tag:theconversation.com,2011:/ca/topics/us-china-trade-17448/articlesUS-China trade – The Conversation2023-06-14T19:45:05Ztag:theconversation.com,2011:article/2071782023-06-14T19:45:05Z2023-06-14T19:45:05ZWhy does so much of the world’s manufacturing still take place in China?<figure><img src="https://images.theconversation.com/files/531184/original/file-20230609-19-aos7wu.jpg?ixlib=rb-1.1.0&rect=22%2C22%2C4970%2C3278&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Workers assemble ice-skating shoes at a manufacturing factory in Zhangjiakou in northwestern China's Hebei province.</span> <span class="attribution"><span class="source">(AP Photo/Andy Wong)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/why-does-so-much-of-the-world-s-manufacturing-still-take-place-in-china" width="100%" height="400"></iframe>
<p>With the current geopolitical challenges between China and the United States, as well as the ongoing supply chain issues affecting manufacturers and consumers, there’s been much talk about <a href="https://qz.com/1874825/supply-chain-leaders-want-to-get-out-of-china-by-2023">moving global manufacturing out of China</a>.</p>
<p>But despite the talk, U.S.-China trade <a href="https://www.bbc.com/news/business-64563855">reached a record level in 2022</a>, with no signs of any slowing in the near future. </p>
<p>While former U.S. secretary of state Henry Kissinger is <a href="https://thehill.com/opinion/international/595241-fifty-years-after-nixons-historic-opening-china-is-still-hostile-and">credited with opening China to the West</a> under then-President Richard Nixon, it wasn’t until 2000 that the U.S. <a href="https://www.govinfo.gov/content/pkg/PLAW-106publ286/html/PLAW-106publ286.htm">granted China permanent normal trade relations</a> — a legal designation that allows foreign nations be granted most favoured nation status, and hence be treated similarly to other members of the World Trade Organization.</p>
<p>This move reinforced China’s growing role in global trade. Since then, <a href="https://sgp.fas.org/crs/row/RL33534.pdf">much of the world’s manufacturing base has migrated to China</a>, attracted by low-cost labour and favourable policies from the Chinese government. These policies include massive investments in infrastructure and trade capacity.</p>
<h2>Tariffs and trade wars</h2>
<p>The spectacular economic rise of China has created many geo-political challenges, from <a href="https://www.nbcnews.com/politics/national-security/china-spy-balloon-collected-intelligence-us-military-bases-rcna77155">spy balloons</a> to <a href="https://www.bbc.com/news/business-58991339">unfair trade practices</a> and <a href="https://www.cbsnews.com/news/chinese-hackers-took-trillions-in-intellectual-property-from-about-30-multinational-companies/">accusations of intellectual property theft</a>. This has <a href="https://www.cfr.org/blog/cost-trumps-trade-war-china-still-adding">resulted in an active trade war between the U.S. and China</a>. </p>
<p>In 2018, Donald Trump invoked Section 301 of the Trade Act of 1974 <a href="https://www.cnn.com/2018/03/22/politics/donald-trump-china-tariffs-trade-war/index.html">to apply tariffs on billions of dollars on Chinese goods</a> when he was president. As a result, pressure intensified on global companies to relocate their manufacturing to lower-cost destinations across Asia, such as Vietnam, Bangladesh and India. </p>
<p>After the COVID-19 pandemic <a href="https://theconversation.com/the-covid-19-pandemic-has-revealed-that-global-supply-chains-are-a-huge-house-of-cards-164821">caused chaos in global supply chains</a>, there were <a href="https://www.nytimes.com/2023/01/01/business/mexico-china-us-trade.html">calls to bring manufacturing back closer to home</a> either by <a href="https://doi.org/10.1016%2Fj.retrec.2021.101089">“nearshoring”</a> — building factories in Mexico for the U.S. market, for example — or <a href="https://www.investopedia.com/terms/r/reshoring.asp">reshoring</a> back to home countries.</p>
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<img alt="China Shipping Company and other shipping containers stacked at a terminal." src="https://images.theconversation.com/files/531176/original/file-20230609-26434-aos7wu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/531176/original/file-20230609-26434-aos7wu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=368&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531176/original/file-20230609-26434-aos7wu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=368&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531176/original/file-20230609-26434-aos7wu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=368&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531176/original/file-20230609-26434-aos7wu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=463&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531176/original/file-20230609-26434-aos7wu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=463&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531176/original/file-20230609-26434-aos7wu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=463&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Donald Trump intensified the country’s trade war with China in 2018 by increasing tariffs on US$200 billion in Chinese imports.</span>
<span class="attribution"><span class="source">(AP Photo/Steve Helber)</span></span>
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<p>Despite these significant financial and political pressures, many companies are still not moving more of their production out of China. Why not? As it turns out, China has mastered the craft of manufacturing. </p>
<p>As part of our ongoing research into global competitiveness, we had the opportunity to review confidential data from some manufacturing firms. This data indicated that even though labour costs associated with production are significantly lower in other markets, such as Bangladesh, so is productivity.</p>
<p>Chinese labourers are both more expensive and more productive than labour in other emerging economies in Asia. Both of these factors must be taken into account when making the decision to relocate production out of China. But this is only part of the story.</p>
<h2>The reality of manufacturing</h2>
<p>We interviewed Joseph Eiger, our former student and an executive in a global sourcing company that manufactures consumer products, about how the world of manufacturing operates.</p>
<p>Consider the case of making a baseball cap, for example. Some baseball caps are very basic, while others are more complicated and involve embroidery and more expensive fabrics. As Eiger put it: “While producing baseball caps is not the same as producing a cell phone, it’s still pretty complex.” </p>
<p>China’s manufacturing industry has access to a high level of agglomeration economies — or ecosystem. Take the example of producing a hoodie. It’s not just about the textiles needed to cut and sew into a hoodie. It is also about the trims, dyes, zippers, cords and other necessary pieces that are required for assembling the product, Eiger explained. </p>
<p>China has deployed a strategy that ensures the entire manufacturing supply chain is located there, and has mastered each step of the process. China even <a href="https://www.ers.usda.gov/topics/crops/cotton-and-wool/cotton-sector-at-a-glance/">imports and processes much of the world’s wool and cotton</a>, including a significant amount of U.S.-grown cotton that comprises approximately 35 per cent of the world total.</p>
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<img alt="A person, seen from the shoulders down, opens a plastic bag over a massive spool of yarn sitting on a table. Yarn stacked in pyramids is seen in the background." src="https://images.theconversation.com/files/531175/original/file-20230609-22-m87frt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/531175/original/file-20230609-22-m87frt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531175/original/file-20230609-22-m87frt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531175/original/file-20230609-22-m87frt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531175/original/file-20230609-22-m87frt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531175/original/file-20230609-22-m87frt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531175/original/file-20230609-22-m87frt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A worker packages spools of cotton yarn at a textile manufacturing plant in Aksu in western China’s Xinjiang Uyghur Autonomous Region in April 2021.</span>
<span class="attribution"><span class="source">(AP Photo/Mark Schiefelbein)</span></span>
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<p>This cotton is then processed, made into fabric, dyed and sewn into clothing and other products. They are then exported globally, including back to the U.S. as finished goods. The entire <a href="https://fashionunited.com/statistics/china">textile ecosystem for production is located in China</a>. And this is not just the case for fabric, it’s also the case for all of the components. </p>
<p>If a retailer in the U.S. or Canada wants to move the production of the textiles it sells out of China, it would have to move the entire ecosystem with it. Either that, or they would need to source the inputs needed from China into other countries like Bangladesh, where final production would take place. </p>
<h2>Costs are too high</h2>
<p>It turns out that the costs associated with leaving China are simply too high. As long as the ecosystem for manufactured goods remains in China, then so will its significant share of the world’s manufacturing. </p>
<p>Will there be a tipping point when companies will relocate production out of China? It is unlikely that conditions will suddenly switch one day in favour of other countries. </p>
<p>In the coming years, as manufacturing sectors in other Asian countries emerge and develop their own ecosystems, the economic case to move production out of China will as well. But this is some years away.</p><img src="https://counter.theconversation.com/content/207178/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite significant financial and political pressures, many companies are still not moving their production and manufacturing out of China. Why not?Walid Hejazi, Professor of International Business, Rotman School of Management, University of TorontoBernardo Blum, Associate Professor, Rotman School of Management, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1736292022-01-06T13:18:14Z2022-01-06T13:18:14ZThe ‘China shock’ of trade in the 2000s reverberates in US politics and economics – and warns of the dangers for fossil fuel workers<figure><img src="https://images.theconversation.com/files/437867/original/file-20211215-23-1hirha3.jpg?ixlib=rb-1.1.0&rect=95%2C53%2C3760%2C2383&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Containers are seen stacked at a port in Qingdao in China's eastern Shandong province on Jan. 14, 2020. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/containers-are-seen-stacked-at-a-port-in-qingdao-in-chinas-news-photo/1193594687?adppopup=true">STR/AFP via Getty Images</a></span></figcaption></figure><p>In December 1978, the Chinese leader <a href="https://www.britannica.com/biography/Deng-Xiaoping">Deng Xiaoping</a> introduced economic reforms that dramatically altered China’s economy by strengthening trade and cultural ties with the West.</p>
<p>Beginning in the 1990s, these reforms set China on a trajectory to become what it is today: a nation with a <a href="https://www.atlanticcouncil.org/content-series/the-big-story/the-2021-economic-scorecard-how-china-stacks-up-with-the-us-and-its-allies/">dynamic</a> and substantially market-driven economy that is also the world’s <a href="https://www.science.org/doi/10.1126/sciadv.aau9413">second-largest</a>. </p>
<p>U.S. residents have enjoyed lower-priced goods exported from China since then, but many communities that produced goods that competed with Chinese manufacturing exports suffered <a href="https://doi.org/10.1257/aer.103.6.2121">job losses and economic downturns</a>.</p>
<p>This negative effect on U.S. manufacturing jobs from Chinese exports is often called the “China Shock.” <a href="https://www.brookings.edu/bpea-articles/on-the-persistence-of-the-china-shock/">A recent study</a> has found that even though this shock leveled off around 2010, its harmful aftereffects continued for many years beyond, particularly in certain industries such as <a href="https://chinashock.info/">furniture, games and toys, and children’s toy bicycles or cars</a>.</p>
<p>I am an <a href="https://www.rit.edu/directory/aabgsh-amit-batabyal">economics professor</a> who has <a href="https://people.rit.edu/aabgsh/">conducted research</a> on China, and understanding when these trade effects ended allows me and other researchers to examine what long-term demographic aftershocks are occurring in U.S. communities and how best to deal with them. These policy prescriptions can be applied to other industries that are experiencing a rapid shift in employment because of macreconomic trends. </p>
<h2>How China gained so much so quickly</h2>
<p>As a part of its increased openness to the world, China joined the <a href="https://www.wto.org/index.htm">World Trade Organization</a> – the international body that sets global trade rules – in 2001. Believing that increasing economic liberalization would lead to <a href="https://www.penguinrandomhouse.com/books/298527/the-china-fantasy-by-james-mann/">political liberalization</a> in China, the U.S. began to engage in robust trade with the country. </p>
<p><a href="https://www.pearson.com/us/higher-education/program/Krugman-International-Trade-Theory-and-Policy-RENTAL-EDITION-11th-Edition/PGM1838560.html">International trade theory</a> teaches that free trade between nations makes them better off than not trading at all. And <a href="https://www.brookings.edu/bpea-articles/on-the-persistence-of-the-china-shock/">recent research</a> underscores that the economic gains to the U.S. from trade in general have been positive but small, adding about <a href="https://www.nber.org/digest/apr18/how-large-are-us-economys-gains-trade">2% to 8%</a> of <a href="https://www.bea.gov/data/gdp/gross-domestic-product">gross domestic product</a>. </p>
<p>Yet trade with China has given rise to a <a href="https://www.npr.org/sections/money/2021/11/02/1050999300/how-american-leaders-failed-to-help-workers-survive-the-china-shock">significant economic shock</a> involving job losses and declines in human welfare in <a href="https://chinashock.info/">several U.S. regions</a>, especially in the Deep South and in some Midwestern states. </p>
<p>The source of this shock is China’s <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20131687">comparative advantage</a> in manufacturing, specifically in goods that are labor-intensive. <a href="https://www.investopedia.com/terms/c/comparativeadvantage.asp">Comparative advantage</a> is a nation’s ability to produce a good or service at a lower <a href="https://www.econlib.org/library/Topics/College/opportunitycost.html">cost</a> than its trading partners. China has an <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/twec.12619">abundant supply</a> of labor relative to capital and natural resources.</p>
<p>As China began to liberalize its foreign trade, there was a dramatic surge in manufacturing exports and an accompanying economic shock to the U.S. economy. That’s because U.S.-produced goods could not compete with the inexpensive Chinese goods that were flooding the market.</p>
<p>The <a href="https://docs.house.gov/meetings/EF/EF00/20210928/114084/HHRG-117-EF00-20210928-SD002.pdf">U.S. economy lost 1.5 million manufacturing jobs</a> between 1980 and 2000, and <a href="https://docs.house.gov/meetings/EF/EF00/20210928/114084/HHRG-117-EF00-20210928-SD002.pdf">5 million more</a> between 2000 and 2017. </p>
<p>This fall in manufacturing employment was <a href="https://news.mit.edu/2021/david-autor-china-shock-persists-1206">not accompanied</a> with the same number of job gains in other sectors of the U.S. economy. </p>
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<a href="https://images.theconversation.com/files/437869/original/file-20211215-6487-15iiv9h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Workers build desks." src="https://images.theconversation.com/files/437869/original/file-20211215-6487-15iiv9h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/437869/original/file-20211215-6487-15iiv9h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/437869/original/file-20211215-6487-15iiv9h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/437869/original/file-20211215-6487-15iiv9h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/437869/original/file-20211215-6487-15iiv9h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/437869/original/file-20211215-6487-15iiv9h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/437869/original/file-20211215-6487-15iiv9h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Workers produce desks for export to the U.S. at a factory in Nantong in China’s eastern Jiangsu province on Sept. 4, 2019.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/workers-produce-desks-for-export-to-the-us-france-germany-news-photo/1165927293?adppopup=true">STR/AFP via Getty Images</a></span>
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<h2>The impact endures</h2>
<p>Today, even with the China manufacturing surge ending, its effects in the U.S. have endured.</p>
<p>A decade after the conclusion of the China trade shock in 2010, the U.S. still has a large number of local economies in which studies show social structures, including the institution of marriage, are fraying because <a href="https://www.aeaweb.org/articles?id=10.1257/aeri.20180010">workers have lost their jobs</a> and don’t have <a href="https://econpapers.repec.org/article/uwpjhriss/v_3a51_3ay_3a2016_3ai_3a1_3ap_3a1-29.htm">stable salaries they can live on</a>.</p>
<p>This lack of wages has subsequently resulted in declines in the demand for local goods and services and in <a href="https://www.aeaweb.org/articles?id=10.1257/pol.20150578">housing values and property tax revenues</a>. There has also been <a href="https://www.aeaweb.org/articles?id=10.1257/aer.103.6.2121">an increase</a> in the number of people on government assistance such as Medicaid.</p>
<h2>How to help communities still suffering</h2>
<p><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2358751">Economists generally support</a> “people-based” over “place-based” policies. <a href="https://www.lincolninst.edu/sites/default/files/pubfiles/1403_719_lla080702.pdf">People-based policies</a> focus on distressed people, with a frequent focus on retraining, while place-based policies concentrate on investing in communities where workers live, such as revitalizing downtowns. Investment in the communities hit hard by Chinese imports have tended to focus on people-based policies because economists <a href="https://www.publicaffairsbooks.com/titles/abhijit-v-banerjee/good-economics-for-hard-times/9781541762879/">generally believe that investing in workers can help them move from distressed places with little job opportunity</a> to new places with better job markets, schools and other amenities.</p>
<p>The best-known people-based U.S. government program that assists workers displaced by trade competition is the <a href="https://www.dol.gov/agencies/eta/tradeact">Trade Adjustment Assistance for Workers</a>. It helps workers with job training, relocation assistance, subsidized health insurance and extended unemployment benefits. </p>
<p>Yet, relative to the magnitude of the job losses, the <a href="https://www.nytimes.com/2019/10/26/opinion/sunday/duflo-banerjee-economic-incentives.html">program is small</a>, providing too little relief to most workers who lost their jobs because of import competition in the 1990s and 2000s. </p>
<p>The Nobel laureates <a href="https://www.brookings.edu/blog/the-avenue/2019/11/12/displaced-workers-need-more-than-what-economists-are-suggesting/">Abhijit Banerjee and Esther Duflo have pointed out</a> that the TAA program needs to be expanded significantly. Although the House of Representatives is <a href="https://tcf.org/content/commentary/house-leaders-advance-bold-plan-revitalize-trade-adjustment-assistance/?agreed=1&agreed=1">taking steps</a> to reauthorize and expand the TAA program, it is still too early to tell what the final legislation will look like. </p>
<h2>Revisiting place-based policies</h2>
<p>Even though economists favor people-based policies, the evidence shows that those laid off as a result of import competition from China frequently <a href="https://www.forbes.com/sites/adammillsap/2016/12/21/people-are-giving-up-instead-of-moving-to-opportunity-and-thats-not-good/?sh=8b18dd4c562f">don’t move</a> because of unaffordable housing, child care costs and the uncertainties associated with finding a new job. </p>
<p>And left-behind places never completely die. Instead, in <a href="https://www.theatlantic.com/business/archive/2017/03/manufacturing-marriage-family/518280/">such places</a> fewer people marry and have children. More children live in poverty, alcohol and drug abuse go up and young men are less likely to graduate from college.</p>
<p>Therefore, a rethinking of economic policy is likely now needed in the U.S. to focus on two key points: the need to provide adequate assistance to workers in mass layoff events and to recognize that this assistance, quite frequently, will need to be place-based.</p>
<h2>Two lessons for the future</h2>
<p>Like the China trade shock, the <a href="https://www.eia.gov/todayinenergy/detail.php?id=44115">decline of the coal industry</a> in the U.S. beginning in 1980 and the <a href="https://www.federalreservehistory.org/essays/great-recession-of-200709">Great Recession</a>, from 2007 to 2009, were also mass layoff events.</p>
<p>Although local economies exposed to the <a href="https://www.nber.org/papers/w29401">Great Recession recovered</a> their pre-recession employment rates quickly, the decline of coal and the China trade shock both <a href="https://www.nytimes.com/2021/04/23/opinion/climate-coal-china-us.html">gave rise to</a> long-lasting job losses, reduced incomes, and slow population declines. </p>
<p>Policymakers could apply the lessons learned from this trade shock to respond effectively to the next likely mass layoff event.</p>
<p>As economies transition out of fossil fuels, we will continue to see <a href="https://www.brookings.edu/bpea-articles/the-employment-impact-of-a-green-fiscal-push/">job losses</a> in the coal mining and oil industries. </p>
<p>Although the increased use of renewable energy is likely to <a href="https://www.edf.org/energy/clean-energy-jobs">generate new jobs</a>, there is no guarantee that they will be anywhere near where the localized job losses are occurring. Hence, the prospect of large-scale, localized job losses remains. And new policies are needed to enhance employment growth in regions hurt by prolonged joblessness. </p>
<p>The evidence in the <a href="https://doi.org/10.1111/ajps.12358">U.S. and Europe</a> shows that political support for populist nationalists tends to be greater in regions that have suffered large, trade-led job losses. </p>
<p>If policies that promote job growth in distressed regions are not implemented, we may see more populist nationalists in power in the U.S.</p><img src="https://counter.theconversation.com/content/173629/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amitrajeet A. Batabyal does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Large-scale job losses in the US due to trade with China will lead to enduring demographic and political aftershocks without the implementation of policies that promote widespread job growth.Amitrajeet A. Batabyal, Arthur J. Gosnell Professor of Economics, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1472472020-10-26T11:59:57Z2020-10-26T11:59:57ZTrump’s trade war – what was it good for? Not much<figure><img src="https://images.theconversation.com/files/365295/original/file-20201023-22-1qvl21w.jpg?ixlib=rb-1.1.0&rect=65%2C29%2C3928%2C2628&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">When you push an opponent, he tends to push back.
