectual property payments to foreigners have grown on average 20 percent per year since 2000, far outpacing the median growth rate of 9.5 percent across all countries, according to a study by Shang-jin Wei, a professor at Columbia University. The improved regime of intellectual property protection helps explain why China attracts more foreign direct investment than any other country except the United States.......... The trade war has so far failed to achieve Washington’s stated objectives—namely, to bring manufacturing jobs back to the United States and narrow the country’s trade deficit.

By September 2019, U.S. manufacturing had sunk to a more than ten-year low, and it has continued to weaken since. The U.S. trade deficit with the rest of the world has ballooned from $544 billion in 2016 to $691 billion in the 12 months ending in October.

.......... Tariffs on Chinese goods have backfired, in that U.S. consumers have paid almost their entire cost ....... China’s export prices to the United States have not really changed since the trade war began. .......

There are, of course, no winners in this trade war, and to think otherwise is delusional.

........ The longer the trade war drags on, the more damage both countries and the world economy will sustain. Already, global supply chains are disrupted. More consequential will be the oft-talked-about “decoupling” of U.S. and Chinese technological systems. Technology companies used to boast that “the world is our market.” No longer. ............

the ten largest U.S. semiconductor companies earn a combined revenue in China ($79.3 billion) nearly three times their sales in the United States ($28.1 billion)

. All of these firms are now forecasting significantly lower sales to China........ With Phase II negotiations ahead, a wide gap still separates the two sides on major issues, and the prospect of serious compromise remains distant. ......... Neither side has provided concrete details on what it hopes to achieve in the next round of negotiations. But China’s main objectives are unequivocal. Beijing wants Washington to remove all the tariffs imposed since the trade war began, and it will be prepared to reciprocate in kind. It wants the United States to drop its sanctions on Chinese technology firms such as Huawei, and to relax restrictions on Chinese investments in the United States. ......... The ultimate goal of the next stage of negotiations for both sides should be very clear: to reach an equitable deal that lowers barriers to trade and investment.

If both countries follow the same rule-based system, freer trade lowers consumer prices, promotes competition, improves efficiency, stimulates innovation, and ultimately leads to greater economic growth.

In the service of this aim, each country must determine what its real objectives are and prepare to make important concessions. ........... The United States must decide whether what it really wants is access to the Chinese market and better prices for U.S. consumers, or whether it simply wants to contain China’s rise at all costs. Washington cannot have it both ways. The former aim could ultimately lead to a trade deal, but the latter never will. ........

For its part, Beijing must finally decide what to do with the most pernicious holdover from its planned economy days: China’s inefficient state-owned sector.

....... China’s own stated goal is to let the market be the decisive force in the allocation of resources in the country. China should continue to restructure, reform, downsize, and privatize the state sector in accordance with this goal, not just because doing so may entice the United States to stop the trade war but because such reforms will be good for China. Whenever China has undertaken market reforms, for example in 1992 and in the early 2000s, its economic growth has surged. Conversely, its growth suffers when the pace of reform slows down. .........

If Phase II leads the United States and China to more trade and greater economic cooperation than they had before the trade war, then both countries will have managed to win.



Weijian Shan Prior to TPG Capital, Mr Shan worked, between 1993 and 1998 at JP Morgan as a Managing Director, concurrently serving as its China Representative, Chief Representative for JP Morgan Beijing Office and Chief Representative for JP Morgan Shanghai Office......... Mr Shan was a professor at the Wharton School of the University of Pennsylvania for six years before joining JP Morgan........ Mr Shan worked as an investment officer at the World Bank in Washington D.C. in 1987.......Mr Shan received a Ph.D. and a Masters of Arts in economics from University of California at Berkeley, an MBA from University of San Francisco.
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Sunday, December 15, 2019

Trade War: US, EU, China, Japan

The trade war is a proven recipe for a global recession or worse and possible political mayhem. Trump's trade war with the EU bores ill for global trade because the EU has none of the China issues, supposedly. Bilateral trade is a primitive concept. It is like ditching digital money and going back to silver coins.

A global depression would create a new wave of fascism across the planet. Irrationality will come to rule.

The only hope is that all this saber-rattling is posturing and will soon give way to common sense. But there are no such signs yet on the horizon.

The idea that every country and every group of countries have been unfair to the US on trade ...... the whole idea of "fair trade" has been that the US has been unfair to the rest of the world, especially to the poorest countries. Racist white nationalism will also have you believe that you feel sorry for the whites because they have suffered so much from racism.

Brexit? Aexit?

The sensible thing to do would be to attempt WTO reform. Killing the WTO takes us back to the 1930s. So far the global economy's resilience built through trade has held. But that resilience can stretch only so much.

Trump's trade temper tantrums are insanely destructive. And his traditionally pro-trade party is going all the way with him. It is strange. This might not be the first time politics trumps sound economic theory.