</span> <span class="attribution"><span class="source">AP Photo/Ahn Young-joon</span></span></figcaption></figure><p>The 2016 election was a <a href="https://fortune.com/2016/11/10/trump-voters-free-trade-globalization/">referendum on free trade</a>, which many blamed for destroying millions of American manufacturing jobs. In 2020, it could be about the merits of trade wars.</p>
<p>During President Donald Trump’s first term, he tore up deals, launched a trade war with China and renegotiated NAFTA. His campaign <a href="https://www.promiseskept.com/achievement/overview/foreign-policy/#">claims the war was a success</a> and that his policies <a href="https://www.cnn.com/2020/09/23/politics/fact-check-trump-jobs-manufacturing-coal/index.html">were bringing back manufacturing jobs</a> – until the pandemic arrived – and so voters should give him another four years.</p>
<p>His Democratic rivals disagree. </p>
<p>“You lost that trade war,” Sen. Kamala Harris snapped during her debate with Vice President Mike Pence, citing <a href="https://www.forbes.com/sites/rickhelfenbein/2020/10/12/senator-harris-on-trumps-china-strategy-you-lost-that-trade-war/#59e2780e3253">the loss of 300,000 manufacturing jobs</a> during Trump’s presidency and bankrupt farmers. </p>
<p>So who’s right?</p>
<p>As an <a href="https://www.bu.edu/gdp/profile/rebecca-ray/">economist who researches international economic policy</a>, I believe Trump’s impulse to rethink trade policy was understandable. If free trade hurt American workers, it stands to reason that putting up barriers to trade – even being willing to “go to war” – might protect those workers.</p>
<p>But wars can backfire – and trade wars are no different.</p>
<h2>Free trade’s losers</h2>
<p>Economic theory <a href="http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_091038.pdf">tells us</a> that free trade means a greater availability of cheaper goods because everything will be produced where it can be made least expensively.</p>
<p>That sounds like a great deal for consumers and exporting industries like agriculture that find more buyers for their products. But it’s a raw deal for manufacturing workers as factories move to countries like Mexico and China with lower labor costs. </p>
<p>That’s what happened after the <a href="https://www.thebalance.com/nafta-pros-and-cons-3970481">North American Free Trade Agreement became law</a> in 1994 and <a href="https://www.marketwatch.com/story/chinas-entrance-into-wto-cost-us-34-million-jobs-new-study-finds-2018-10-23">China joined the World Trade Organization in 2001</a>.</p>
<p>In each case, <a href="https://fred.stlouisfed.org/series/MANEMP">manufacturing workers were among the big losers</a> as employment in the sector plunged from just under 18 million in 1990 to a little over 14 million in 2004.</p>
<h2>The tide turns against trade</h2>
<p>As a result, many politicians became more cautious about supporting free trade deals. </p>
<p>When he was a senator in 1993, former Vice President Joe Biden and many other Democrats <a href="https://www.bloomberg.com/news/articles/2019-05-14/biden-s-nafta-vote-is-a-liability-in-the-rust-belt">voted to ratify</a> NAFTA. A little over two decades later, when a free trade bill with Central America and the Dominican Republic came up for a vote, <a href="https://www.citizen.org/article/final-senate-vote-on-cafta/">Biden and nearly every Democrat voted no</a>. The bill barely passed. </p>
<p>And although Biden’s administration signed the <a href="https://www.cfr.org/backgrounder/what-trans-pacific-partnership-tpp">Trans-Pacific Partnership</a> in 2016 – which would have created the world’s largest free-trade zone – <a href="https://www.npr.org/sections/thetwo-way/2018/03/08/591549744/the-tpp-is-dead-long-live-the-trans-pacific-trade-deal">opposition among leading Democrats as well as Trump</a> imperiled its passage in the Senate, leading to the U.S.’s withdrawal in 2017. </p>
<p>When Trump launched his presidential campaign in 2016, <a href="https://time.com/4386335/donald-trump-trade-speech-transcript">opposition to trade deals</a> like NAFTA was one of his signature issues. At a time when Republican leaders mostly were staunch supporters of free trade, his promise to bring manufacturing jobs back to the U.S. <a href="https://www.newyorker.com/news/john-cassidy/how-donald-trump-won-the-g-o-p-nomination">helped him win</a> the primary – and <a href="https://fortune.com/2016/11/10/trump-voters-free-trade-globalization/">ultimately the presidency</a> – as a <a href="https://www.pewresearch.org/fact-tank/2016/03/31/republicans-especially-trump-supporters-see-free-trade-deals-as-bad-for-u-s/">growing number of voters</a> began to see trade as bad for Americans. </p>
<p>And as president, he followed through on his pledge and unilaterally imposed tariffs on a <a href="https://www.piie.com/blogs/trade-investment-policy-watch/trump-trade-war-china-date-guide">range of Chinese products</a> – a <a href="https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/">list that now totals US$550 billion worth</a> – as well as on most <a href="https://www.nytimes.com/2020/01/27/business/economy/trump-steel-tariffs.html">aluminum and steel</a> imports. Thus, Trump’s trade wars began.</p>
<p>My <a href="http://www.bu.edu/gdp/2020/09/15/how-trade-policy-failed-us-workers-and-how-to-fix-it">research</a> with colleagues at Boston University shows that trade agreements have indeed hurt U.S. workers. But Trump’s trade wars have not solved the offshoring problem that they were designed to fix.</p>
<h2>The trouble with trade wars</h2>
<p>Trump <a href="https://twitter.com/realDonaldTrump/status/969525362580484098">has claimed</a> “trade wars are good and easy to win.”</p>
<p>Trump seems to have based this on the assumption that America’s trading partners <a href="https://www.pbs.org/newshour/show/meet-the-trump-trade-adviser-whose-tariff-policy-is-about-to-be-tested">would not retaliate</a>. He was wrong.</p>
<p>Over many rounds of tit-for-tat, China <a href="https://www.piie.com/blogs/trade-investment-policy-watch/trump-trade-war-china-date-guide">has retaliated</a> repeatedly by placing tariffs on $185 billion of U.S. exports, <a href="https://theconversation.com/most-us-farmers-remain-loyal-to-trump-despite-pain-from-trade-wars-and-covid-19-146535">most notably agricultural products</a>. After U.S. soybean farmers saw their largest market dry up, the Trump administration was forced to <a href="https://www.card.iastate.edu/ag_policy_review/article/?a=103">spend $23 billion</a> to offset some of their losses. All told, more than <a href="https://www.reuters.com/article/usa-election-farmers-aid/trumps-payments-to-farmers-hit-all-time-high-ahead-of-election-idUKL1N2GT1C8">one-third</a> of farm income will come from government subsidies in 2020. </p>
<p>And when the Trump administration planned to impose steel tariffs on Canada earlier this year, <a href="https://www.bbc.com/news/business-54168420">America’s northern neighbor vowed retaliation</a>, which would have hurt U.S. exporters. So Trump backed down. </p>
<p>That’s the problem with trade wars. Intended to protect a country’s own workers, they wind up doing a lot of self-inflicted damage, as retaliatory tariffs drive up the cost of exports, hurting businesses and workers at home as well as abroad.</p>
<p>At the same time, U.S. policy seems to have lost sight of the original enemy: the offshoring of American jobs, which <a href="https://www.bloomberg.com/news/newsletters/2020-10-22/supply-chains-latest-the-hard-data-on-trump-s-offshoring-record">has continued to grow</a>. The <a href="https://www.nbcnews.com/politics/politics-news/trump-signs-tax-cut-bill-first-big-legislative-win-n832141">2017 tax cut</a>, for example, <a href="https://www.reuters.com/article/us-usa-tax-abbvie-idUSKBN1JE12Q">actually made offshoring more profitable</a> and attractive – making it even harder to achieve the primary goal of the trade war. </p>
<p>Trade wars pay off only if they have a clear vision and lead to meaningful changes in how everyone does business. That hasn’t happened either. </p>
<p>While Trump did reach a <a href="https://www.fas.usda.gov/topics/china-phase-one-agreement">“phase one” deal</a> with China in January, it actually looks like it will make the offshoring problem even worse. As part of the truce, the U.S. agreed to reduce its tariffs on Chinese goods and China said it would buy a lot more American products, especially soybeans. </p>
<p>While it may make up for some of the damage caused by the trade war – such as by aiding ailing soybean farmers – it will make offshoring easier by making it more advantageous and profitable for American companies to transfer operations to China. That’s because China also agreed to stop requiring foreign companies that seek to do business within its borders to transfer technology to domestic partners.</p>
<h2>A better way to protect workers</h2>
<p>One notable exception to all this is the <a href="https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement">U.S.-Mexico-Canada Agreement</a>, Trump’s replacement for NAFTA that became law in July.</p>
<p>That deal is likely to prevent more offshoring to Mexico because of bipartisan support for <a href="https://www.cnbc.com/2019/12/10/house-democrats-and-trump-administration-reach-usmca-trade-deal.html">labor and environmental provisions</a> that raise minimum Mexican automaker wages. </p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>This points to one of the best ways to actually stop manufacturing offshoring: Negotiate trade agreements that set <a href="https://www.globaltrademag.com/laboring-for-trade/">higher labor and environmental standards</a> for all signatories. This not only helps workers and communities in other countries get better treatment, but also makes U.S. workers more competitive by raising the cost of doing business there. That makes American companies less likely to move operations overseas.</p>
<p>The evidence suggests the best way to limit offshoring is through negotiation and cooperation, not war.</p><img src="https://counter.theconversation.com/content/147247/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rebecca Ray receives funding from the MacArthur Foundation, the Rockefeller Brothers Fund, the David and Lucile Packard Foundation, the Climate and Land Use Alliance, the The National Socio-Environmental Synthesis Center, the International Institute for Sustainable Development, and the Groundwork Collaborative.</span></em></p>Trump launched his trade war to save American manufacturing. An economist explains why it hasn’t worked out as planned.Rebecca Ray, Senior Academic Researcher, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1353192020-04-03T07:33:41Z2020-04-03T07:33:41ZChina’s economic recovery depends on the rest of the world<p>After <a href="https://www.scmp.com/news/china/society/article/3075872/zero-new-domestic-coronavirus-cases-china-first-time-epidemic">reducing its number of new locally acquired COVID-19 cases to zero</a>, China must help other affected countries recover economically. This is the only way it can ensure its own economic recovery.</p>
<p>Over 40 economists, based both in and outside mainland China, have <a href="https://www.weforum.org/agenda/2020/02/coronavirus-economic-effects-global-economy-trade-travel/">forecast</a> China’ economic growth to fall to an average of 3.5% this quarter from 6.0% in the fourth quarter of 2019 – a full percentage point lower than predicted in a February 14 poll – due to the COVID-19 pandemic.</p>
<p>Despite this gloomy prediction, analysts previously <a href="https://www.cnbc.com/2020/03/12/coronavirus-china-economy-to-recover-demand-may-be-hurt-by-rising-global-cases.html">predicted</a> China’s economy will bounce back, following the resumption of work in factories and companies that shut due to the outbreak. </p>
<p>However, we should not forget that China, the world’s largest exporter, needs the rest of the world for its own economic recovery. </p>
<p>There are at least two reasons China depends on the global economy for its own recovery: China’s large amount of exports to other countries and
the continuity of its Belt and Road Initiative (<a href="https://www.cfr.org/blog/what-covid-19-pandemic-may-mean-chinas-belt-and-road-initiative">BRI</a>) – China’s massive infrastructure projects, many of which are located in countries affected by COVID-19.</p>
<p>To ensure its economic recovery, China should assist countries involved in <a href="https://www.cfr.org/blog/what-covid-19-pandemic-may-mean-chinas-belt-and-road-initiative">(BRI)</a> initiative and improve its relationship with its biggest export destination, the United States.</p>
<h2>China’s high exports</h2>
<p>China’s export activities are significant for its economy, accounting for almost <a href="https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS?locations=CN">one-fifth</a> of its GDP.</p>
<p>The latest data from <a href="https://www.trademap.org/Bilateral.aspx?nvpm=1%7c156%7c%7c000%7c%7cTOTAL%7c%7c%7c2%7c1%7c1%7c2%7c1%7c%7c1%7c1%7c1">Trade Map</a> show China’s exports of goods account for 12.4% of the total global goods imports in 2018, or worth about US$2.49 trillion.</p>
<p>The US is China’s <a href="https://tradingeconomics.com/china/exports-by-country">number one export destination</a>, accounting for 20% of China’s exports, followed by Hong Kong (12%), Japan (6%), South Korea (4.5%) and Vietnam (3.4%).</p>
<p>As the world <a href="https://www.weforum.org/agenda/2020/02/coronavirus-economic-effects-global-economy-trade-travel/">heads towards a recession</a> – that according to IMF Managing Director, Kristalina Georgieva would be at least as bad as the 2008 global financial crisis where global GDP growth was at <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?view=chart">minus 1.6%</a>, the lowest since the 1930 Great Depression – demand for exports from China’s trading partners have dropped.</p>
<p>In the US the virus is causing <a href="https://theinsiderstories.com/covid-19-to-precipitate-us-recession-in-second-quarter/">a deep decline</a> in spending. These spending cuts are expected to <a href="https://www.fitchsolutions.com/country-risk-sovereigns/economics/covid-19-growth-revisions-tracking-lower-20-03-2020">hurt</a> its export demands as well.</p>
<p>To recover its economy, China must also see the economies of its export destination countries improve – especially its top five export destinations: the US, Hong Kong, Japan, South Korea and Vietnam. </p>
<h2>The BRI must go on</h2>
<p>China also needs to ensure continued implementation of the BRI, especially in countries <a href="https://www.ebrd.com/what-we-do/belt-and-road/overview.html">along the BRI routes</a> hit by the COVID-19 pandemic, to save its economy.</p>
<p>The BRI is China’s <a href="https://onlinelibrary.wiley.com/doi/full/10.1002/app5.265">most crucial economic initiative</a>, accounting for <a href="http://dx.doi.org/10.1787/888933786477">17%</a> of its exports.</p>
<p>Since the outbreak of SARS-CoV-2, the virus that causes COVID-19, many countries have delayed the implementation of BRI projects as they focus on containing the spread of the virus in their regions. </p>
<p>The projects <a href="https://www.benarnews.org/english/news/indonesian/project-delays-02212020132816.html">stopped</a> in some host countries because Chinese engineers and workers have not been allowed to re-enter.</p>
<p>In Italy, BRI projects <a href="https://moderndiplomacy.eu/2020/03/24/coronavirus-and-its-impact-on-the-belt-and-road/">were put on hold</a> after the country’s first case of COVID-19. </p>
<p>In Indonesia, the construction of a high-speed railway linking Jakarta and Bandung in West Java, and the building of a dam in the Batang Toru rainforest, North Sumatra have been <a href="https://www.benarnews.org/english/news/indonesian/project-delays-02212020132816.html">suspended</a>. A ban on flights from China prevented Chinese workers from returning to the construction sites. </p>
<p>BRI projects play an important role in China’s economy as the BRI countries are not only China’s trading partners, but also its gateways to regional markets.</p>
<p>BRI projects in Italy give China access to European markets. In 2018, Italy imported 6% of its goods from China, equivalent to around <a href="https://www.trademap.org/Bilateral.aspx?nvpm=1%7c156%7c%7c381%7c%7cTOTAL%7c%7c%7c2%7c1%7c1%7c2%7c1%7c%7c1%7c1%7c1">US$33 billion</a> that year. Italy has been a crucial destination for Chinese investments, particularly in <a href="https://www.bbc.com/news/av/world-europe-11624801/italy-s-fashion-challenged-by-chinese-factories">the fashion industry</a>. </p>
<p>China has also been initiating <a href="https://asia.nikkei.com/Economy/Trade-war/US-overtaken-by-Southeast-Asia-as-China-s-No.-2-trade-partner">major BRI infrastructure projects in Southeast Asia</a> due to ASEAN nations being China’s <a href="https://asia.nikkei.com/Economy/Trade-war/US-overtaken-by-Southeast-Asia-as-China-s-No.-2-trade-partner">second top export destination</a>.</p>
<p>Indonesia is one of the key countries for BRI projects in Southeast Asia. </p>
<p>But Southeast Asian countries are struggling to deal with the COVID-19 pandemic, which means China’s BRI projects are also at risk, harming its economy. </p>
<h2>The way forward</h2>
<p>One thing China can do to speed up its economic recovery is to prioritise assistance to BRI countries.</p>
<p>China can send its medical personnel and kits to these countries. China <a href="https://www.aa.com.tr/en/asia-pacific/china-assists-asia-in-fighting-coronavirus/1782309">has already sent medical supplies</a> to countries in South and Southeast Asia. But it should also consider expanding its assistance to other BRI regions. </p>
<p>China can also share what its learnt on containing the spread of the virus with the BRI countries.</p>
<p>Next, China should fix its relationship with the US, which has been <a href="https://www.scmp.com/comment/opinion/article/3075282/between-trade-war-and-coronavirus-us-china-relations-are-becoming">fractured</a> from the ongoing trade war.</p>
<p>Improved China-US relations would not only help both countries recover their economy, but also BRI countries . </p>
<p>China and the US have dominated <a href="https://www.trademap.org/Country_SelProduct_TS.aspx?nvpm=1%7c%7c%7c%7c%7cTOTAL%7c%7c%7c2%7c1%7c1%7c1%7c2%7c1%7c2%7c1%7c1">almost a quarter</a> of the global trade. A robust Beijing-Washington tie will accelerate export activities in other countries. BRI countries, <a href="https://m.economictimes.com/news/international/business/chinas-trade-with-bri-countries-surges-to-1-34-trillion-in-2019/articleshow/73271222.cms">as China’s major exporters</a>, will also benefit from healthy China-US relations. </p>
<p>In his <a href="https://www.reuters.com/article/us-health-coronavirus-china-u-s/chinas-xi-speaking-with-trump-calls-on-us-to-improve-relations-idUSKBN21E0HY">recent phone call</a> with US President Donald Trump, Chinese President Xi Jinping urged Washington to improve ties with Beijing. </p>
<p>Let us hope Trump will consider Xi’s offer.</p><img src="https://counter.theconversation.com/content/135319/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rusli Abdulah bekerja di INDEF - Institute for Development of Economics and Finance. </span></em></p><p class="fine-print"><em><span>Muhammad Zulfikar Rakhmat terafiliasi dengan Institute for Development of Economics and Finance (INDEF). </span></em></p>To recover its economy, China must also see the economy of its export destination countries improve.Rusli Abdulah, Researcher, Institute for Development of Economics and Finance (INDEF) Muhammad Zulfikar Rakhmat, Lecturer of International Relations, Universitas Islam Indonesia (UII) YogyakartaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1288402020-01-24T03:22:44Z2020-01-24T03:22:44Z‘Slow-minded and bewildered’: Donald Trump builds barriers to peace and prosperity<p>The US president “had no plan, no scheme, no constructive ideas whatever”, according to one of the world’s most influential economists. </p>
<p>He was “in many respects, perhaps inevitably, ill-informed”. He was “slow-minded and bewildered”, and failed to remedy these defects by seeking advice. He gathered around him businessmen, “inexperienced in public affairs” and “only called in irregularly”.</p>
<p>This assessment was written a century ago, in 1919, by the up-and-coming economist John Maynard Keynes. </p>
<p>The president was Woodrow Wilson, whom Keynes criticised for his inability to influence Europe’s post-first world war settlement in a way more likely to lead to peace and prosperity.</p>
<p>A century later the United States has another president out of his depth in global affairs. Wilson, at least, was a “generously intentioned” man. What would Keynes make of Donald Trump, whose policies are driven by a sense of entitlement and fear of being played for a sucker?</p>
<p>This week, at the World Economic Forum in Davos, Trump flagged new fronts in his dangerous campaign of economic nationalism. He reaffirmed his intention to reshape the World Trade Organization, which <a href="https://www.indiatoday.in/business/davos-2020/story/davos-summit-us-developing-nation-too-wto-unfair-years-donald-trump-1639275-2020-01-23">he said</a> been “very unfair to the United States for many, many years”. </p>
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Read more:
<a href="https://theconversation.com/myth-busted-chinas-status-as-a-developing-country-gives-it-few-benefits-in-the-world-trade-organisation-124602">Myth busted: China’s status as a developing country gives it few benefits in the World Trade Organisation</a>
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<p>He fretted about the “tremendous advantages” given to China and India. He threatened tariffs on European cars if the European Union didn’t agree to a “fair” free-trade deal.</p>
<p>The barrier-besotted president is pretty much everything Keynes warned against as ruinous to the prospects of a lasting peace.</p>
<h2>A tale of two presidents</h2>
<p>Keynes had observed Wilson <a href="https://insidestory.org.au/recalling-the-consequences-of-keyness-economic-consequences-of-the-peace/">at the talks in Paris</a> to conclude the Treaty of Versailles, which set out the detail of terms and conditions following Germany’s surrender (on November 11 1918) to end the war. </p>
<p>Wilson had proposed 14 points for a “just and stable peace” but proved completely ineffectual at the talks. The result was a treaty with terms so punitive for Germany they arguably created the conditions for Adolf Hitler to come to power, and thus led to the second world war. </p>
<p>Keynes’s disquiet with the treaty led him to write the book <a href="https://oll.libertyfund.org/titles/keynes-the-economic-consequences-of-the-peace">The Economic Consequences of the Peace</a>.</p>
<p>Wilson’s great failure was his inability to prevent punitive action. Trump’s is his love of punitive action. If his default stance in international diplomacy was to be summed up in a three-word slogan, it would be “Make Them Pay”.</p>
<p>In the longer term his administration’s intransigence on climate change may well prove Trump’s worst policy legacy to the world. But right now he is doing most damage through bringing back tariffs, particularly in the trade war started with China.</p>
<p>Trump has claimed (more than a hundred times in 2019, <a href="https://finance.yahoo.com/news/trump-has-made-this-false-claim-about-china-and-tariffs-at-least-100-times-182318319.html">by one count</a>) that he has made China pay by imposing tariffs on Chinese exports to the US. The truth, of course, is that US import tariffs “<a href="https://www.jstor.org/stable/26796842?seq=1#metadata_info_tab_contents">were almost completely passed through into US domestic prices</a>”. China pays through its goods being less competitive.</p>
<h2>Trade war costs</h2>
<p>Trump has bragged just as loudly about winning the peace. A week ago he declared a “<a href="https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/january/economic-and-trade-agreement-between-government-united-states-and-government-peoples-republic-china">phase one</a>” trade deal as “<a href="https://www.whitehouse.gov/briefings-statements/remarks-president-trump-signing-u-s-china-phase-one-trade-agreement-2/">the biggest deal anybody has ever seen</a>”. </p>
<p>But really all this agreement does is reverse some of the harmful actions the US has taken. It has been aptly called a “<a href="https://www.ft.com/content/65557ec4-3851-11ea-a6d3-9a26f8c3cba4">partial and defective</a>” truce. </p>
<p>This week the International Monetary Fund (IMF) updated <a href="https://www.imf.org/en/Publications/WEO/Issues/2019/10/01/world-economic-outlook-october-2019#Chapter%201">modelling first published in October 2019</a> estimating the damage the US-China trade war will do in 2020. </p>
<p>Its initial modelling estimated the tit-for-tat tariffs would reduce the level of global GDP in 2020 by 0.8 percentage points. Trump’s “biggest deal anybody has ever seen” will <a href="https://blogs.imf.org/2020/01/20/tentative-stabilization-sluggish-recovery/">reduce that harm, but by just 0.3 percentage points</a>, meaning world growth will be 3.3%, rather than 3.8% in 2020. And that’s only, says IMF chief economist Gita Gopinath, if the deal proves durable. </p>
<p>The IMF’s October 2019 modelling included a breakdown of how much various economies would suffer in 2020 from the trade war. It estimated China’s real GDP would be 2 percentage points lower than otherwise, with the US down 0.6 percentage points. Europe and Japan would lose about 0.5 percentage points. </p>
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<img alt="" src="https://images.theconversation.com/files/311292/original/file-20200122-117921-1qqf1la.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/311292/original/file-20200122-117921-1qqf1la.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=536&fit=crop&dpr=1 600w, https://images.theconversation.com/files/311292/original/file-20200122-117921-1qqf1la.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=536&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/311292/original/file-20200122-117921-1qqf1la.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=536&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/311292/original/file-20200122-117921-1qqf1la.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=673&fit=crop&dpr=1 754w, https://images.theconversation.com/files/311292/original/file-20200122-117921-1qqf1la.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=673&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/311292/original/file-20200122-117921-1qqf1la.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=673&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><a class="source" href="https://www.imf.org/en/Publications/WEO/Issues/2019/10/01/world-economic-outlook-october-2019#Chapter%201">IMF, World Economic Outlook, October 2019</a></span>
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<img alt="" src="https://images.theconversation.com/files/311293/original/file-20200122-117927-e3rw5g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/311293/original/file-20200122-117927-e3rw5g.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=336&fit=crop&dpr=1 600w, https://images.theconversation.com/files/311293/original/file-20200122-117927-e3rw5g.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=336&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/311293/original/file-20200122-117927-e3rw5g.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=336&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/311293/original/file-20200122-117927-e3rw5g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=422&fit=crop&dpr=1 754w, https://images.theconversation.com/files/311293/original/file-20200122-117927-e3rw5g.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=422&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/311293/original/file-20200122-117927-e3rw5g.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=422&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">IMF estimates of the effect of US-China trade barriers.</span>
<span class="attribution"><a class="source" href="https://www.imf.org/en/Publications/WEO/Issues/2019/10/01/world-economic-outlook-october-2019#Chapter%201">IMF World Economic Outlook, October 2019</a></span>
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<p>China’s economy is growing at three times the rate of the US – an estimated <a href="https://www.imf.org/external/pubs/ft/weo/2019/02/weodata/index.aspx">6% compared with 2%</a> – so the hit is almost equal. In terms of lost GDP per capita – a proxy measure for how much the tariffs cost individuals on average – the cost is about US$400 a year for both US and Chinese citizens. </p>
<p>Given China’s median income is well below that of the US, that forgone extra income hurts more in China – something fitting the Trumpian narrative that the trade war is making China pay more. </p>
<p>But the lesson of history is that punitive actions come back to bite. As Keynes so eloquently <a href="https://books.google.com.au/books?id=Rl2LDwAAQBAJ&pg=PT34&lpg=PT34&dq=%22the+prosperity+and+happiness+of+one+country+promotes+that+of+others%22&source=bl&ots=dYmXtXL7wQ&sig=ACfU3U1aFdrZ1dXO_U_rILYVHXfYezSlrg&hl=en&sa=X&ved=2ahUKEwjn09makZvnAhU26XMBHVOKChAQ6AEwA3oECAYQAQ#v=onepage&q=%22the%20prosperity%20and%20happiness%20of%20one%20country%20promotes%20that%20of%20others%22&f=false">wrote</a> a century ago, “the prosperity and happiness of one country promotes that of others”.</p>
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Read more:
<a href="https://theconversation.com/whats-worse-than-the-us-china-trade-war-a-grand-peace-bargain-111608">What's worse than the US-China trade war? A grand peace bargain</a>
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<p>Crucial to peace and prosperity, Keynes said, was free trade, which he hoped could mitigate the adverse “new political frontiers now created between greedy, jealous, immature, and economically incomplete nationalist States”.</p>
<p>Wilson aspired but failed to replace a world order based on conflict between great powers with one based on rules and reason. Trump, by contrast, seems to prefer conflict over rules and reason. </p>
<p>A punitive approach to international economic relations failed a century ago. We have good reason to fear it now.</p><img src="https://counter.theconversation.com/content/128840/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The prosperity and happiness of one country promotes that of others. That’s a lesson Donald Trump has never learned.John Hawkins, Assistant Professor, School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1274172019-11-20T14:01:24Z2019-11-20T14:01:24ZAn economist’s guide to watching the Atlanta 2020 presidential debate: 3 essential reads<figure><img src="https://images.theconversation.com/files/302690/original/file-20191120-547-1jerxzf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Media and others prepare the stage for the Democratic presidential debate in Atlanta.