A trade war with Europe would be larger and more damaging than Washington’s dispute with China Data from the Office of the U.S. Trade Representative shows that in 2018, the U.S. imported $683.9 billion of EU goods and $557.9 billion from China. ..... There have already been tariffs on European steel and aluminum — which led the bloc to impose duties of 25% on $2.8 billion of U.S. products in June 2018, and, there’s an ongoing dispute regarding Airbus and Boeing — but experts believe a wider spat with Europe would be much more damaging than the current tit-for-tat with China. ....... “In 2018, the U.S. exported more than three times more to the EU than to China,” Hense said, adding that the region could therefore hit back hard against Washington. ..... “The rules of international trade, which we have developed over the years hand-in-hand with our American partners, cannot be violated without a reaction from our side” ...... Both economies are slowing down, and the cyclical effect of the tariffs is likely to be pretty strong ..... Speaking at the U.S. Senate in mid-July, Fed Chairman Jerome Powell said that “crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook.” .......

the business models of multinational firms is in danger as a result of a potential U.S.- EU trade war

...... “Much of the (EU-U.S.) trade takes place within firms rather than between them … (as a result) when you impose tariffs between the U.S. and Europe, you end up raising the prices for consumers and complicating the way goods are assembled in both places, as in the U.S.-China case, but you also end up disrupting the profitability of the business models for large multinationals,” he said. ...... “Since many, if not most of those large multinationals are American, this is going to put a further drag on the U.S. economy” ....... “A trade war between the U.S. and Europe would be more challenging than a trade war between the U.S. and China because it would weaken U.S. multinationals, reduce the size of the markets U.S. firms can access, and create incentives for U.S. firms to divest from their foreign assets and so unleash further foreign competition”.....“In other words, it would undo all the structural advantages that successive U.S. administrations created since the end of the Second World War”

How Trump May Finally Kill the WTO

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Saturday, August 03, 2019

An Intelligent Conversation On Trade

I am not a big fan of Donald Trump. The guy is asinine. But you do deal with the office.

There is a need for an intelligent conversation on trade. Donald Trump is a hammer looking for a nail. He is arguing against sound economic theory. At some level, his moves can be seen as a fascist's fantasy for a Great Depression. Come, Depression, come!

He has beef with China, but he also has beef with India. He has beef with India, but he also has beef with Germany.

The WTO has prevented many wars. Countries that trade seldom go to war. Instead of saying China lifted hundreds of millions of people out of poverty, Donald Trump says China stole hundreds of billions of dollars. Minus China, the US was looking at a Great Depression in 2008. It is good to have some large economies in the world.

Trade talk has to be forward-looking. The pre-WTO world had much strife.

Giving every human being on earth a biometric ID that rests on the Blockchain, and giving everybody access to credit and financial services, in general, is what would be forward-looking. The next generation of trade talks will be about allowing human beings to move from anywhere to anywhere else on earth. That would immediately add trillions of dollars to the global GDP.

Intellectual property laws written in the US Congress can not be imposed upon the world. That truth is no clearer than with medicine. What we need is a world government, a global parliament.


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Friday, June 28, 2019

The Trump Base

The 2016 election saw a large swathe of working-class whites gravitate to Donald Trump. These people used to be reliable Democrats. And it is hard to argue the only source of support has been racism. There are serious economic anxieties.

The 2016 mandate was that the US was tired of playing the world's policeman. For one, it is too expensive. The US spends something like 700 billion dollars every year on defense. For a fraction of that amount, it could solve the housing crisis, the education crisis, and the health crisis. It could make a serious dent in its infrastructure woes.

Trump questioned NATO. And people were aghast. But he was only responding to his mandate. Perhaps NATO is indeed a Cold War relic. Whether that is the case or not, a lot of Americans seem to think it is too expensive.

Globalization worked. Trade has worked. A lower-middle-class American today can go to her local Walmart and purchase stuff that Queen Victoria of England could only have dreamed of at the height of British power. There have been immense rises in productivity.

I wholeheartedly supported the idea of Trump holding summit level talks with the North Korean leader. I support the same between Trump and the Supreme Leader of Iran. Why not? Trying to reason things out in person is the basic democratic impulse. It is the most human thing to do.

Or, hey, how about video conferencing?

It is important to take Trump out of the picture and see that something happened in 2016. The US as a country is trying to readjust. The US feels like its defense treaty with Germany and Japan are no longer sustainable. They cost too much money. And perhaps they do. New arrangements have to be sought.

Maybe we are looking at a scenario where Japan gets an army again.

Peace on the peninsula would help. North Korea wants a peace treaty. That peace treaty would guarantee that the US will not invade North Korea. That North Korea wants such an assurance speaks to the paranoia of the regime. But that peace treaty is a small price to pay for peace. Normalized relations between the two Koreas would have cascading influences. We will very likely see a Germany repeat. And Japan will have many fewer security concerns.

The 2016 mandate has to be seen as a call for a new world order where the US plays a less central, a less expensive role. Some of the things Trump wants on trade can only be achieved if the dollar is no longer the global currency. Perhaps it is time for something like Libra, a currency resting on the Bitcoin technology that is pegged to a basket of the five major currencies of the world.

Trump spotted the well of anger in 2016. I don't think he has the solutions. The solutions he offers are misguided at best.