</span> <span class="attribution"><span class="source">AP Photo/John Amis</span></span></figcaption></figure><p>The top candidates vying to be the Democratic presidential nominee in 2020 <a href="https://www.cbsnews.com/news/democratic-debate-the-november-debate-start-time-candidates-topics-watch-free-live-stream-online-tv-channel/">will soon take the stage</a> in Atlanta for their fifth televised debate. </p>
<p>With 10 people and only two hours to discuss dozens of complicated issues, viewers may have a hard time keeping up as candidates <a href="https://www.politico.com/story/2019/07/31/democratic-debate-results-takeaways-1441786">wade into the weeds</a> of their pet policy proposals. </p>
<p>Fortunately, our scholars – who have written <a href="https://theconversation.com/us/topics/2020-us-presidential-election-38597">dozens of articles on the key issues</a> of the 2020 Democratic primary campaign, as well as <a href="https://theconversation.com/what-1860-and-1968-can-teach-america-about-the-2020-presidential-election-121294">quite</a> a <a href="https://theconversation.com/what-is-dark-money-5-questions-answered-118310">few</a> <a href="https://theconversation.com/the-case-for-african-american-reparations-explained-114124">obscure</a> <a href="https://theconversation.com/pell-grants-are-getting-their-due-in-the-2020-campaign-125116">ones</a> – have you covered. </p>
<p>Here are three economic issues almost certain to come up in the Nov. 20 debate, along with a story from our archive that provides some context to help you evaluate what the candidates say.</p>
<h2>Health care’s high price</h2>
<p>Voters say health care <a href="https://news.gallup.com/poll/244367/top-issues-voters-healthcare-economy-immigration.aspx">is the top issue heading into 2020</a> – especially among Democrats. So it’s hardly a surprise that the topic <a href="https://www.vox.com/policy-and-politics/2019/10/15/20914415/democratic-debates-health-care-issues">has dominated</a> the last four debates and will almost certainly be a hot topic tonight.</p>
<p>Several of the Democratic candidates, such as Senators Elizabeth Warren and Bernie Sanders, <a href="https://theconversation.com/medicare-for-all-could-be-cheaper-than-you-think-81883">are proposing wholesale changes</a> to the U.S. system of health care. How to pay for “Medicare for All” – <a href="https://www.cnn.com/2019/11/01/politics/elizabeth-warren-medicare-for-all-financing-plan/index.html">without raising taxes</a> on the middle class – has been a sticking point for the more ambitious plans. </p>
<p>Gerald Friedman, an economist at University of Massachusetts Amherst, has crunched the numbers on several different versions of a single-payer health care system and estimates a full-scale plan could cost as much as US$40 trillion over a decade. </p>
<p>But there’s an easier and cheaper way to get to Medicare for all, he argues: Simply <a href="https://theconversation.com/how-the-us-could-afford-medicare-for-all-124462">expand the existing Medicare program to everyone</a>. </p>
<p>Medicare’s “limited scope, skimpy benefits and cost-sharing keep costs low,” he writes, yet “it provides meaningful protection against the potentially crippling cost of accident or illness.”</p>
<h2>The economics of Dreamers</h2>
<p>Immigration is <a href="https://news.gallup.com/poll/244367/top-issues-voters-healthcare-economy-immigration.aspx">another issue of importance</a> to Democratic voters and one that’s been frequently on the lips of their candidates. Debate moderators from The Washington Post and MSNBC are likely to bring up a recent Supreme Court hearing involving an Obama-era program. </p>
<p>The court <a href="https://www.nbcnews.com/news/latino/what-happens-daca-holders-if-supreme-court-allows-trump-end-n1081891">heard arguments</a> over whether Trump can end the Deferred Action for Childhood Arrivals, or <a href="https://theconversation.com/us/topics/daca-42970">DACA, program</a>. DACA allowed hundreds of thousands of young adults who were brought to the U.S. as children but lacked legal status – often referred to as Dreamers – to work and study without fear of deportation. </p>
<p>The hearing <a href="https://www.washingtonpost.com/politics/courts_law/trump-administration-tells-supreme-court-it-owns-termination-of-daca-program/2019/11/12/2ac4f4ea-0545-11ea-b17d-8b867891d39d_story.html">focused on whether the president has the right to terminate</a> the program. CUNY sociology professor Amy Hsin, however, believes it’s important to assess the economic impact of Dreamers, who, according to her analysis, <a href="https://theconversation.com/daca-isnt-just-about-social-justice-legalizing-dreamers-makes-economic-sense-too-90603">promote growth and lift wages</a>. </p>
<p>“Overall, we estimate that the increases in productivity under the DREAM Act would raise the United States GDP by $15.2 billion and significantly increase tax revenue,” writes Hsin, who’s also an economist. </p>
<h2>Trade and farmers</h2>
<p>U.S. trade policy has been an important economic topic ever since Trump launched his trade war against China nearly two years ago. It’s also among the <a href="https://www.realclearpolitics.com/real_clear_opinion_research/new_poll_shows_health_care_is_voters_top_concern.html">top concerns on voters’ minds</a>.</p>
<p>Yet, compared with health care and immigration, <a href="https://www.vox.com/policy-and-politics/2019/10/15/20914415/democratic-debates-health-care-issues">it hasn’t actually come up much</a> in the Democratic debates. With “phase one” of a trade deal with China reportedly close – and the costs borne by American companies and consumers rising – that may change tonight.</p>
<p>As Iowa State University scholars Wendong Zhang, Lulu Rodriguez and Shuyang Qu explain, farmers in particular <a href="https://www.reuters.com/article/us-usa-trade-china-costs-factbox/factbox-from-phone-makers-to-farmers-the-toll-of-trumps-trade-wars-idUSKCN1VE00B">have suffered</a> as a result of the trade war. At the same time, Democratic candidates gearing up for the Iowa caucuses – the first nominating contest in the primary election season, held in February – <a href="https://www.npr.org/sections/thesalt/2019/10/10/768635489/farmers-sticking-by-trump-even-as-trade-wars-bite">have struggled to win</a> the support of farm country.</p>
<p>So Zhang, Rodriguez and Qu <a href="https://theconversation.com/3-reasons-midwest-farmers-hurt-by-the-u-s-china-trade-war-still-support-trump-126303">surveyed corn and soybean farmers</a> in the Midwest to learn why. They found that despite the mounting costs of Chinese tariffs, farmers still back the president.</p>
<p>As an Illinois farmer told them, “The Chinese do not play by the rules… They cancel shipment orders that are not in their favor. They continue to steal our patents. Only President Trump has tried to stop these unfair trade practices.”</p>
<p>[ <em>Get the best of The Conversation, every weekend.</em> <a href="https://theconversation.com/us/newsletters/weekly-highlights-61?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=weeklybest">Sign up for our weekly newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/127417/count.gif" alt="The Conversation" width="1" height="1" />
Health care, immigration and trade have been hot topics during the campaign and are likely to come up during the fifth Democratic debate.Bryan Keogh, Managing EditorNicole Zelniker, Editorial Researcher, The ConversationLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1225022019-08-29T10:32:51Z2019-08-29T10:32:51ZHow a century-old dispute between Japan and South Korea threatens the global supply of smartphones<p>Japan and South Korea are showing no signs of resolving an escalating trade dispute, which traces back to 1910. It now poses a threat to the world’s tech supply chain and has potentially severe consequences for the global economy. And the dispute is being played out within a complex confluence of historical grievances, domestic politics, the ongoing US-China trade war and a looming global recession.</p>
<p>Japan has officially removed South Korea <a href="https://asia.nikkei.com/Spotlight/Japan-South-Korea-rift/Japan-officially-ousts-South-Korea-from-export-whitelist">from its list of trusted trade partners</a> that receive preferential treatment for importing sensitive Japanese-made goods, as of August 28. The list of goods includes chemicals that are crucial to producing the semiconductor memory chips found in most modern electronic devices.</p>
<p>This means that Japanese companies will now have to apply for a licence to export the chemicals to South Korean companies, a process that could take up to 90 days. Semiconductors are South Korea’s top export item. With manufacturers reliant on the chemicals from Japan, any delay in their production could pose a significant threat to the country’s economy and the South Korean currency, the won, which has already <a href="https://www.ft.com/content/8cd2120c-be65-11e9-b350-db00d509634e">dropped 8%</a> against the US dollar this year.</p>
<p>From a global perspective, South Korea semiconductor giants Samsung and SK Hynix, which supply 60% of the world’s memory chips, have warned that <a href="https://edition.cnn.com/2019/07/26/tech/japan-south-korea-trade-war/index.html">they can’t rule</a> out production disruption if the Japanese export restrictions remain in place. Any delay to supply could cause serious disruption to global tech supply chains and significantly impact other tech giants, like Apple and Huawei, who use memory chips and displays from Samsung.</p>
<h2>A conflict with deep roots</h2>
<p>Japan has given no indication that it will change its mind. It claims the restrictions are a response to a national security concern, <a href="https://uk.reuters.com/article/uk-southkorea-japan-labourers-iwaya/japan-says-ending-intelligence-pact-shows-south-korea-fails-to-appreciate-north-korean-threat-idUKKCN1VD057?il=0">alluding to leaks to North Korea</a>. </p>
<p>With no evidence put forward to support this, the likely scenario is that Japan’s action is part of an escalating and ongoing dispute involving historic grievances that date back to Japan’s colonisation of the Korean peninsula <a href="https://www.history.com/news/japan-colonization-korea">more than a century ago</a>. During World War II, Japan conscripted more than 670,000 Koreans as forced labourers to support its military ambitions.</p>
<p>The recent decision to remove South Korea from trusted trade partner status originates with a <a href="https://www.straitstimes.com/asia/east-asia/south-korean-court-to-rule-on-war-survivors-claim-against-japanese-firm">South Korean high court ruling</a> in October 2018. The court ordered Japanese companies to compensate individual victims of forced labour including the “comfort women” – Korean women taken as sex slaves and forced to work in war-time brothels.</p>
<p>Japan insists that most of the necessary compensation was settled as part of a US$500m payout under a treaty signed in 1965 and then a new agreement that was reached in 2015. But the current South Korean president, Moon Jae-in, created a taskforce in 2018 which concluded that the 2015 agreement did not reflect the opinions of the victims, especially their demand that Japan admit direct responsibility. Tokyo refuses further discussion of this issue and the bilateral relationship has continued to deteriorate.</p>
<p>The dispute is an emotional one for both countries. Thousands of South Korean protesters have marched on the Japanese embassy in Seoul, to express their displeasure <a href="https://www.nytimes.com/2019/08/04/world/asia/japan-south-korea-feud.html">at being downgraded as a trading partner</a>. Many South Koreans have also vowed to boycott Japanese products, and there are reports that petrol station operators have been <a href="http://www.koreatimes.co.kr/www/tech/2019/07/419_272758.html">urged to stop refuelling</a> Japanese cars. </p>
<h2>Global slowdown</h2>
<p>Both Japan and South Korea are integral to the world economy and disruptions will have spillovers that will go beyond the two antagonists. The most immediate threat is to the global tech supply chain, but any slowdown increases the likelihood of a worldwide recession.</p>
<p>The dispute has come at a particularly bad time. Major economies are currently experiencing weak growth with negative numbers coming out of the <a href="https://uk.reuters.com/article/uk-britain-economy/uk-economy-shows-slowdown-signs-as-recruiters-shoppers-turn-wary-idUKKCN1U016C">UK</a> and <a href="https://www.bloomberg.com/news/articles/2019-08-27/export-slump-pushes-german-economy-to-brink-of-recession">Germany</a> and a general slowdown in <a href="https://www.politico.com/story/2019/08/21/global-economy-slowdown-1673819">the US</a>, <a href="https://edition.cnn.com/2019/07/19/economy/china-economy-trump-trade-war/index.html">China</a> and <a href="https://www.bbc.co.uk/news/world-asia-india-49470466">India</a>. With the world’s two largest economies, the US and China, involved in an <a href="https://theconversation.com/uk/topics/us-china-trade-war-72804">escalating tariff war</a> that is chilling business investment, confidence and trade flows across the world, the Japan/Korean trade spat will only add to business uncertainty. </p>
<p>There is little indication as to when these disputes will be resolved, or in whose favour. Add to this the chaos surrounding Brexit and businesses are left wondering what will happen next. Not surprisingly, firms are already adopting a wait and see attitude, postponing investment and waiting for clarity amid increasing uncertainty, as <a href="https://uk.reuters.com/article/global-markets/global-markets-global-stocks-hurt-by-chinas-trade-threats-falling-bond-yields-idUKL4N25B2KA">bond markets </a> send alarming signals of a looming recession.</p>
<h2>Shifting power, weaponising trade</h2>
<p>In the past, the US would have stepped in to prevent any flare up between its two South-east Asian allies from getting going out of hand. But the Trump administration has been hesitant to get involved, despite the important role both countries play in <a href="https://www.cbsnews.com/news/japan-south-korea-trade-white-list-security-alliance-us-talks-kim-jong-un-north-korea-2019-08-28/">monitoring North Korea’s nuclear ambitions</a>. </p>
<p>In a telling sign of shifting power in the region, China has already offered to step in and <a href="https://www.scmp.com/news/china/diplomacy/article/3023738/chinese-foreign-minister-wang-yi-urges-japan-and-south-korea">help mediate</a> the dispute. The foreign ministers of the three countries <a href="https://www.japantimes.co.jp/news/2019/08/21/national/politics-diplomacy/japan-china-south-korea-cooperate-despite-soured-ties-taro-kono-says-beijing/">met recently</a> but failed to set a date for the annual meeting of their leaders.</p>
<p>China considers stability a priority and has been actively seeking to bolster regional economic integration as its relationship with the US sours. It will also be worried about the impact the Japan-South Korea trade spat could have on large Chinese technology companies like ZTE and Huawei, which rely on US suppliers like Qualcomm for chips and semiconductors. But if the US trade sanctions cut off this source of supply, they will be looking to South Korea for the vital components. </p>
<p>Another concern globally is Japan’s use of national security to justify its trade policy. This weaponising of trade follows Donald Trump’s citing of security concerns when putting tariffs on steel and aluminium imports. China sees the trade war as an attempt to disrupt its core development strategy, <a href="https://theconversation.com/how-chinese-products-went-from-cheap-and-cheerful-to-weapons-in-us-trade-war-94461">the Made in China 2025 plan</a>, prevent it’s reemergence as a world power and views the trade dispute through the lens of security and sovereignty. </p>
<p>World Trade Organisation (WTO) rules which govern trade between countries are, to a large extent, based on norms. They include a national security exemption <a href="https://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm#articleXXI">clause</a> which relies on members applying it in good faith. Once member states start taking advantage of the provision, there is likely to be a cascading effect, tempting more countries to weaponise this exemption in a tit-for-tat trade war.</p><img src="https://counter.theconversation.com/content/122502/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Pushan Dutt does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Historical grievances, domestic politics, the US-China trade war and a looming global recession are all at play.Pushan Dutt, Professor of Economics, INSEADLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1218342019-08-15T12:42:07Z2019-08-15T12:42:07ZThe US branding China a ‘currency manipulator’ threatens global stability<p>The US has escalated its <a href="https://theconversation.com/winners-and-losers-in-the-us-china-trade-war-119320">trade war with China</a> by accusing the country of devaluing its currency to make its exports unfairly cheap. When China’s currency, the renminbi (RMB) fell below the symbolic seven-per-dollar level on August 5, President Donald Trump reacted by <a href="https://twitter.com/realdonaldtrump/status/1158350120649408513">labelling China a currency manipulator</a> on Twitter. His Treasury department <a href="https://www.bbc.co.uk/news/business-49244702">followed suit</a>, making it the official government position. </p>
<p>It is the latest development in a fight that was never purely about economics. And it marks a fundamental shift in relations between the world’s two largest economies. What was a relatively symbiotic economic relationship between the US and China is beginning to fracture – with serious implications for both countries, and the rest of the world.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1158350120649408513"}"></div></p>
<p>The charge of currency manipulation has been thrown around by Trump since the early days of his <a href="https://eu.usatoday.com/story/money/2017/04/16/trump-defends-u-turn-china-currencys-practices/100548546/">2015-16 presidential campaign</a>. It is not, however, a classification that should be used lightly. <a href="https://www.scmp.com/economy/global-economy/article/3022526/singapore-economy-tipped-recession-us-china-trade-war-slams">Economic growth forecasts have worsened</a> as a result and this kind of rhetoric makes matters worse.</p>
<h2>What is currency manipulation?</h2>
<p>Currency manipulation involves the artificial movement of a domestic currency valuation through government intervention such as by printing more money or buying and selling other currencies on the foreign exchange market. </p>
<p>Currency valuation is particularly important in the early stages of a country’s economic development. China is no exception. For instance, from the mid-1980s to late 1990s China <a href="https://www.investopedia.com/articles/investing/090215/3-reasons-why-countries-devalue-their-currency.asp">kept its currency low</a> to make its labour and production costs cheap. Managing its currency in this way proved a significant advantage for attracting foreign investment and enabled China to accumulate foreign exchange reserves. All of which are necessary for sustained growth. </p>
<p>But devaluing the currency also translates into more expensive imports for China’s domestic consumers, and a higher risk of <a href="https://www.ft.com/content/ce27b2de-be24-11e9-b350-db00d509634e?segmentId=778a3b31-0eac-c57a-a529-d296f5da8125">foreign investors pulling their money out of the country</a>. Plus, with China’s recent efforts to transform the RMB <a href="https://theconversation.com/chinas-currency-gets-the-imf-stamp-of-approval-as-it-enters-a-new-normal-42559">into an international reserve currency</a> that is held by central banks around the world, foreign holders of the RMB expect a stable value. So manipulation can have real – and potentially destabilising – costs for China and its economy.</p>
<p>A year and a half into the US-China trade war, things are starting to take their toll for China. On July 15, the country reported a 6.2% growth rate, its <a href="https://www.ft.com/content/73f06b8a-a696-11e9-984c-fac8325aaa04">slowest in 27 years</a>. With <a href="https://www.scmp.com/economy/china-economy/article/3012481/chinas-debt-ratio-hits-record-high-efforts-offset-us-trade">record levels of debt</a> and <a href="https://www.ibtimes.com/chinas-food-prices-7-consumer-inflation-hits-15-month-high-2799938">consumer inflation rates reaching a 15-month high</a>, currency devaluation would in many ways exacerbate the situation. While China is known for state intervention, there’s no foul play here.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/288156/original/file-20190815-136203-1hy6eq7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/288156/original/file-20190815-136203-1hy6eq7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/288156/original/file-20190815-136203-1hy6eq7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/288156/original/file-20190815-136203-1hy6eq7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/288156/original/file-20190815-136203-1hy6eq7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/288156/original/file-20190815-136203-1hy6eq7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/288156/original/file-20190815-136203-1hy6eq7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The RMB recently passed the symbolic seven dollar mark.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/currency-peoples-republic-china-united-states-1471633103?src=hZJoSarsZslGqGSocEpz0w-1-42">Junming Lu /shutterstock.com</a></span>
</figcaption>
</figure>
<p>To understand China’s currency regime, it is important to recognise that China prioritises stability. Its economic policy, and its approach to currency flows in particular, has been <a href="https://www.cis.org.au/app/uploads/2015/04/images/stories/policy-magazine/1999-autumn/1999-15-1-terry-black-susan-black.pdf">preoccupied with minimising volatility</a>. </p>
<p>The drop in value of the RMB followed an announcement by the Trump administration that it was raising tariffs on <a href="https://www.cnbc.com/2019/08/01/trump-says-us-will-impose-10percent-tariffs-on-300-billion-of-chinese-goods-starting-september-1.html">US$300 billion of Chinese goods</a>. This went against the consensus the two sides <a href="https://theconversation.com/g20-summit-bring-a-truce-in-us-china-trade-relations-but-its-likely-to-be-temporary-108017">reached at the G20 in June</a> and Chinese government <a href="https://www.ft.com/content/39c5e812-bda3-11e9-89e2-41e555e96722">officials say</a> that the RMB devaluation came from the market reacting to this announcement, with escalating trade tensions putting the currency under pressure.</p>
<p>Similarly, in its annual assessment of China’s economy, published in the wake of US accusations, the <a href="https://www.imf.org/en/Publications/CR/Issues/2019/08/08/Peoples-Republic-of-China-2019-Article-IV-Consultation-Press-Release-Staff-Report-Staff-48576">IMF stuck with its position</a> that the RMB is in line with China’s economic fundamentals. If anything, according to the IMF, the US dollar <a href="https://markets.businessinsider.com/news/stocks/imf-agrees-with-trump-us-dollar-overvalued-german-euro-undervalued-2019-7-1028364276">is overvalued</a>. </p>
<h2>Interdependence</h2>
<p>America’s decision to label China a currency manipulator has significant implications for world markets. It not only exacerbates the uncertainty surrounding the state of relations between China and its largest trading partner, but as an escalation of tensions it is bad for both China’s and global economic growth. </p>
<p>Markets have been on edge since the US and China began putting tariffs on each other’s goods in July 2018. Immediately following the Treasury’s designation of China as a currency manipulator, volatility in the markets was seen <a href="https://www.theguardian.com/business/2019/aug/05/markets-fall-sharply-amid-fears-of-full-scale-us-china-yuan-currency-war">around the world</a>. </p>
<p>China is at the heart of the world’s global supply chain. Any economic slow down will extend to its major production and resource partners. Big American and multinational businesses have been hit by the uncertainty surrounding the costs of production, parts and components that come with an escalating trade war. Accusations of currency manipulation raise these tensions, further denting consumer confidence and their purchasing power around the world. </p>
<p>Plus, Trump’s approach to managing negotiations with China ignores the highly interdependent relationship of the two countries. One of the ways that China keeps the RMB from appreciating in value is by buying US debt <a href="https://www.economist.com/finance-and-economics/2018/06/23/sino-american-interdependence-has-been-a-force-for-geopolitical-stability">with its large amount of US dollar reserves</a>. This, in turn, enables China to keep producing and exporting cheap goods, which are bought by US consumers. Dubbed <a href="https://www.telegraph.co.uk/comment/personal-view/3638174/Not-two-countries-but-one-Chimerica.html">“Chimerica”</a>, this situation has been a win-win for the two countries.</p>
<p>The Trump administration’s approach to China prioritises short-termism and immediate gain by appealing to the populist sentiment of his voter base over economic reality. By breaking the recent G20 accord and challenging the decisions of international institutions like the IMF, the US is ramping up the US-China trade war. And this cuts to the heart of how America’s global leadership is increasingly unreliable.</p>
<p>The rest of the world has long looked to the US and the institutions it spearheads (such as the IMF and World Bank) as a guide for global economic governance. So the accusation of currency manipulation not only raises genuine concerns for markets, but could help foster a global split along economic lines. If China gets cut off from US consumers it will be forced to turn elsewhere and, as the <a href="https://www.cnbc.com/2018/04/05/chinas-1-point-2-trillion-weapon-that-could-be-used-in-a-us-trade-war.html">single largest holder of US debt</a>, it has a serious weapon up its sleeve.</p><img src="https://counter.theconversation.com/content/121834/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Winnie King does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The US and China have an interdependent economic relationship. If this unravels it will have global ramifications.Winnie King, Lecturer East Asian and International Political Economy, University of BristolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1192832019-07-17T11:18:19Z2019-07-17T11:18:19Z3 myths to bust about breaking up ‘big tech’<figure><img src="https://images.theconversation.com/files/284118/original/file-20190715-173342-1ji5sep.jpg?ixlib=rb-1.1.0&rect=45%2C0%2C5069%2C3376&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Before taking on tech giants, shatter a few misconceptions.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/iron-hammer-breaking-glass-window-340890053">W. Scott McGill/Shutterstock.com</a></span></figcaption></figure><p>As the public and government regulators around the world discuss <a href="https://www.npr.org/2019/06/09/731044346/big-tech-and-antitrust">whether and how</a> to manage the power of technology companies, one idea that keeps coming up is breaking up these large conglomerate corporations into smaller pieces. Public distrust for tech companies has shifted to talk of <a href="https://www.wsj.com/articles/justice-department-is-preparing-antitrust-investigation-of-google-11559348795">antitrust action</a> against them. Facebook, for instance, might then have to <a href="https://www.mercurynews.com/2018/05/21/facebook-owns-instagram-messenger-whatsapp-now-theres-a-call-to-break-it-all-up/">compete with Instagram for photo-sharing</a> and WhatsApp for messaging – rather than owning both. </p>
<p>The idea has managed to garner support from both <a href="https://www.politico.com/2020-election/candidates-views-on-the-issues/technology/tech-competition-antitrust/">Massachusetts Sen. Elizabeth Warren</a>, a Democrat, and <a href="https://www.nbcnews.com/politics/donald-trump/trump-claims-collusion-between-big-tech-democrats-backs-antitrust-fines-n1015726">Republican President Donald Trump</a>.</p>
<p>However, <a href="https://www.politico.com/2020-election/candidates-views-on-the-issues/technology/tech-competition-antitrust/">advocates</a> and <a href="https://www.weforum.org/agenda/2019/07/these-are-some-of-the-best-quotes-about-technology-monopolies-in-2019/">opponents</a> of breaking up big technology firms are falling prey to some serious misconceptions. I study the effects of digital technologies on lives and livelihoods across 85 countries and lead Tufts Fletcher School’s <a href="https://sites.tufts.edu/digitalplanet/">Digital Planet</a> initiative studying technological innovation around the world. In my opinion, there are three myths worth busting before considering taking on big tech. </p>
<h2>Myth 1: Comparing Standard Oil and Google</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=901&fit=crop&dpr=1 600w, https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=901&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=901&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1132&fit=crop&dpr=1 754w, https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1132&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/284102/original/file-20190715-173370-5ovggf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1132&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">John D. Rockefeller, founder of Standard Oil.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:John_D_Rockefeller_1872.png">Urbanrenewal/Wikimedia Commons</a></span>
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</figure>
<p>Arguments for and against antitrust action against tech firms rely heavily on the <a href="https://www.nytimes.com/1998/10/19/business/microsoft-trial-precedents-previous-antitrust-cases-leave-room-for-both-sides.html">experiences of earlier cases</a>. The massive <a href="https://theconversation.com/for-tech-giants-a-cautionary-tale-from-19th-century-railroads-on-the-limits-of-competition-91616">19th-century monopoly Standard Oil</a> has, in fact, been referred to as the “<a href="https://www.nytimes.com/2018/02/20/magazine/the-case-against-google.html">Google of its day</a>.” There are also people who are recalling the 1990s <a href="https://www.nytimes.com/2018/05/18/opinion/microsoft-antitrust-case.html">antitrust case against Microsoft’s dominant position</a> in the era of personal computers. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=490&fit=crop&dpr=1 600w, https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=490&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=490&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=615&fit=crop&dpr=1 754w, https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=615&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/284103/original/file-20190715-173360-2qxmqd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=615&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Google co-founders Sergey Brin, left, and Larry Page.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Schmidt-Brin-Page-20080520_(cropped).jpg">Joi Ito/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Those cases from the past may seem similar to today’s situation, but this era is different in one crucial way: the global technology marketplace. Currently, there are two parallel “big tech” clusters. One is in the U.S., dominated by <a href="https://theconversation.com/big-tech-isnt-one-big-monopoly-its-5-companies-all-in-different-businesses-92791">Google, Amazon, Facebook and Apple</a>. The other is based in China, dominated by <a href="https://singularityhub.com/2018/08/17/baidu-alibaba-and-tencent-the-rise-of-chinas-tech-giants/">Baidu, Alibaba, Tencent and Huawei</a>. This global market is subject to different political and policy pressures than regulators faced when dealing with Standard Oil and Microsoft.</p>
<p>Both clusters are attempting to add users to <a href="https://hbr.org/2019/01/which-countries-are-leading-the-data-economy">accumulate reservoirs of data</a>, which will fuel the next stage of competitiveness in a future run by artificial intelligence. The Chinese government has blocked most of the U.S. companies from entering the Chinese market, protecting its “<a href="https://www.scmp.com/tech/china-tech/article/2120913/china-recruits-baidu-alibaba-and-tencent-ai-national-team">AI national team</a>.” The <a href="https://www.bloomberg.com/news/articles/2018-06-27/alibaba-pulls-back-in-u-s-amid-trump-crackdown-on-chinese-investment">U.S. government has done likewise</a>, blacklisting some Chinese outfits for a period while discouraging others.</p>
<p>If the U.S. technology giants are broken up, the result would be a vastly uneven global playing field, pitting fragmented U.S. companies against consolidated state-protected Chinese firms.</p>
<p>Geopolitical factors aren’t limited to the U.S.-China rivalry. The European Union, Russia and India are also heavy users of Silicon Valley technologies, and each is <a href="https://www.ft.com/content/3eb00398-9815-11e9-8cfb-30c211dcd229">exploring its own options</a> for legislation and regulation too.</p>
<p>U.S. companies’ size and data accumulation capabilities give the country economic and political influence around the globe. Their power would change if they were broken up – and, in my view, that should be a key consideration in regulators’ decisions.</p>
<h2>Myth 2: Price is right</h2>
<p>There are two main views of antitrust action in these discussions. One focuses on consumer welfare, which has been the prevailing approach federal lawyers have taken <a href="https://www.jstor.org/stable/724991">since the 1960s</a>. The other view suggests that regulators should look at the <a href="https://www.yalelawjournal.org/note/amazons-antitrust-paradox">underlying structure of the market</a> and potential for <a href="https://www.pbwt.com/antitrust-update-blog/a-brief-overview-of-the-new-brandeis-school-of-antitrust-law">powerful players to exploit</a> their positions.</p>
<p>Those two sides seem to agree that price plays a key role. People who argue against breaking up the tech giants point out that Facebook and Google provide services that are <a href="https://slate.com/technology/2019/06/facebook-big-tech-antitrust-breakup-mistake.html">free to the consumer</a>, and that Amazon’s marketplace power drives its products’ costs down. On the other side, though, are those who say that <a href="https://www.yalelawjournal.org/note/amazons-antitrust-paradox">having low or no prices</a> is evidence that these companies are artificially lowering consumer costs to draw users into company-controlled systems that are <a href="https://techcrunch.com/2019/02/04/why-no-one-really-quits-google-or-facebook/">hard to leave</a>.</p>
<p>Both sides are missing the fact that the monetary price is less relevant as measure of what users pay in the technology industry than it is in other types of business. Users <a href="https://theconversation.com/how-much-is-your-data-worth-to-tech-companies-lawmakers-want-to-tell-you-but-its-not-that-easy-to-calculate-119716">pay for digital products with their data</a>, rather than just money. Regulators shouldn’t focus only on the monetary costs to the users. Rather, they should ask whether users are being asked for more data than is strictly necessary, whether information is being collected in <a href="https://theconversation.com/7-in-10-smartphone-apps-share-your-data-with-third-party-services-72404">intrusive or abusive ways</a> and whether customers are <a href="https://www.axios.com/mark-warner-josh-hawley-dashboard-tech-data-4ee575b4-1706-4d05-83ce-d62621e28ee1.html">getting good value in exchange for their data</a>.</p>
<h2>Myth 3: Trust-busting is all or nothing</h2>
<p>There aren’t just two ways for this debate to end, with either a breakup of one or more technology giants or simply leaving things as they are for the market to develop further. </p>
<p>My own idea of the best outcome would take a page from the history of antitrust litigation: The company that is sued is not broken up, and yet the very fact that there was a lawsuit leads to progress. That has happened in the past, in the cases against the Bell System, IBM and Microsoft.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=538&fit=crop&dpr=1 600w, https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=538&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=538&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=676&fit=crop&dpr=1 754w, https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=676&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/284111/original/file-20190715-173376-1k7ro27.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=676&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A replica of the first transistor, developed at AT&T’s Bell Laboratories in 1947.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Replica-of-first-transistor.jpg">National Archives</a></span>
</figcaption>
</figure>
<p>In the 1956 federal consent decree against the Bell System, which settled a seven-year legal proceeding against the company, the company wasn’t split up, but Bell was required to <a href="https://economics.yale.edu/sites/default/files/how_antitrust_enforcement.pdf">license all its patents royalty-free</a> to other firms. This meant that some of the most profound technological innovations in history – including the <a href="https://www.computerhistory.org/atchm/who-invented-the-transistor/">transistor</a>, the <a href="https://www.popsci.com/article/science/invention-solar-cell/">solar cell</a> and the <a href="https://www.photonics.com/Articles/A_History_of_the_Laser_1960_-_2019/a42279">laser</a> – became widely available, yielding computers, solar power and other technologies that are crucial to the modern world. When the Bell System was <a href="https://www.cio.com/article/3267826/breaking-up-is-hard-to-do-why-the-bell-system-breakup-isn-t-a-model-for-tech.html">eventually broken up</a> in 1982, it did not do nearly as much to spread <a href="https://si.wsj.net/public/resources/images/BF-AV826_ATT_16U_20171120171814.jpg">innovation and competition</a> as the agreement that kept the Bells together a quarter-century earlier. </p>
<p>The antitrust action against IBM lasted 13 years and didn’t break up the firm. However, as part of its tactics to avoid appearing to be a monopoly, IBM agreed to <a href="https://www.cnet.com/news/ibm-and-microsoft-antitrust-then-and-now/">separate pricing for its hardware and software products</a>, previously sold as an indivisible bundle. This created an opportunity for entrepreneurs Bill Gates and Paul Allen to create a new software-only company, called Microsoft. The surge of software innovations that have followed can clearly trace their origins to the IBM settlement. </p>
<p>Two decades later, Microsoft was itself the target of an antitrust action. In the resulting settlement, <a href="https://www.theverge.com/2018/9/6/17827042/antitrust-1990s-microsoft-google-aol-monopoly-lawsuits-history">Microsoft agreed to ensure its products were compatible</a> with competitors’ software. That made room in the emerging internet marketplace for web browsers, the predecessors of Apple’s Safari, Mozilla’s Firefox and Google Chrome.</p>
<p>Even Margrethe Vestager, the European Union’s top antitrust official and frequent tech-giant nemesis, has said that “<a href="https://www.nytimes.com/2018/02/20/magazine/the-case-against-google.html">Antitrust prosecutions are part of how technology grows</a>.” But that doesn’t mean they all have to achieve their most extreme ends, of breaking up the companies. </p>
<p>Antitrust rules are complicated enough, and plenty of experts will be called on to give their views on what to do with “big tech.” Technology pervades every aspect of modern lives, giving each person a responsibility to weigh in on this issue without misconceptions clouding their judgments. Technology has become a political issue. In a politically overheated climate, public sentiments may matter even more than the opinions of experts.</p><img src="https://counter.theconversation.com/content/119283/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bhaskar Chakravorti has founded and directs the Institute for Business in the Global Context at Fletcher/Tufts that has received funding from Mastercard, Microsoft, the Gates Foundation, the Rockefeller Foundation and the Onassis Foundation. He is a Non-Resident Senior Fellow at Brookings India and a Senior Advisor on Digital Inclusion at the Mastercard Center for Inclusive Growth.</span></em></p>Advocates and opponents of breaking up Facebook, Google and other technology giants are falling prey to some serious misconceptions.Bhaskar Chakravorti, Dean of Global Business, The Fletcher School, Tufts UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1188522019-07-08T10:40:27Z2019-07-08T10:40:27ZUS-China trade war is making China stronger<figure><img src="https://images.theconversation.com/files/283048/original/file-20190708-51284-76ljjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/3d-illustration-electronic-microprocessor-over-digital-619730339?src=iek9vI2L-yAHvZ2eYyGOtg-1-5&studio=1">Shutterstock</a></span></figcaption></figure><p>The United States and China have reached a truce in their escalating trade war. Following a meeting between US president, Donald Trump and his Chinese counterpart, Xi Jinping at the G20, the two leaders agreed to renew talks. Tariffs, which began to be introduced by both sides on an array of imports in 2018, <a href="https://www.nytimes.com/2019/06/29/business/us-china-trump-trade-truce.html">will not be raised further</a>.</p>
<p>But a number of tariffs remain and trade relations are still far from normal between the world’s two largest economies. This may not be a cold war. But it is a great power rivalry focusing on technological supremacy and which side has the best development model. </p>