Take intellectual property law as an example. It makes no sense for the US Congress to pass intellectual property law and then impose that on the rest of the world. The US Congress is not the Congress for the whole world. A global parliament needs to shape something like that.

There are a lot of people who are happy someone is finally standing up to China. There are a lot of people who are very happy someone is finally standing up to the US. Both powers should take note.


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Monday, June 10, 2019

The WTO And The Regional Trading Blocs



The WTO has ushered in a new era of prosperity for the planet with a record number of people climbing out of poverty. That part has worked. The WTO has to be treated as a floor on which regional groups of countries can hope to build deeper trade relationships. Countries in the west Pacific are doing exactly that. The continent of Africa has been moving towards a free trade zone of its own. All these add to the WTO.

What makes Trump's tactics different is that they take away from the WTO. He wants to deal with countries one at a time. He thinks he can mete out unequal treatment in the process.

The problem with that approach is you are putting political whim above sound economic theory. The economic theory behind trade is sound. Trade does lead to rises in productivity.

But the WTO has not been designed to narrow income inequality. But that is like saying the Department of Education does not seem to be doing anything about health. Well, it has been designed for education, not health. That is no argument against health.

Trump is trying to go backward in time. He wants to take America and the world to an era without the WTO. That was not a good era. Instead of thinking what the next stage in America's economic growth is, he wants to go back to an era when America's trade with China was minuscule.

The tragedy is, there are plenty of smart people in America who have been thinking about what the next stage of economic growth for America is. But Trump is utterly uncurious.


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Monday, June 03, 2019

Real Donald Jerry Seinfeld Trump?



We look for grand strategy. There is none. People accuse Trump of lying: "Four lies in one tweet!" Trump is not a liar, but a bullshitter. A bullshitter is such a habitual liar, he does not know, he does not care he is lying. If you know Trump, he is a joke. If you don't know him, he is a fascist. Hitler was a joke in 1920s Germany. He was considered a clown.

Trump won 2016 by spending very little money. As late as August he was way behind in the polls.

It is funny until it is not funny. Real lives are at stake.

A fascist intimidation of Mueller and Pelosi is on full public display. Ken Starr did pronounce Bill Clinton guilty and recommend impeachment to the Congress. Mueller's logic that he cannot pronounce guilt was not applied in his statement to the media. He could not prosecute, but he could pronounce guilt. But he was intimidated. He made it clear he has no desire to appear before Congress. He does not want to be at the receiving end of fascist harangues. A guy who was the top law enforcement officer of the country is running intimidated. That shows Trump is not funny. He is dangerous.

Pelosi's intimidation is on full public display. The moment Hillary lost the election in 2016 is when she fainted on TV. And she fainted a few days after Trump said in a debate with her about rape in the military: "Whichever genius came up with the idea of women serving in the military!"

That is extreme emotional intelligence but going in the dark direction. He swatted every Republican competitor in the race with a phrase or two. There was Little Marco. Bush was a shame to his family.

He did the same to the voters. You are angry? Let me tap into that.

That fountain of anger has stayed with him. Step back and look objectively. Is he not doing everything he can to push the US economy and the global economy into a Grand Depression? There is a cliff and he knows it. Once he manages to push the global economy into a Great Depression, it might take anyone a decade to turn things around. But the point is, if more people are going to be angrier, his support base is going to expand. That is what he is counting on. Yes, there is a strategy. Those who say Trump has no strategy are in denial.

Fascist intimidation is working. Pelosi has until October. After that, the presidential campaign sucks up all the oxygen in the room.

The country is in meltdown mode. Steve Bannon and Donald Trump both are looking for a "hard Brexit" for America. Britain wants a divorce with Europe. America wants a divorce with the world.

Are we moving towards a WTO minus the United States? Will that be as harmless as a Trans-Pacific Partnership minus the US? Experts tell us trading blocs are no solution. They were a feature of the Great Depression of the 1930s.

These are dangerous times. This trade war is not a China-US war. It affects every country. Every country needs to speak up.






Andrew Yang: The Only One With A Solution
In The News (3)
In The News (2)
A Bad Scenario For Trump
In The News (1)
The Possible Outline Of A Deal Between Xi And Trump In June
Will The Trade War Force A New Equilibrium?



CIA admits role in 1953 Iranian coup The CIA has publicly admitted for the first time that it was behind the notorious 1953 coup against Iran's democratically elected prime minister Mohammad Mosaddeq, in documents that also show how the British government tried to block the release of information about its own involvement in his overthrow...... Britain, and in particular Sir Anthony Eden, the foreign secretary, regarded Mosaddeq as a serious threat to its strategic and economic interests after the Iranian leader nationalised the British Anglo-Iranian Oil Company, latterly known as BP. But the UK needed US support. The Eisenhower administration in Washington was easily persuaded....... Mosaddeq's overthrow, still given as a reason for the Iranian mistrust of British and American politicians, consolidated the Shah's rule for the next 26 years until the 1979 Islamic revolution. It was aimed at making sure the Iranian monarchy would safeguard the west's oil interests in the country....... One document describes Mosaddeq as one of the "most mercurial, maddening, adroit and provocative leaders with whom they [the US and Britain] had ever dealt". The document says Mosaddeq "found the British evil, not incomprehensible" and "he and millions of Iranians believed that for centuries Britain had manipulated their country for British ends". Another document refers to conducting a "war of nerves" against Mossadeq.....

Mosaddeq epitomised a unique "anti-colonial" figure who was also committed to democratic values and human rights

..... there was never really a fair compromise offered to Mosaddeq, what they wanted Mosaddeq to do is to give up oil nationalisation and if he'd given that of course then the national movement would have been meaningless....... The basic facts are widely known to every school child in Iran
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Saturday, June 01, 2019

In The News (1)



Trump’s biggest mistake in US-China trade war: not realising the Chinese will never genuflect again China’s leaders know full well that the so-called trade war is not just about buying more soybeans or Boeing aircraft, or agreeing to a trading concession here and a compliance there. The US is demanding nothing less than having China submit to its will and give up its lead in certain cutting-edge technologies and industries. Beijing sees that as a bid to colonise China by another name and has called it out as such through its media. ....... proponents of American hegemony have decided that it is now or never to take China down while it is still vulnerable....... For the Americans, it is either doubling down or coming around, however reluctantly, to accepting that China will never cave in and that working out an arrangement in which both countries can cooperate as well as compete without disrupting the entire global economy and order is the next best option.





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Wednesday, May 22, 2019

One Million Uighurs

compared Trump on China to Ronald Reagan on the Soviet Union—ahead of his time in confronting its malevolence...... The Chinese Communist Party may worry about its ability to preserve its control. Otherwise, why would it need to build a surveillance state, to put 1 million Uighurs in “reeducation camps,” to ostracize and imprison human-rights lawyers, or to “disappear” the head of Interpol? But it doesn’t appear to be anywhere near actually losing that control.......... Previous American presidents theorized that China would see the advantages of becoming rule-abiding. Trump theorizes that the American economy is strong enough to force Chinese submission. Those different approaches portend very different kinds of relations for the United States with China: The first would make them partners in prosperity; the second would reveal them supplicants........ Treasury Secretary Wilbur Ross thinks not only that the U.S. will win the trade war, but that it may result in social unrest that challenges Communist Party control in China. So we are back to regime change, but this time by threatening penury rather than luring with prosperity.




China Isn’t Cheating on Trade Democrats and Republicans echo Trump’s anti-Beijing rhetoric, but escalating tensions could leave Americans far worse off. ......... in the coming weeks, the United States and China will sign an agreement that repeals the tariffs the two nations have been levying on each other’s goods for the past nine months. If past behavior is any guide, Donald Trump will call it the greatest deal ever, and global markets will breathe a sigh of relief. ......... Trump has already begun to renege on commitments made as part of the United States–Mexico–Canada Agreement, which he hailed as “incredible” in October. ......... Politically, Beijing is growing more authoritarian, as evidenced by its Orwellian domestic-surveillance policies, its mass internment of Muslim Uighurs, and the cult of personality now developing around Chinese President Xi Jinping. Militarily, China increasingly dominates the South China Sea. .............. “a new consensus”—that only a far tougher U.S. trade policy can prevent Beijing from continuing to rip off America—“is rising across America.” .......... top Democrats have scrambled to out-hawk Trump on trade. .......top Democrats and Republicans in Congress are warning that Trump’s China trade deal won’t be tough enough...... Complaints like these have come to dominate Beltway discourse not because the evidence underlying them is particularly strong. It isn’t. They have come to dominate Beltway discourse because Democrats and Republicans both believe that Trump’s anti-China message helped him win Pennsylvania, Ohio, Michigan, and Wisconsin, and that the path to the presidency runs through those states again in 2020. The political incentive to be tough on China over trade today is blinding politicians to the risks of an escalating conflict that could leave Americans poorer, less free, and—perhaps—even at war. .......... Beijing’s economic policies are actually quite typical of a country at its stage of development. Like many regimes in the developing world, Beijing fears the “middle-income trap,” in which rising wages undermine its advantage as a center of low-cost manufacturing before it develops the capacity to produce higher-value goods. China worries that unless it moves from assembling iPhones to inventing them, economic growth will stagnate and popular unrest will follow. ....... China therefore erects tariffs to protect industries it hopes will help it make that leap. So did the United States when it was industrializing. ......... China has a lower trade-weighted average tariff than Argentina, Brazil, India, South Korea, Indonesia, South Africa, Turkey, Russia, Saudi Arabia, and Mexico. ........ ranked countries on how well they protect the intellectual property of foreign companies, China scored fairly well among developing nations: just below Mexico and Malaysia but above Turkey, Brazil, South Africa, and the Philippines ........... A 2017 study of cases in which foreign companies sued for patent infringement in Chinese courts by Renjun Bian of the University of California at Berkeley School of Law found that foreign companies actually prevailed at higher rates than did Chinese litigants. ........... Beijing pours money into promising companies in ways the United States and most European governments do not. But this isn’t unusual among developing economies either. ...........China actually intervenes less than India, Vietnam, and Brazil, some of America’s best friends in the developing world. .......... “unlike many of its [developing economy] peers, China is making concrete progress in building a 21st century national IP environment.” ....... a “natural evolution. Countries tend to be slapdash about IP until they get sophisticated enough to have a lot of their own IP to protect.” ........ National Counterintelligence and Security Center last year admitted that, while China still hacks into American companies (something the United States has also allegedly done to Chinese companies), such activity occurs “at lower volumes than existed before the bilateral September 2015 U.S.-China cyber commitments.” In other words, diplomacy worked........ the best way to accelerate China’s transition is to build alliances with other governments concerned by its economic practices, and to use that common leverage to press Beijing. That was part of the strategy behind the Trans-Pacific Partnership, through which the United States and 11 other Pacific nations would lower their barriers to trade and investment. When the TPP’s prospects looked bright, China reportedly began considering joining itself, which could have compelled it to make some of the very changes Trump is demanding now. But in 2016, Trump, with the help of progressive Democrats such as Sanders, made TPP politically radioactive........ rather than making common cause with Canada, Japan, France, and other democracies aggrieved by China’s trading practices, his administration has slapped tariffs on them. All of which has isolated the United States and left it seeking concessions from China that would be easier to secure were the Trump administration not working alone........ Historically, the United States has been one of the WTO’s most successful plaintiffs. But according to Simon Lester of the Cato Institute, the Trump administration has brought only two new cases against China at the WTO. And Trump officials, in keeping with their general hostility toward international organizations, regularly trash the organization........ But it’s not Xi who is crippling the WTO. It’s Trump. ....... “China does a reasonably good job of complying with WTO complaints brought against it.” The Trump administration, by contrast, has systematically blocked the reappointment of judges on the WTO’s dispute-settlement body and thus, according to Reuters, has “plunge[d] the organization into crisis.”.............