<p>China’s economy is slowing down and recent tariffs from the US on its exports have not helped. China’s growth rate declined from <a href="https://www.cnbc.com/2019/01/21/china-2018-gdp-china-reports-economic-growth-for-fourth-quarter-year.html">6.6% in 2018</a> to <a href="https://www.scmp.com/economy/china-economy/article/3012481/chinas-debt-ratio-hits-record-high-efforts-offset-us-trade">6.4% in the first quarter of 2019</a>. But in the long term, the pressure exerted by Trump’s administration will strengthen China. It will help China speed up its efforts to restructure its economy, focus more on innovation, and also boost the country’s national pride. </p>
<p>Technological advancements are central to empire building and the rise of new powers, with steam power and then electronic technologies driving previous British and American empires. The <a href="https://theconversation.com/should-davos-delegates-live-in-fear-of-the-fourth-industrial-revolution-52874">fourth industrial revolution</a> will shift international competition away from labour, territory, nuclear arms, and soft power to new technology including robotics, artificial intelligence (AI), and wireless services.</p>
<h2>Wake up call</h2>
<p>Until recently, US policymakers operated under the assumption that the US was the world’s technological superpower and Silicon Valley was the globe’s innovation hotbed. China <a href="https://www.dw.com/en/chinas-road-from-copycat-to-innovator/a-46353745">was regarded as a copycat</a> that builds clumsy clones of American technologies or uses its big state-owned enterprises to purchase innovative US companies and absorb their intellectual property and know-how. </p>
<p>But when it comes to 5G – the next generation of superfast internet technology – the US has lagged behind. No American company has comparable wireless equipment <a href="https://theconversation.com/huawei-fears-in-the-west-are-misplaced-and-could-backfire-in-the-long-run-116375">to Huawei</a>. This spurred Trump to wage war on the Chinese tech company. First he declared a <a href="https://www.whitehouse.gov/presidential-actions/executive-order-securing-information-communications-technology-services-supply-chain/">national emergency</a>, banning sales and the use of telecoms equipment deemed to pose “unacceptable risks”. Then he lobbied allies to do the same. </p>
<p>US-based companies followed suit. First, Google removed Huawei <a href="https://9to5google.com/2019/05/23/google-android-removes-huawei/">from its Android service</a>, then <a href="https://www.androidauthority.com/huawei-wi-fi-bluetooth-990610/">the Wi-Fi Alliance</a>, Bluetooth, and others followed suit. </p>
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<img alt="" src="https://images.theconversation.com/files/283047/original/file-20190708-51305-os4rpz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/283047/original/file-20190708-51305-os4rpz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283047/original/file-20190708-51305-os4rpz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283047/original/file-20190708-51305-os4rpz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283047/original/file-20190708-51305-os4rpz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283047/original/file-20190708-51305-os4rpz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283047/original/file-20190708-51305-os4rpz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Huawei has been caught in the crosshairs of the US-China trade war.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/vilnius-lithuania-july-30-2017-huawei-687053110?src=tOeqJdG7ze1asRWkHMhsjg-1-45&studio=1">Veja / Shutterstock.com</a></span>
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<p>Huawei’s 5G capabilities and the fallout from them can be seen as China’s Sputnik moment. In the same way the Soviet Union was the first to launch a satellite into space, creating the appearance that the Soviets were winning the engineering challenge of the day, China is outpacing other countries in the development of 5G today. China realises the dangers of technological dependence, economic entanglement, and scientific reliance on the US. </p>
<h2>Innovation revolution</h2>
<p>Huawei is a product of the Chinese government’s <a href="https://foreignpolicy.com/2019/04/03/the-improbable-rise-of-huawei-5g-global-network-china/">industrial policy strategy</a>. The vision to move up the economic value chain from a low-end manufacturer to a global innovation leader led to the launch of its <a href="https://theconversation.com/how-chinese-products-went-from-cheap-and-cheerful-to-weapons-in-us-trade-war-94461">Made In China 2025 initiative</a> and an <a href="https://futureoflife.org/ai-policy-china/">Artificial Intelligence Development Plan</a> to channel resources into strategic sectors such as computing, AI, robotics, and aerospace. </p>
<p>China aims to achieve an AI self-sufficiency manufacturing rate of 80%, minimising its dependence on other countries for the complex parts needed in this tech. It also aims to become a leading technology hub in AI by 2030. This is bearing fruit, as in 2017, <a href="https://www.theverge.com/2018/2/22/17039696/china-us-ai-funding-startup-comparison">48% of global AI funding was Chinese compared to 38% being American</a>. Chinese AI company iFlyTek often beats Facebook, Alphabet’s DeepMind, and IBM’s Watson in competitions to process natural speech, <a href="https://aisuperpowers.com/blog/the-four-waves-of-ai">even in its “second language” English</a>. </p>
<p>China is now the world’s <a href="https://www.timeshighereducation.com/news/china-becomes-worlds-biggest-producer-scientific-research">biggest producer of scientific research papers</a> and Semantic Scholar, the academic search engine for scientific articles, suggests Chinese scholars have surpassed their US counterparts <a href="https://www.wired.com/story/china-catching-up-us-in-ai-research/">in producing AI papers</a>. </p>
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Read more:
<a href="https://theconversation.com/why-chinese-science-seems-so-secretive-and-how-it-may-be-about-to-change-110326">Why Chinese science seems so secretive – and how it may be about to change</a>
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<p>So the Huawei ban and tariffs on Chinese goods will not slow China – they will stimulate its new innovation system and boost scientific research aimed at becoming more independent.</p>
<h2>Domestic boost</h2>
<p>Another consequence will be an acceleration of China’s attempt to rebalance its economy away from external demand and investment towards domestic consumption. This started in 2008 with the global financial crisis and has become increasingly necessary as China’s middle class develops. Since then large-scale <a href="https://www.nytimes.com/2008/11/09/world/asia/09iht-10china-FW.17654287.html">government-led infrastructure investments</a>, measures to increase household income, reductions of income tax, and improvements to social welfare systems have helped <a href="https://www.scmp.com/economy/china-economy/article/2188667/six-key-takeaways-china-premier-li-keqiangs-annual-policy">grow domestic consumption</a>. </p>
<p>When Trump first announced tariffs in 2018, China’s domestic consumption was responsible for <a href="https://www.scmp.com/economy/china-economy/article/2185437/chinas-economy-reached-new-heights-how-slowdown-being-reported">76.2% of its GDP growth</a>, and the Chinese stock market absorbed the impact and <a href="https://www.scmp.com/economy/china-economy/article/3012840/us-china-trade-war-impact-stock-market-controllable-insists">bounced back</a> after an initial sharp decline. Since then, the Chinese government has introduced <a href="http://english.gov.cn/policies/policy_watch/2019/01/29/content_281476499745212.htm">new</a> <a href="https://www.bbc.co.uk/news/business-47450223">policies</a> to boost domestic consumption further, including more tax cuts, improved childcare, and elderly care initiatives and incentives. So the trade war has helped China’s efforts to redistribute wealth and restructure its economy. </p>
<p>The trade war has also rallied the Chinese public around its government. US treatment of Chinese companies has been perceived as bullying and people have compared it to the way that the British Empire forced unfair trade practices on China <a href="https://www.bbc.co.uk/news/business-44056634">in the 19th century</a>. This topic is incredibly emotive in Chinese society and has boosted domestic support for the government.</p>
<p>The Chinese word for crisis is composed of two characters – one for danger and the other for opportunity. The country’s ability to capitalise on the current challenge from the US will strengthen it for years to come.</p><img src="https://counter.theconversation.com/content/118852/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chang Zhang receives funding from China scholarship council (CSC). </span></em></p><p class="fine-print"><em><span>Nora von Ingersleben-Seip does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Pressure from US tariffs on Chinese goods is forcing China to restructure its economy, become more innovative and it is boosting domestic morale.Chang Zhang, PhD Candidate, University of WarwickNora von Ingersleben-Seip, Doctoral Research Fellow, Technical University of MunichLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1193592019-06-27T13:18:40Z2019-06-27T13:18:40ZG20: US-China trade war points to the real crisis that global leaders must confront<figure><img src="https://images.theconversation.com/files/281434/original/file-20190626-76701-a7qxik.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The world's 20 largest economies are gathering to boost cooperation.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/g20-flag-summit-silk-waving-flags-1146679565?src=uc8TpLLIpMheg2atQsKsYw-1-5&studio=1">Shutterstock</a></span></figcaption></figure><p>On June 28 and 29, the G20 summit will convene for the 14th time in Osaka, Japan. This gathering of leaders from the world’s leading economies, including the EU, plus invited guests and international organisations, ought to offer an important moment for mature reflection and collective coordination regarding the future needs of the world economy at a difficult time.</p>
<p>Instead, it is likely to descend either into directly confrontational rhetoric or, alternatively, empty promises and vague platitudes that avoid <a href="https://g20.org/en/summit/about/">its mission</a> to be the “premier forum for international economic cooperation”. The focus could end up being on more peripheral matters such as climate change, counter-terrorism, health and migration that are perceived of as being less contentious but should not be fundamental concerns of the G20.</p>
<p>The G20 is no stranger to crisis. It emerged from the 1997-98 Asian Financial Crisis that led G7 finance ministers (representing almost half of world GDP) to establish a wider group in order to engage with the major emerging economies. Then, in the wake of the 2007-08 global financial crisis, the group was further elevated to become a forum for heads of state.</p>
<p>In 2019, it is the continuing dispute between the US and China over trade that appears to loom largest. But this ought not be the main focus of the G20 either. <a href="https://www.spiked-online.com/2019/05/15/the-unravelling-of-the-international-order/">As is well understood</a>, trade wars are symptoms of underlying economic problems rather than their cause. The main focus ought to be on addressing those.</p>
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Read more:
<a href="https://theconversation.com/winners-and-losers-in-the-us-china-trade-war-119320">Winners and losers in the US-China trade war</a>
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<p>Trade and tariffs are not the fundamental drivers of growth and prosperity. Rather, these derive from <a href="https://www.spiked-online.com/2018/06/06/trade-wars-cause-real-wars-its-not-that-simple/">domestic productivity levels</a> in the making of goods and services that are, in their turn, driven by investment. To trade effectively, the key is to have something worth selling in the first place. </p>
<h2>Tariffs, regulation, barriers</h2>
<p>Unfortunately, the protectionist measures that had <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674660489">hastened the advent of World War II</a>, and that were dismantled subsequently through the establishment of the GATT/WTO, led instead to a growing proliferation of non-tariff or technical barriers to trade. Rather than invest in new industries, older ones were sustained artificially behind a chaff of regulatory standards, intellectual property laws, state subsidies and public procurement policies.</p>
<p>Accordingly, assertions that we have been living through a time marked by <a href="https://www.chathamhouse.org/expert/comment/path-forward-wto-reform">a so-called</a> “rules-based international trading system” fall very wide of the mark. All the evidence points to systematic attempts by the key players – and the United States in particular – to subvert any supposed “<a href="https://www.cato.org/publications/policy-analysis/world-imagined-nostalgia-liberal-order">liberal world order</a>”, both economically and militarily.</p>
<p>Now it may be, of course, that President Trump – who is certainly not the first US, <a href="http://europa.eu/rapid/press-release_IP-19-1605_en.htm">or other</a>, world leader to engage in such embargoes against China – understands full well that to compete internationally as a successful exporter it is the ability to produce efficiently at home that matters more than trade deals. Some of his pronouncements have reflected as much, looking to put pressure on manufacturers, such as <a href="https://www.bbc.co.uk/news/business-45163956">Harley-Davidson</a> and <a href="https://www.bbc.co.uk/news/business-48360373">Nike</a>, to bring their production back to its origins.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/281391/original/file-20190626-76717-1ok2nad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/281391/original/file-20190626-76717-1ok2nad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281391/original/file-20190626-76717-1ok2nad.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281391/original/file-20190626-76717-1ok2nad.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281391/original/file-20190626-76717-1ok2nad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281391/original/file-20190626-76717-1ok2nad.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281391/original/file-20190626-76717-1ok2nad.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Trump has tried to get manufacturers like Harley Davidson to return production to the US.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bali-indonesia-august-12-2018-harley-1155082525?src=VbLpz-vUigU62RAAUUXCBw-1-21&studio=1">Artem Beliaikin / Shutterstock.com</a></span>
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<p>But, irrespective, the adverse effects of this approach are evident for all to see. Many American firms <a href="https://www.bbc.co.uk/news/business-48686157">have warned</a> the US Department of Commerce that such measures hurt both businesses and consumers alike. The latter invariably bear the brunt of any related price increases. </p>
<p>The <a href="https://uk.reuters.com/article/uk-g20-summit/japan-says-g20-summit-to-debate-trade-including-wto-reform-idUKKCN1TK07Q">IMF has cut</a> its world economic growth forecast in accordance. And anyway, many enterprises will simply relocate elsewhere, such as to Vietnam, which is not currently on the receiving end of such additional duties.</p>
<h2>A risky game</h2>
<p>The deeper consequences, though, will take more time to become manifest. These include growing differences among the Western powers over how to handle the economic rise of the East. </p>
<p>This was seen recently, through the US stance towards its partners not using the Chinese firm <a href="https://blogs.bath.ac.uk/iprblog/2019/05/08/misinterpreting-china-and-lessons-from-the-huawei-debacle/">Huawei</a> to develop critical 5G infrastructure, despite its being the leading global player in the field. Such actions could come to damage relations with key allies, such as <a href="https://theconversation.com/why-huawei-security-concerns-cannot-be-removed-from-us-china-relations-116770">the UK</a> and <a href="https://www.reuters.com/article/us-usa-germany/pompeo-to-germany-use-huawei-and-lose-access-to-our-data-idUSKCN1T10HH">Germany</a>.</p>
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Read more:
<a href="https://theconversation.com/why-huawei-security-concerns-cannot-be-removed-from-us-china-relations-116770">Why Huawei security concerns cannot be removed from US-China relations</a>
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<p>In this regard, the US is playing a very risky game. With its relations veering towards a potential conflict with <a href="https://www.spiked-online.com/2019/06/20/a-war-no-one-can-win-iran-trump/">Iran</a>, as well as its ongoing disputes with Russia and China, the US may yet come to rue antagonising its friends as well.</p>
<p>Or, at the very least, it may regret making them have to choose between their relations with the US and China. Only this week, the UK chancellor, Phillip Hammond launched the new <a href="https://news.cgtn.com/news/2019-06-17/New-Shanghai-London-Stock-Connect-benefits-both-sides-HBktOccgXm/index.html">Shanghai-London Stock Connect</a> that looks set to deepen financial relations by facilitating investment between them.</p>
<p>This, and China’s recent decision <a href="https://www.scmp.com/economy/china-economy/article/3015048/us-china-trade-war-weighed-beijings-decision-not-pursue-wto">not to pursue WTO market economy status</a>, may also point to a growing maturity on its part in relation to such matters. Certainly, its most successful strategy in the past was always to <a href="https://www.scmp.com/news/china/article/1578761/deng-xiaopings-guiding-principles-are-still-play-today">keep a low profile on the international stage</a> and avoid confrontation in foreign affairs, while focusing more on its domestic concerns.</p>
<p>Historically, it has often been <a href="http://www.durodie.net/pdf/taking_off.pdf">extraneous circumstances</a> that have accelerated change in world affairs more than any conscious push. The two powers that dominated each of the last two preceding centuries – the US and UK – did so as much through the decline and imperial overreach of their predecessors as through their own efforts. That, and its underlying crisis of innovation and investment, are what the US leadership would do well to reflect upon most in Osaka.</p><img src="https://counter.theconversation.com/content/119359/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bill Durodie is a visiting professor at the China Executive Leadership Academy Pudong (CELAP) in Shanghai.</span></em></p>Trade wars are symptoms of underlying economic problems rather than their cause.Bill Durodie, Professor and Chair of International Relations, University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1193202019-06-25T10:50:57Z2019-06-25T10:50:57ZWinners and losers in the US-China trade war<figure><img src="https://images.theconversation.com/files/281127/original/file-20190625-81770-1knnbza.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/usa-china-trade-war-american-tariffs-1396073831?src=fbI8jz22FYoUExBClWrV-g-1-42&studio=1">Shutterstock</a></span></figcaption></figure><p>Donald Trump’s presidency has been marked by a rise in protectionism. His “America First” policy has involved introducing a number of tariffs against imports from the EU, Mexico, Canada and especially China.</p>
<p>Encapsulating his approach, Trump <a href="https://twitter.com/realdonaldtrump/status/969525362580484098?lang=en">tweeted in March 2018</a> that “when a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win”. The economic weapon of choice in this war is tariffs, aimed at discouraging imports and protecting domestic industries.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"969525362580484098"}"></div></p>
<p>Against this backdrop, we set out to explore how these tariffs influence whether people feel richer or poorer across different countries. And whether retaliation is a good strategy for the countries that have had tariffs imposed on them.</p>
<p>Our <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3230668">findings</a> suggest a calm, non-retaliatory response would limit the negative impact of this trade war. But in the case of the US and China, we have seen <a href="https://piie.com/blogs/trade-investment-policy-watch/trump-trade-war-china-date-guide">an escalation</a> of aggressive tariff measures aimed at deterring each other’s imports. So where will all this end and who will be the ultimate winners and losers?</p>
<h2>Steel wars</h2>
<p>Tariffs are taxes on imports, which make the products more expensive in the importing country. For example, assume you are importing sheets of steel at US$10 each and the tariff rises from 10% to 25%, then the price could go up from US$11 to US$12.50. This rise will have a range of potential impacts.</p>