the self-destructive absurdity of Trump’s behavior

......... If Chinese companies forge high-tech collaborations in Europe and Chinese students forge scientific breakthroughs at laboratories in Australia, American politicians—in their effort to quarantine China from global innovation—may end up quarantining the United States instead....... the United States has a long history of anti-Asian bigotry, especially during periods of conflict with Asian governments........ Since 2009, according to a 2017 study by the Chinese American Committee of 100, Asian Americans have been twice as likely as other Americans to be the subject of bogus prosecutions (prosecutions that don’t result in a conviction) under the Economic Espionage Act. Trump himself in August reportedly claimed that “almost every student that comes over to this country [from China] is a spy.” .......... The more trade hawks decouple America and China economically, the less incentive the two countries will have for mutual accommodation, since, as the Rand Corporation’s Ali Wyne has observed, “there are few factors … besides trade interdependence that compel the United States and China to exercise mutual restraint.” ....... The “painful adjustments” that America must make to accommodate China are more painful because the United States government has done so little to cushion Americans from the dislocation caused by China’s economic rise.

If Americans who lost their jobs didn’t also lose their health care; if they had access to generous government wage subsidies, retraining programs, and even guaranteed federal jobs; if paying for college didn’t plunge them and their children into debt—then the political incentive to scapegoat Beijing might not be as great. Over the past two decades, American politicians have not proved weak and inert in responding to China’s real and imagined misdeeds. They have proved weak and inert in responding to their own citizens’ needs. The reckoning Washington requires is not with China. It’s with itself.
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The Mighty Dollar

The starting point is the dollar’s status as a global reserve currency and international monetary standard, and the US current account deficit is the only mechanism through which the global supply of dollars can be increased. This is why a global economic boom often coincides with a higher US current account deficit, while global recessions often see the US current account moving in the opposite direction............ the expected surge in Chinese imports would almost close up America’s entire current account deficit and this would lead to a global dollar shortage. As a result, market forces would likely drive up the dollar to such a level where US exports to other parts of the world would be reduced, thus “re-creating” a trade or current account deficit. ...... In the end, either higher short rates or a stronger US dollar or both would act to slow down the US economy and ensure that America’s trade balance is more or less unchanged. ...... a Sino-US trade deal could simply amount to a zero-sum game in the short term: a gain for the US, a loss for the rest of the world, and indifference for China ..... a net efficiency loss in the world supply chains. ........ To avert or minimise the adverse impact of a China-US trade deal on the rest of the world economy, the Sino-US trade deal should focus on Beijing’s protective trade and investment policies rather than bilateral trade imbalance. The China-US trade imbalance is the natural result of global supply-chain evolution, and eliminating this imbalance is too disruptive for every country involved. ....... making sure that Beijing plays by the rules and levels off the playing field for foreign businesses and suppliers would represent a net gain for the world economy, benefiting all.
A US-China trade deal won’t be a win for global markets if Beijing shifts its trade surplus to other countries

A little good news could go a long way. If the US and China are shrewd enough, between them they can clinch recovery with a trade compromise that convinces investors that the future remains bright.
The world is taking leave of its senses and falling down the rabbit hole of a deepening global trade war, economic shocks and political instability. The post-war world order is breaking down, multilateralism is giving way to national self-interest and the political forums for peaceful debate are failing.......It’s time for someone to step forward and show stronger leadership before the world sinks back to where the 2008 financial crisis left off. Right now, the world is in self-harm mode and deeply vulnerable.
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Trade War: Intellectual Property

It is easy to see why the US gets so passionate about IP, but it is not the “existential” issue so many Americans claim. IP may be central to the US’ view of itself as the world’s technology leader – but it is also a massive earner. The US may have a miserable trade deficit in manufactures, but it has a handsome surplus in services exports, and right up there is the money it earns from royalties in payment for IP rights....... In 2017, this amounted to US$128 billion – second only to earnings from tourism and education services (US$211 billion), and well ahead of financial services (US$109 billion) and transport services (US$89 billion). A tighter deal on IP protections would mean a significant boost to services exports........ Flying in the face of claims that China abuses IP rights is the reality that China pays more to the US in royalties than any other economy. Wanting to sell more IP to China is, just like wanting to sell more beef or soya, a perfectly reasonable aspiration. So is selling legal services – and there can be no bigger beneficiary of negotiating IP arrangements than the US’ army of IP lawyers. ...... China is not wrong to try to keep the cost of royalty payments at a manageable level, so there is a perfectly reasonable negotiation to be had over rules for royalty payments. There is no place for electorally pungent claims that China is in some way “stealing its way up the economic ladder”, as Christopher Wray at the FBI puts it....... The relative market calm suggests that no one believes this breakdown will not be resolved.
No trade deal? Why China should walk away and hit back at the US, in the sectors where it really hurts

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Tuesday, May 21, 2019

The US And The Chinese Economies Are Super Well-Connected

The US and the Chinese economies are super well-connected. It costs less to send a package from Shanghai to Los Angeles, than it does to send it from Los Angeles to any other destination in the US, no matter how close. China is not some distant country.

Not only are the US and Chinese economies super well-connected, but the two are also super well-connected to the rest of the world. If the two escalate this trade war, the global economy itself suffers. Every country will be impacted to various degrees.

The US and the Chinese economies are not only super well-connected at the level of consumption. That is there. But that is only the surface of it. China exports raw material to the US that the Chinese manufacturers use to produce and export to China which some Chinese producers use to build even more complex goods which they then export to the US, among other places.

That is why when the trade war started, the Trump administration started jacking up the tariffs, first on some imports, then on more, then larger tariffs on even more imports. That gradual increase might have been as much in consideration of the trade talks as to test the resilience of the US economy itself. China, of course, retaliated in kind. But so far it has been theatrics. Soon the trade war is about to hit the average consumer in the US in the form of higher prices. People who by and large did not much gain from the Trump tax cuts are about to start paying more at their local stores. This is going to be widespread. The trade war is no longer some remote thing impacting farmers in Iowa.

But then there is Huawei. The US intends to hurt Chinese companies like Huawei. Ends up Huawei imports things like computer chips from some American companies. But then also ends up China is the source of something like 90% of the supply of rare earth metals that are do or die for the high tech industries. The US might block the chips. China might block those rare earth metals. You are looking at constipation scenarios in the global supply chains.

But then China has been the hub of low tech industries. It produces goods that go to the Walmarts of the world where the working class, the lower middle class, the middle class go shopping. Ends up those working class, the lower middle class, the middle class are by now emergent classes in most parts of the world.

The US is not about to get back its lost manufacturing base. But it is already seeing the industries of tomorrow all over the horizon. It is automation, not China. China is also losing manufacturing jobs to automation.   

Yes, free speech is an issue. Yes, mass surveillance is an issue. Yes, freedom of religion is an issue. But white supremacy is also an issue. At some level, the trade war is white supremacist thinking taken from the Mexican border to the ports of China.

The FBI is on public record having asked Facebook and Apple for information on individuals. One thing Wikileaks revealed is the US spied on the German Chancellor. I don't doubt the US and Chinese intelligence agencies do their best to snoop in.

Cybersecurity is a major issue. But it is for the tech companies of the world to come together and set standards. It is for the governments of the world to make the policy moves.

5G is going to be a game changer. Too bad the two leading economies cannot get their act together.



Trade War Endgame Scenarios
US China Trade War: A Meeting Of The Hot And Cold Fronts
New Twist In The Trade War: China Devalues Its Currency

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Monday, May 13, 2019

The US China Trade War Escalation Is Primarily Political

That the Chinese economy is now bigger than the US economy adjusted for purchasing power parity was a major event. China now has become a rival that in some sense the Soviet Union never was. The US was supposed to be a better economic model. Measured in absolute dollar terms the US economy is still much larger and the per capita income in the US is still much, much higher. But the US economy does have the blight of a much-weakened manufacturing base.

Strictly on economic theory, there are many in the US who think Trump is simply being foolish. Trade is a good thing in almost all circumstances, they argue. China does not pay the tariffs. The US consumer does.

Brexit was a hubris move. Trump might be a similar move.