<p>If another steel producer (domestic, or importer that has not been affected by the tariff) will offer sheets of steel at less than US$12.50 then buyers would switch supplier. This is very likely to be at a price higher than $11 (otherwise there would have been an incentive to switch suppliers earlier) and so it’s likely you will not purchase as many sheets as before. </p>
<p>Now let’s also assume that you are buying this steel to make cars. If you start using more expensive steel, then you may keep the price of cars the same, absorb the higher steel cost and accept a lower profit. Or you may pass the increased cost of the steel onto the people buying your cars, through raising the price of your cars.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/281129/original/file-20190625-81754-1ngt39u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/281129/original/file-20190625-81754-1ngt39u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=339&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281129/original/file-20190625-81754-1ngt39u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=339&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281129/original/file-20190625-81754-1ngt39u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=339&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281129/original/file-20190625-81754-1ngt39u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=426&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281129/original/file-20190625-81754-1ngt39u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=426&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281129/original/file-20190625-81754-1ngt39u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=426&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Trump has imposed 25% tariffs on imported steel.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/download/success?u=http%3A%2F%2Fdownload.shutterstock.com%2Fgatekeeper%2FW3siZSI6MTU2MTQ4Njc4MCwiYyI6Il9waG90b19zZXNzaW9uX2lkIiwiZGMiOiJpZGxfNjM4MzAwMTM3IiwiayI6InBob3RvLzYzODMwMDEzNy9odWdlLmpwZyIsIm0iOjEsImQiOiJzaHV0dGVyc3RvY2stbWVkaWEifSwiLzVBTStma2E0aUdZb0tEeG9UYWdMRy95Vk9jIl0%2Fshutterstock_638300137.jpg&pi=33421636&m=638300137&src=lIJNcCsBdT6zhQdU9FcTMg-1-73">Leonid Eremeychuk / Shutterstock</a></span>
</figcaption>
</figure>
<p>Now it is possible that this negative impact is short-lived, since domestic steel producers (to continue with the same example) may actually become more efficient and competitive. But there is little evidence to support this outcome when considering <a href="https://www.nytimes.com/2019/01/14/us/politics/steel-companies-trump.html">the impact of previous US protection measures</a>.</p>
<p>There is also the potential that you simply can’t find steel sheets of the correct thickness (or any other technical requirements) from another supplier. In this case you are left importing steel at the new price of US$12.50. This further increases the likelihood of car prices rising. It could also seriously affect profit margins for car producers. </p>
<p>Trump is not the first US president to increase steel tariffs – George W Bush <a href="https://www.washingtonpost.com/news/wonk/wp/2018/03/06/remember-bushs-2002-steel-tariffs-his-chief-of-staff-warns-trump-not-to-do-the-same/">did something similar in 2002</a>. So the consequences of Trump’s policy are well understood to hurt US car manufacturers.</p>
<h2>Direct impact</h2>
<p>Trump’s decision to extend the number of tariffs on Chinese imports in May 2019 made a number of final consumer goods liable for the new 25% duty, <a href="https://piie.com/research/piie-charts/trumps-tariff-threat-rest-chinese-goods-would-hit-final-consumer-product">including toys, clothing and electronics</a>. Now the effect of this measure is going to directly affect consumers. </p>
<p>The big question here is whether substitutes – domestic or from other import sources – exist, and the competitiveness of their prices. This is one of the reasons why China has started to lower tariffs with respect to other importers, while <a href="https://www.theatlantic.com/ideas/archive/2019/06/chinas-two-pronged-trade-war/591877/">raising import tariffs on American products</a>. For example China put a tariff on US soybeans and has turned to Brazil and Argentina <a href="https://theconversation.com/how-soybeans-became-chinas-most-powerful-weapon-in-trumps-trade-war-118088">for alternative supplies</a>.</p>
<p>Around 70% of global trade involves production of goods <a href="https://www.oecd.org/trade/topics/global-value-chains-and-trade/">across multiple countries</a>. These global value chains, as they are called, mean that breaking the chain at any point is highly disruptive and <a href="https://piie.com/system/files/documents/pb18-12.pdf">multiplies the negative effect of the US-China trade war</a> – and the impact is much harder to measure.</p>
<p>So it’s difficult to say where this trade war will end. For any country to declare it has won may not be that difficult as this is purely a matter of political gamesmanship. In reality, however, escalating tariffs are damaging to businesses and consumers across the world.</p><img src="https://counter.theconversation.com/content/119320/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Donald Trump says trade wars are easy to win. Is he right?Karen Jackson, Senior Lecturer in Economics, University of WestminsterOleksandr Shepotylo, Lecturer in Economics, Aston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1180882019-05-30T21:11:19Z2019-05-30T21:11:19ZHow soybeans became China’s most powerful weapon in Trump’s trade war<p>Soybeans may not seem all that useful in a war. Nonetheless they’ve become China’s most important weapon in its ever-worsening trade conflict with the U.S.</p>
<p>China, the world’s biggest buyer of the crop, <a href="https://www.bloomberg.com/news/articles/2019-05-30/china-puts-u-s-soy-purchases-on-hold-as-tariff-war-escalates">has reportedly stopped</a> purchasing any American soybeans in retaliation for the Trump administration raising tariffs on US$250 billion of Chinese goods. This is very bad news for U.S. farmers. </p>
<p>While China’s targeting of soybeans may have come as something of a surprise to most Americans, to a <a href="https://scholar.google.com/citations?user=2B5IAEgAAAAJ&hl=en&oi=ao">professor of agricultural economics</a> who studies international commodity markets for a living, this was not at all unexpected.</p>
<p>Even before the conclusion of the 2016 presidential race, <a href="https://piie.com/publications/piie-briefings/assessing-trade-agendas-us-presidential-campaign">trade analysts were already weighing</a> the possibility that China might impose an embargo on U.S. soybean imports based on protectionist rhetoric from both candidates.</p>
<p>As a result, with the trade war in full swing, American soybean farmers are now among its biggest losers. Here are a few figures that show why.</p>
<h2>Soybeans, by the numbers</h2>
<p>Soybeans are a crucial part of the global food chain, particularly as a source of protein in the production of hogs and poultry. </p>
<p>The <a href="https://ussec.org/resources/ussec-annual-report/">importance of China</a> as a market for soybeans has been driven by an explosion in demand for meat as consumers switch from a diet dominated by rice to one where pork, poultry and beef play an important part. Chinese production of meat from those three animals <a href="http://www.scmp.com/business/commodities/article/1516060/chinas-soaring-demand-meat-change-face-global-trade-feed-grains">surged 250%</a> from 1986 to 2012 and is projected to increase another 30% by the end of the current decade. However, China is unable to produce enough animal feed itself, hence the need to import soybeans from the United States and Brazil.</p>
<p>In 2017, the U.S. accounted for $21.4 billion worth of global soybean exports, the second largest after its main competitor Brazil, which exported $25.7 billion. </p>
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<p>Meanwhile, in 2017 China accounted for the lion’s share of global soybean imports at $39.6 billion, or two-thirds of the total. </p>
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<p>Back in 2017, that was good news for American farmers, when U.S. exports made up about a third of Chinese purchases, or $13.9 billion. That made soybeans the United States’ second-most valuable export to China after airplanes. </p>
<p>But U.S. exports to China have fallen dramatically since China <a href="https://www.politico.com/story/2018/07/06/china-retaliation-us-tariffs-672127">slapped a 25% tariff</a> on Americans soybeans last April as part of its initial response to President Donald Trump’s trade war.</p>
<p>In the current farm marketing year, which began Sept. 1, U.S. farmers have exported just 5.9 million metric tons of soybeans to China, compared with an average of 29 million at the same point during the previous three years – or about 80% less.</p>
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<p>That’s why the tariffs <a href="https://www.ers.usda.gov/data-products/state-export-data/annual-state-agricultural-exports/">have tremendous potential</a> to hurt farmers in my state of Ohio, where soybeans were the number one agricultural export in 2017 at $1.3 billion. China is the state’s largest export market. </p>
<p>And yet nationally, Ohio is just the seventh-largest exporter of soybeans, after Illinois, Iowa, Minnesota, Nebraska, Indiana and Missouri, all of which are suffering from the tariffs. </p>
<p>Not only do farmers stand to lose out by giving up market share to Brazilian farmers, but soybean prices at the port of New Orleans have fallen as well and are currently $9.35 a bushel compared with $10.82 per bushel a year ago. This has hurt incomes and created a double whammy for Midwest farms. </p>
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<p>This is of course why the Chinese chose to place a tariff on U.S. soybeans in the first place. Farmers will hurt a lot, and soybeans are produced in states where many of them voted for Donald Trump. China’s hope, presumably, is that farmers will lobby the administration to step back from further escalation of the trade war.</p>
<p>That seems unlikely, <a href="https://www.cnbc.com/2019/05/23/trump-to-give-16-billion-to-farmers-hurt-by-trade-war-sonny-perdue.html">given the $28 billion in aid</a> the Trump administration is offering farmers to soften the blow and the <a href="https://www.politico.com/story/2019/05/14/trump-trade-china-1320066">possibility of higher tariffs</a> on an additional $325 billion worth of Chinese imports. At this point it looks like both sides are hunkering down for a prolonged trade war.</p>
<p><em>This is an updated version of an <a href="https://theconversation.com/why-chinas-soybean-tariffs-matter-94476">article original published</a> on April 5, 2018.</em></p><img src="https://counter.theconversation.com/content/118088/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Sheldon does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China has reportedly halted all purchases of US soybeans. Here’s why that’s going to be very painful for American farmers.Ian Sheldon, Chair in Agricultural Marketing, Trade and Policy, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1167702019-05-10T11:53:24Z2019-05-10T11:53:24ZWhy Huawei security concerns cannot be removed from US-China relations<figure><img src="https://images.theconversation.com/files/273645/original/file-20190509-183080-14q9co.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">astudio / Shutterstock.com</span></span></figcaption></figure><p>Huawei’s role in building new 5G networks has become one of the most controversial topics in current international relations. The US is exercising <a href="https://www.bbc.com/news/uk-politics-48198932">direct diplomatic pressure</a> to stop states from using the Chinese telecoms giant. The US government regards Huawei as a clear and present danger to national security and argues that any ally opting for Huawei will compromise vital intelligence sharing among these countries in the future. </p>
<p>So far Australia, New Zealand, Vietnam and Japan have <a href="https://www.theguardian.com/technology/2019/apr/19/where-huawei-is-banned">heeded the US call to ban Huawei</a>. The UK, however, is still considering using Huawei to build non-core elements of its new internet infrastructure. Differences over the matter within the UK government recently led to the <a href="https://theconversation.com/the-secrets-in-how-technology-is-making-public-interest-disclosures-even-harder-116586">sacking of defence secretary, Gavin Williamson</a>.</p>
<p>When assessing the risks of having Huawei involved in building 5G infrastructure, it’s important to consider not just the security risk from Huawei, but also the wider context of international relations. It’s important to first recognise that China is a major cyber-power. </p>
<p>The Chinese government has been using cyber-operations since at least 2006 <a href="https://www.nytimes.com/2013/02/19/technology/chinas-army-is-seen-as-tied-to-hacking-against-us.html">for strategic and military gains</a>. Tracing the origins of hacks is difficult but China is accused of a number of hacks on government departments <a href="https://www.csis.org/programs/cybersecurity-and-governance/technology-policy-program/other-projects-cybersecurity">in the US and around the world</a>.</p>
<p>Military operations aside, <a href="https://smallwarsjournal.com/jrnl/art/swj-primer-chinese-cyber-espionage-and-information-warfare">US politicians say</a> Chinese cyber-enabled espionage directed at the US economy has resulted in an estimated loss of US$300 billion a year in intellectual property theft. </p>
<h2>Risky business</h2>
<p>Additional risks come from China’s increasing <a href="https://www.ispionline.it/en/pubblicazione/russian-chinese-security-cooperation-and-military-military-relations-21828">military cooperation with Russia</a>, NATO’s main rival. And also that China seems keen to supplement its <a href="https://theconversation.com/chinas-new-silk-road-is-all-part-of-its-grand-strategy-for-global-influence-70862">Belt and Road Initiative</a> of global trade dominance with dominance in cyberspace. Huawei offers highly competitive pricing that could drive out rivals and this potential monopoly could be costly in the long run <a href="https://www.csis.org/analysis/5g-ban-or-not-ban-its-not-black-or-white">for countries that rely too heavily on it</a>.</p>
<p>It is in the context of China’s growing cyber-power that Huawei is seen as a risky business partner when it comes to developing critical infrastructure, such as a new 5G network. Huawei <a href="https://www.ft.com/content/aba92826-18db-11e9-9e64-d150b3105d21">may insist</a> that it is an independent company that does not have ties to the Chinese government, but this is not how it looks to Western powers. According to the CIA, Huawei has received funding from both the Chinese army <a href="https://www.thetimes.co.uk/edition/news/cia-warning-over-huawei-rz6xc8kzk">and Chinese state intelligence</a>. Plus, it does not help that Huawei’s founder, Ren Zhengfei was once an engineer in the Chinese army and that the company’s ownership lies with a “trade union committee” <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3372669">that is appointed by the state</a>.</p>
<p>Then there’s <a href="https://qz.com/1016531/what-you-need-to-know-about-chinas-intelligence-law-that-takes-effect-today/">China’s National Intelligence Law of 2017</a>, which requires Chinese companies “to provide necessary support, assistance and cooperation” with national intelligence work, if called upon. So Huawei’s assurances that it will not hand over customer data to the government are difficult to trust. All the more so given China’s <a href="https://ccdcoe.org/uploads/2019/03/CCDCOE-Huawei-2018-03-28-FINAL.pdf">track record</a> of using private actors for the purposes of spying.</p>
<h2>Backdoors and vulnerabilities</h2>
<p>If a country’s 5G network is compromised, this could open it up to a number of risks. First, there’s simply access to information that is transmitted across the network. More worryingly, the “internet of things” <a href="https://theconversation.com/5g-what-will-it-offer-and-why-does-it-matter-109010">will be built on 5G</a>. Everyday devices will all be connected – from driverless cars to smart fridges, speakers and traffic signals. </p>
<p>This opens the possibility for a determined actor (whether state or non-state) to control these important processes. A cyber-attack via 5G infrastructure could lead to significant damage to property and even loss of life, and would amount to an armed attack <a href="https://2009-2017.state.gov/s/l/releases/remarks/197924.htm">under international law</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/273796/original/file-20190510-183080-12lytsj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/273796/original/file-20190510-183080-12lytsj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=380&fit=crop&dpr=1 600w, https://images.theconversation.com/files/273796/original/file-20190510-183080-12lytsj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=380&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/273796/original/file-20190510-183080-12lytsj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=380&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/273796/original/file-20190510-183080-12lytsj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=478&fit=crop&dpr=1 754w, https://images.theconversation.com/files/273796/original/file-20190510-183080-12lytsj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=478&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/273796/original/file-20190510-183080-12lytsj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=478&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The internet of things opens up a number of cyber-risks.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shard-city-london-view-night-business-733225039?src=EBdQFUlEmmTk1OcF1KMUAg-1-15">Shutterstock</a></span>
</figcaption>
</figure>
<p>The UK’s National Cyber Security Centre (NCSC) has a dedicated Huawei Cyber Security Evaluation Centre. Its <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/790270/HCSEC_OversightBoardReport-2019.pdf">2019 report</a> found no evidence of Chinese state interference or the deliberate introduction of “backdoors” that could be used to siphon off information. But it does criticise Huawei’s technology for being generally vulnerable to attack. The potential risks, however, apply to any equipment vendor that the UK may choose to use instead of Huawei. </p>
<p>In light of the current US government’s tough stance on China, in terms of trade and security, it is fair to ask if the present US warnings have more to do with denying market access to a strong competitor than security concerns? If so, the UK may have to decide whether it values its relations with the US or China more. As well as the security risks that Huawei may pose, the UK must consider the importance of <a href="https://www.theguardian.com/technology/2019/apr/19/where-huawei-is-banned">maintaining its information sharing arrangement</a> with the US and the other “Five Eyes” countries, Australia, New Zealand and Canada.</p>
<p>The trust issue will always remain with Huawei because of its proximity to the Chinese government. But, after the <a href="https://www.bbc.co.uk/news/business-47274643">UK’s top spies said</a> Huawei could be “managed” in terms of potential security risks, the main risk at the moment seems to be diplomatic. Namely, repercussions with Washington and the potential backlash regarding a post-Brexit trade deal and suspension of intelligence sharing. With China potentially becoming a global adversary to <a href="https://foreignpolicy.com/2019/01/22/europes-future-is-as-chinas-enemy/">the West as a whole (not just the US</a>), the UK should bear in mind which side it is choosing when deciding who builds its 5G infrastructure.</p><img src="https://counter.theconversation.com/content/116770/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Countries may be forced to choose whether they side with the US or China when it comes to Huawei.Sascha-Dominik (Dov) Bachmann, Associate Professor in International Law (BU) and (extraordinary) Reader in War Studies (SEDU), Bournemouth UniversityAnthony Paphiti, Visiting Research Fellow in Conflict, Rule of Law and Society, Bournemouth UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1163752019-05-02T13:39:09Z2019-05-02T13:39:09ZHuawei: fears in the West are misplaced and could backfire in the long run<p>Western fears of Chinese telcoms giant Huawei infiltrating their technological infrastructure are rooted in fears of China’s rise. Three of the “Five Eyes Network” of English-speaking states that share intelligence – the US, Australia and New Zealand – have blocked their local firms from using Huawei tech in building their 5G networks. The UK and Canada are <a href="https://www.independent.co.uk/news/uk/politics/huawei-5g-network-uk-brexit-trade-national-security-a8888286.html">under pressure to follow suit</a>.</p>
<p>But a lot of these fears are misplaced and cutting Huawei out of the picture could backfire in the long run. Not only would it limit Western access to new, state-of-the-art technology, it could create a world split along technological lines.</p>