Many are aghast that Trump, in seeking bilateral trade talks is essentially breaking down the global trade regime. That could only lead to disaster perhaps in the form of a global depression that might make 2008 look like a picnic. They see China as their last hope as a power that will stand up to the US and more specifically Trump to keep the global order on trade intact.

And there are others who see the US and Trump as the last hope as the only power that will stand up to China who is seen a bully when it comes to the South China Sea, or Taiwan, or Tibet, or now with the ethnic Muslim minority in western China, not to mention China's forays far and wide like now running the major port in Sri Lanka that it funded and built. To that add mass surveillance in China aided by the latest in technology.

Has the tussle been inevitable? How will it play out? How long will it last? Will a deal be made fast enough? Or will the tussle go on for years, if not decades?

Some changes the US wants are akin to if the Chinese were to demand the US Congress pass a certain law. Others are to do with the model of state capitalism that China has. The Chinese communist party and government actively lead the Chinese economy. They invest, they protect. They put out vision plans. The state steers. In the US model, the state is more hands off.

These are early innings. And most hope for a quick resolution because there will be pain on more than two sides if this trade war lingers or escalates. Hopefully, the miscalculations will be foreseen and the two powers will not go so far as to give the world economy a depression. That would be unnecessary.

One good thing about the tussle might be that it will force the Chinese economy to open up faster than it had planned to, and it might force the US political system to take a harder look at what works in China and realize investing in education is a good idea after all, maybe universal health care makes sense. The US government invested heavily in the early internet. Maybe it wants to invest more in clean energy. The Chinese have major plans to invest in some of the industries of tomorrow.

The elephant in the room though is that most manufacturing jobs that have been lost in the US have not been lost to China. China also has been losing them. The culprit is automation. And that process, if anything, is accelerating. The person making the most sense on this topic right now is Andrew Yang, a Democrat running for president, a Chinese American.

China is a ‘kung fu master’ and can deliver ‘deadly punch’ to US economy in trade war, ex-official says China still had abundant tools in its armoury and has already prepared a contingency plan to deal with the escalation of the trade war. ..... as an experienced boxer and can deliver a deadly punch at the end ..... the world’s second largest economy is prepared for an extended trade war with the US....... US agriculture products would be a natural primary target for retaliation, especially wheat, corn and pork, Wei said. These would directly target a key part of US President Donald Trump's electoral base in the run-up to the 2020 election....... “The decision makers already fully understand the pattern of the US in the trade talks.” ...... China could also place sanctions on US planes and vehicles ..... China was preparing to buy 100 Boeing planes worth more than US$10 billion, in a bid to satisfy US desires to narrow the trade deficit. ...... While the US has used “national security” as the justification for rolling out Section 232 tariffs on products such as steel and aluminium, and is considering using the same rationale for levying duty on the global car industry, it is not thought to have the same leverage to act in this manner as Beijing’s central planners. Levin: Why Trump’s tariffs against ‘Red China’ are ‘absolutely necessary’ “They’re the enemy, and it’s about time we view it that way.” ...... the Chinese government’s human rights violations against the Uyghur Muslim minority. In addition to employing a massive surveillance state operation against the long-persecuted minority, forcing many into exile, the government has also detained two million in internment camps, which Levin said were “concentration camps.” ..... pointing to Pentagon and other intelligence reports that China aspires to dominate the rest of the world as the top superpower by 2049.
Dow plunges 700 points after China retaliates with higher tariffs
Real trade war: Trump fixates on tariffs while China pursues global digital domination China is ahead of the US in the race to establish global trade rules on digital commerce. We need investment, diplomacy and a Digital Marshall Plan. ...... Today there are almost 4.4 billion internet users around the world, up more than 1,000% since 2000, with global e-commerce sales topping $2.8 trillion in 2018. Digital trade is the backbone of today’s business — when a customer in Japan orders a book from Amazon, when a bank transfers data from one country to another, or when an in-flight aircraft engine beams GPS information to a global data collection center. The fact that the global regulatory environment is still a free-for-all is astounding, given all that is at stake...... With legitimate concerns over privacy and cybersecurity, many countries have moved to restrict digital trade, threatening American companies’ ability to do business while undermining U.S. national security. Because of the regulatory vacuum, countries have put in place a wide variety of restrictions. Nigeria, Turkey and others have data localization requirements mandating that companies doing business in their borders must keep data in country on local servers, among other restrictions, rendering digital trade impractical...... When developing countries buy Chinese equipment, they receive the tools to censor and control their internet while leaving their networks vulnerable to Chinese government cybertheft and interference. ...... Seventy-six countries have launched negotiations for a digital e-commerce agreement under the auspices of the World Trade Organization. At the Group of 20 major economies summit in June, host Japan will highlight the need for global digital regulations. ..... Beijing is well ahead of Washington in the race to establish the trade rules that tame — or rather maim — digital commerce. Playing the long game, Beijing surely understands that though today’s tariff battles must be fought, the trade wars of tomorrow will be waged on a digital battleground.

Trump’s escalating trade war with China could wipe out benefits from his tax reform
America is the revisionist power on trade Meanwhile China wants to preserve the model of globalisation that has served it well ...... the two countries’ rival ambitions have produced a trade war that now threatens globalisation........ For Xi Jinping, the problem with the current world order is America’s political and strategic dominance. The Chinese president has made it clear that he wants his country to displace the US as the dominant power in the Asia-Pacific region. Many Xi-supporting nationalists go further, speaking openly of their hope that China will become the dominant global power. Mr Xi is well aware that globalisation has been critical to China’s rise over the past 40 years. So he is determined to preserve the current trade model......... Mr Xi wants to change the world’s strategic order, and to do that he needs to maintain its economic order. Mr Trump wants to preserve the strategic order, and to do that he needs to change the economic order. ...... America and China are therefore both revisionist powers. And they are also both status quo powers. America is the status quo power on geopolitics, so it has become the revisionist power on economics. China is the revisionist power on geopolitics, so it has become the status quo power on trade....... The actions of both countries suggest that they basically agree that the current system works better for China than for the US. While many economists would dissent from that view, it now seems to be the consensus political position in America. Chuck Schumer, the leader of the Democrats in the US Senate, has tweeted his support for the Trump administration’s confrontational policies on trade with China........ In both Washington and Beijing, however, there are divisions between moderates who want the current trade row to end with a deal and radicals who would welcome a lasting breakdown in trading relations........ The increasingly bellicose attitudes of nationalists in both the US and China look like an illustration of the “Thucydides’s trap” ....... throughout history, rising powers such as China have often gone to war with established powers such as the US. ...... But the current US-China conflict is a trade war, not a shooting war. And when it comes to trade, it is the US that is seeking to overturn the current system. ....... The Chinese are very mindful of the precedent of the Plaza Accord of 1985, in which, under intense US pressure, Japan agreed to revalue its currency. Many in China believe that, in retrospect, the Plaza Accord represented a successful American attempt to thwart the rise of Japan......... Yet a close relationship between leaders is no guarantee that conflict can be avoided. In the July crisis that preceded the outbreak of the first world war in 1914, Kaiser Wilhelm of Germany and Tsar Nicholas of Russia exchanged numerous friendly notes and telegrams. But it did not prevent their two countries sliding into conflict. In a similar way, the US-China trade war now risks escalating to a point where it escapes the control of the two countries’ leaders.

Dow, S&P 500 set for worst May tumble in nearly 50 years amid U.S.-China trade clash
Kudlow Admits the Obvious: Trump is Wrong White House economic adviser Larry Kudlow on Sunday acknowledged that the Chinese do not directly pay tariffs on goods coming into the U.S., contradicting President Donald Trump’s claims that China will pay for tariffs imposed by the U.S...... Goldman Sachs says the same thing: The cost of Trump’s tariffs has fallen ‘entirely’ on US businesses and households...... That set of Tweets is from Sunday. It's a repeat of economic idiocy from Friday and Saturday.
DONALD TRUMP'S TRADE WAR HAS BEEN PAID FOR ENTIRELY BY U.S. BUSINESSES AND CONSUMERS, SAYS GOLDMAN SACHS
Take trade war deal or be ‘hurt very badly,’ Trump warned China before Beijing hit US with tariffs Despite Trump’s threat the same day that any retaliation by China would make things worse, Beijing responded in turn with a new set of tariffs of up to 25 percent on $60 billion worth of US imports....... The US and China have been involved in an all-out economic battle since early last year when Trump accused Beijing of stealing trade secrets and forcing foreign companies to give up technology in order to gain access to Chinese markets. The rival superpower’s tit-for-tat tariff measures have already affected hundreds of billions in mutual imports.
China Is Calling Trump’s Bluff on His Trade War, and We’re All Going to Literally Pay For It Trump’s trade war with China. He’s losing it. ...... we are ultimately the ones who will wind up paying these additional taxes imposed by both sides in this economic dick-measuring contest—Trump voters especially. ..... This basic reality—that tariffs are a mutually assured form of destruction, like nuclear weapons—is even understood by the dim-witted Larry Kudlow. ...... Trump sees our suffering as his benefit ...... he now believes that demonstrating his toughness with the Chinese and walking away from a deal might well put him in a better position politically than signing one...... “Politics now drives the economics.” ....... The Republicans have created such a robust propaganda network that Trump could take a dump on your living room floor, and he'd have dutiful lap dogs like Senator Tom Cotton immediately rush in to tell you why it's actually a good thing that your house now smells like the inside of President Big Mac's colon....... ”If 25% duties are eventually imposed on all China goods, and then you consider a Chinese retaliation, we estimate it would result in over 2 million jobs lost in the U.S. over the next one to three years.”....... even Trump understands this—he’s just banking his re-election chances on the hope that enough Americans won’t see through his BS and help him work against their own best interests. Given how well that worked last time, it’s difficult to strategically criticize this cynically cruel political game plan that may wind up destroying the economy in order to get Trump re-elected.
Global stock markets plunge after China responds in kind to US tariffs
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