<p>Depending on who you talk to, you’ll get vastly differing portrayals of Huawei. Many of the concerns are based on the idea that the company is in bed with the Chinese government and point to founder, Ren Zhengfei’s background as a People’s Liberation Army engineer. Yet Ren only owns about 1.4% of the company’s stock – the rest is owned by <a href="https://hbr.org/2015/09/huawei-a-case-study-of-when-profit-sharing-works">more than 80,000 of Huawei’s employees</a> and it is a private company, not a state-owned enterprise. </p>
<p>Some say Huawei has committed <a href="https://www.nytimes.com/2019/01/16/technology/huawei-investigation-trade-secrets.html">systematic intellectual theft</a>. Yet its rivals Nokia and Ericsson <a href="https://www.wsj.com/articles/huawei-rivals-nokia-and-ericsson-struggle-to-capitalize-on-u-s-scrutiny-11546252247">have been slow</a> to release telecoms equipment as advanced as Huawei’s and British telecom network BT says it is “<a href="https://www.cnbc.com/2018/11/29/huawei-boss-us-may-not-win-the-5g-race-if-it-doesnt-let-us-back-in.html">the only one true 5G supplier</a>”. </p>
<p>Another story you could focus on is how Huawei came to dominate the telecoms equipment market in Africa. Economic miracles on this continent over the last decade have been generated by mobile phone services. Sticking it out in a number of adverse conditions, <a href="https://books.google.com/books?id=KjxwDQAAQBAJ&printsec=frontcover&dq=inauthor:%2522Wu+Chunbo%2522&hl=en&sa=X&ved=0ahUKEwiFk-m3vs_fAhWFd98KHe2nAggQ6AEIMDAB#v=onepage&q=opiate%2520of%2520huawei's%2520peopl&f=false">Huawei has been the key provider of this infrastructure</a>.</p>
<p>But Huawei is not currently being scrutinised for its business conduct in Africa. The focus is on how Huawei has filed the <a href="https://www.zdnet.com/article/huawei-the-biggest-filer-of-patents-with-the-epo-in-2017/">most patents</a> in Europe, spent more money on research than its rivals Cisco, Nokia or Ericsson, earned half of its income <a href="https://www.cnbc.com/2019/03/29/huawei-earnings-full-year-2018.html">from outside of China</a>, and boasts a revenue <a href="https://newsroom.cisco.com/press-release-content?type=webcontent&articleId=1939009">twice as much as that of Cisco</a> and significantly more than that of IBM. This is the Huawei that Western governments and a lot of the media are becoming the most vocal against.</p>
<h2>Keep your friends close …</h2>
<p>When officials in Washington talk about the importance of banning Huawei from the US or forbidding US companies like Qualcomm and Intel from selling products to Huawei, they are talking about something that is harder to advocate, at least publicly. And that is to disengage from China – because disengaging is not possible in the world’s globalised economy. Just about everybody, including Cisco, Ericsson and Nokia, makes their telecoms equipment in China.</p>
<p>What’s truly at risk by disengaging from Huawei in the West is to lose the ability to scrutinise the entity they fear most. In the telecoms sector, when service providers like BT, Verizon, and AT&T buy equipment from Huawei it’s not as simple as buying a book on Amazon. To become a supplier for BT, for instance, you need to <a href="https://books.google.ch/books?id=KjxwDQAAQBAJ&printsec=frontcover&dq=Huawei+book&hl=en&sa=X&redir_esc=y#v=onepage&q=British%2520Telecom%252C%2520or%2520BT&f=false">pass a number of tests</a>. </p>
<p>To test Huawei’s qualifications, BT brought out a big team to Huawei’s headquarters in Shenzhen to carry out rounds of tests, without giving prior notice. BT then picked a number of names out of Huawei’s roster and conducted independent interviews using their own interpreters. So demanding were BT’s criteria that the chairwoman of Huawei had to set up an independent BT support department to directly report to her, and then hired Mercer, a US consultancy firm, to develop a new governance structure.</p>
<h2>A different tech agenda</h2>
<p>When I visited Shenzhen in China last year, local managers explained to me that much of the city’s infrastructure will be digitised, and that Huawei will saturate it with a 5G network. This will reduce speed issues and latency problems for computers using that network. </p>
<p>It also means new technology like driverless cars will need far less computer power to work. The necessary computing power can simply be off-loaded onto the city’s infrastructure. This is a radical vision. And it is radically different to that of Intel, which hopes to dominate the new transport market. As autonomous driving takes off, vehicles will become computers on wheels. More powerful microchips will be needed, which is where Intel comes in. </p>
<p>Huawei has a different idea for <a href="https://e.huawei.com/en/publications/global/ict_insights/201512291113/Ecosystem/201512301136">connected cars</a>, which uses its own technology and bypasses the need for chips built by third-party providers. This will directly undermine Intel’s strategy, in China and beyond.</p>
<p>And herein lies the biggest risk of shutting out Huawei: that it will accelerate a vastly different technological agenda not only in China but also in Southeast Asia, the Middle East and Africa. The logic is simple. If you’re a poor country that lacks the capacity to build your own data network or is distrustful of Western intervention, you’re going to feel loyal to whoever helps lay the pipes at a low cost.</p>
<p>Shutting out Huawei therefore won’t slow China from dominating both 5G and AI, a nightmare scenario for US security hawks. Shutting out Huawei simply reduces your ability to monitor, let alone influence, the growth of an emerging techno-authoritarian bloc. If the Cold War taught us anything, it’s that maintaining a degree of openness with your adversary is always the best defence against a catastrophic outcome.</p><img src="https://counter.theconversation.com/content/116375/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Howard Yu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Cutting Huawei out of the picture would limit Western access to new, state-of-the art technology.Howard Yu, Professor of Management and Innovation, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1143612019-04-01T04:28:15Z2019-04-01T04:28:15ZHow to get ready as the US-China trade war spills over to other countries<figure><img src="https://images.theconversation.com/files/266689/original/file-20190331-177184-ieppqe.jpg?ixlib=rb-1.1.0&rect=109%2C146%2C4778%2C3019&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China is the world's second largest economy. </span> <span class="attribution"><span class="source">EPA/Aleksandar Plavevski</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>The <a href="https://www.theguardian.com/environment/2019/mar/27/us-china-soy-tariff-war-could-destroy-13-million-hectares-of-amazon-rainforest">ever-escalating tensions</a> in <a href="https://www.bloomberg.com/news/articles/2019-03-27/who-is-winning-trump-s-trade-war-with-china-so-far-it-s-mexico">trade relations between the US and China</a> have caught the nerve of politicians, businesses and the public. This conflict is challenging the <a href="https://www.theguardian.com/business/2018/sep/19/wto-head-offers-to-mediate-between-china-and-us-over-trade-war">traditional approach to trade disputes</a>, which usually involves one of the disputing countries taking the case to the World Trade Organization (<a href="https://www.wto.org/">WTO</a>) for arbitration or adjudication. </p>
<p>International institutions, including the WTO and the International Monetary Fund (<a href="https://www.imf.org/external/index.htm">IMF</a>), have warned that the consequences of the conflict could include growing economic nationalism, rising protectionism and a downturn in global growth.</p>
<p>This will have flow-on effects for other countries such as Australia and New Zealand.</p>
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Read more:
<a href="https://theconversation.com/huawei-or-the-highway-the-rising-costs-of-new-zealands-relationship-with-china-111909">Huawei or the highway? The rising costs of New Zealand's relationship with China</a>
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<h2>A new framework</h2>
<p>Both countries have developed close political ties with the US while fostering strong economic ties with China. As China is a <a href="https://www.abc.net.au/news/2019-01-15/australia-china-two-way-trade/10716678">top trading partner for Australia</a> and <a href="https://www.stats.govt.nz/information-releases/goods-and-services-trade-by-country-year-ended-march-2018">New Zealand</a>, the impact of the US-China trade war on their exports could be significant. </p>
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Read more:
<a href="https://theconversation.com/whats-worse-than-the-us-china-trade-war-a-grand-peace-bargain-111608">What's worse than the US-China trade war? A grand peace bargain</a>
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<p>Although the dollar value of any effect of the trade war is difficult to gauge, a qualitative analysis is important so that policymakers, investors and businesses can develop an informed view of this live event. </p>
<p>To analyse the impact of the trade war on the exports of third-party countries, we have developed a new framework. </p>
<p>The first factor to consider is whether an original demand for products from a disputing country has been redirected to a third-party country. For example, China’s demand for Brazil’s soybeans has sky-rocketed over the past year, with <a href="https://af.reuters.com/article/commoditiesNews/idAFL3N1YT270">5.07 million tonnes imported from Brazil in November 2018</a>, up more than 80% from a year ago. It is predicted that members of the European Union, Mexico, Japan and Canada, among other countries, may <a href="https://www.maritime-executive.com/article/e-u-to-benefit-most-from-trade-war">capture about US$70 billion of US-China bilateral trade</a> affected by the trade war. </p>
<p>The second factor is whether an original supply from one disputing country to another has been redirected to a third-party country. It has been reported that <a href="http://europa.eu/rapid/press-release_IP-18-5823_en.htm">soybean exports from the US to the European Union have increased</a> by 133% from July through mid-September 2018, compared with the same period in 2017. </p>
<p>European Union consumers and downstream businesses of the soybean industry, such as producers of animal feed and biofuels, have <a href="https://www.bloomberg.com/news/articles/2019-01-07/after-snatching-up-u-s-soy-europe-expects-to-buy-even-more">enjoyed the benefits of a lower price</a> of soybeans as a result of the additional supply from the US.</p>
<h2>Changing international supply chains</h2>
<p>The third factor is whether the trade tension has disrupted the global supply chain of an industry (e.g. smartphones) that is important to the third-party country. The levies imposed by the US government on imports from China are said to <a href="https://asia.nikkei.com/Economy/Trade-war/US-China-tariff-showdown-uproots-global-supply-chains">destabilise international supply chains</a> inside and outside of China that companies have invested in over years. Countries such as Thailand, Cambodia and Vietnam are catching up with China in terms of <a href="http://knowledge.wharton.upenn.edu/article/will-an-integrated-asean-region-challenge-china/">manufacturing expertise and capacities</a>. Companies from already industrialised economies such as Taiwan and South Korea are considering revamping their home country’s competitive advantages. </p>
<p>Uncertainty in the price and supply of intermediary goods from these countries into the third-party country’s supply chain are critical for determining the spillover effect on the third country. </p>
<p>The last factor is whether the focal industry in the third-party country has developed a proactive response to the risk from the trade war. A proactive response would mean that companies in the focal industry in the third-party country have started to adjust strategic investment in research and development, sourcing, and manufacturing in or outside the US or China. </p>
<h2>Risks and opportunities</h2>
<p>The trade war will create risks and opportunities to third-party countries such as Australia and New Zealand. Filling the supply and demand gaps caused by higher tariffs on both sides of the trade war is an opportunity for a third-party country. But this requires flexibility in production and export capabilities in companies and industries. </p>
<p>As the trade spat continues, it remains a balancing act for the third-party country dangling between two political and economic powers. We have already seen the tensions between the US and China spill to this region in the context of the US ban on Huawei and its persuasion of <a href="https://www.abc.net.au/news/2019-01-30/huawei-china-us-fight-technology-dominance-australia/10762746">Australia</a> and <a href="https://www.radionz.co.nz/news/on-the-inside/382517/trade-vs-security-new-zealand-s-huawei-dilemma">New Zealand</a> to follow suit. </p>
<p>Companies such as <a href="https://www.theguardian.com/world/2019/feb/12/air-new-zealand-flights-u-turn-sparks-claims-of-china-tensions">Air New Zealand</a> and <a href="https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12204157">Sanford</a> have been reported to face challenges on “operational” matters when the country’s political relationship with China is in question.</p><img src="https://counter.theconversation.com/content/114361/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As the trade spat between China and the US continues, it is likely to spill over to other countries. For Australia and New Zealand, this could bring both risks and opportunities.Hongzhi Gao, Associate professor, Te Herenga Waka — Victoria University of WellingtonIvy Guo, research assistant, Te Herenga Waka — Victoria University of WellingtonTarek Soliman, Economist, Manaaki Whenua - Landcare ResearchLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1116082019-02-28T06:00:00Z2019-02-28T06:00:00ZWhat’s worse than the US-China trade war? A grand peace bargain<p>It’s hard to tell if Donald Trump’s trumpeting of “<a href="https://www.abc.net.au/news/2019-02-25/us-president-donald-trump-delays-china-tariff-increase/10845482">substantial progress</a>” in trade talks, leading to a cosy weekend at Mar-a-Lago to sign a deal with Chinese president Xi Jingping, represents reality.</p>
<p>Most observers, though, will be relieved by his decision to again defer his threat to escalate the US-China trade war and hike up tariffs from 10% to 25% on US$200 billion worth of Chinese imports. (The total value of US imports from China in 2018 was <a href="https://www.census.gov/foreign-trade/balance/c5700.html">US$493 billion</a>.) </p>
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<a href="https://theconversation.com/wto-offers-trump-a-solution-to-enforcing-a-trade-deal-with-a-china-that-breaks-promises-112488">WTO offers Trump a solution to enforcing a trade deal with a China that breaks promises</a>
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<p>Trade wars are generally considered bad for everyone. KPMG has calculated a full escalation of the trade war – with a 25% tariff applying to all goods traded (worth US$604.5 billion in 2018) – would cost Australia <a href="https://assets.kpmg/content/dam/kpmg/au/pdf/2018/trade-wars-no-winners.pdf">A$58 billion</a> over the next decade.</p>
<p>But far worse for Australia, and its Asia-Pacific neighbours, could be a deal to <a href="https://www.ft.com/content/1278496e-393a-11e9-b72b-2c7f526ca5d0">end the trade war</a>, especially if it involves a <a href="https://foreignpolicy.com/2018/11/28/the-pieces-are-in-place-for-a-grand-bargain-with-china/">grand geopolitical bargain</a> between the US and China. </p>
<h2>Bilateral world order</h2>
<p>Considering the US administration’s hard-line approach, for a truly comprehensive deal to occur China would have to subscribe to a <a href="http://www.eastasiaforum.org/2019/01/28/whats-really-wrong-with-the-chinese-economy-and-why-it-matters/">serious restructuring</a> of its industrial system. This would ultimately mean phasing out covert state subsidies, liberalising its financial markets and giving up on meaningful technological competition in security-sensitive sectors. </p>
<p>But out of fear an ongoing trade war will harm its export-driven economic progress, and also as an expedient step for advancing its regional hegemony, China might eventually agree to all this as part of a grand bargain. </p>
<p>Essentially, a grand bargain with an “America First” US administration makes sense on the mutually beneficial assumption it would lay the foundations for a bilateral world order. </p>
<p>As part of the deal the US would dramatically reduce its strategic footprint from the Middle East through to the Korean peninsula. The advantage would be it could focus resources on <a href="https://www.lowyinstitute.org/the-interpreter/china-may-only-seek-limited-naval-role-indian-ocean">limiting China’s naval role</a> across Indo-Pacific trading routes. </p>
<p>Retreating to a more sustainable role as the indispensable <a href="https://www.state.gov/r/pa/prs/ps/2018/04/280134.htm">maritime power across the Pacific and Indian oceans</a> would leave China free rein to exert its <a href="https://theconversation.com/chinas-silk-road-is-laying-ground-for-a-new-eurasian-order-105991">weight on land in Eurasia</a>. </p>
<p>The US might see that as advantage. Chinese regional hegemony inland would give Russia more to think about on its south-eastern border, rather than causing problems for US allies in eastern Europe. It would also put extreme <a href="http://www.eastasiaforum.org/2018/09/24/indias-cautious-courtship-with-the-us-led-order-in-asia/">pressure on India</a> to finally evolve into a subsidiary power to the US maritime empire, one of the wildest <a href="http://www.eastasiaforum.org/2018/09/23/does-india-endorse-a-us-led-regional-order/">strategic dreams</a> in Washington. </p>
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Read more:
<a href="https://theconversation.com/the-collapse-of-the-us-russia-inf-treaty-makes-arms-control-a-global-priority-111251">The collapse of the US-Russia INF Treaty makes arms control a global priority</a>
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<p>The downside would be that <a href="https://www.abc.net.au/news/2018-08-20/russia-and-china-bolster-ties-to-thwart-us-dominance/10134426">Russia</a> might end up as a subservient commodity supplier to China’s regional empire. Russia’s geo-economic downgrade would strengthen European resolve to run independently of the US, one of the worst <a href="https://www.theguardian.com/commentisfree/2019/feb/18/trump-pompeo-bolton-eu-eastern-european-states">nightmares in Washington</a>. </p>
<p>For China, the prize would be achieving the main strategic ambitions of its <a href="https://theconversation.com/the-belt-and-road-initiative-chinas-vision-for-globalisation-beijing-style-77705">Belt and Road Initiative</a>, ultimately controlling land trading routes from Beijing to Venice. The strategic cost would be abandoning its maritime ambitions. </p>
<h2>Where this leaves Australia</h2>
<p>Where would this bilateral world system vision leave Australia? </p>
<p>Certainly worse off than the current situation. With interlocking spheres of influence across the Indo-Pacific rim (US) and the Eurasian landmass (China), at best Australia would become a marginal economic and security appendage of the two hegemons.</p>
<p>Relegated to the role of a price- and rule-taking <a href="https://www.bloomberg.com/news/articles/2018-01-12/world-s-commodity-engine-roars-to-another-record-with-xi-at-helm">commodity supplier to China</a>, Australia would remain only nominally a US ally. It would be a rather disposable buffer state at the frontier of two empires, caught between the economic and security crossfire of proxy conflicts. </p>
<h2>Weaknesses and opportunities</h2>
<p>Compared to this scenario, a protracted US-China trade war may well serve Australia’s national interests much better.</p>
<p>Though tariffs will weaken the global economy, it will hurt the US and China the most. It might even weaken their respective commercial and military grips on the Asia-Pacific region to the point that patterns of more <a href="https://moderndiplomacy.eu/2017/02/05/the-importance-of-maintaining-the-balance-of-power/">distributed power relations</a> could emerge. </p>
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<a href="https://theconversation.com/why-there-will-be-no-winners-from-the-us-china-trade-war-109822">Why there will be no winners from the US-China trade war</a>
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<p>Economic analysis suggests many Asian economies <a href="https://www.bloomberg.com/news/articles/2018-11-20/these-asian-nations-to-benefit-most-from-u-s-china-trade-war">are already relative winners</a>, as tariffs motivate US and Chinese businesses to “<a href="https://asia.nikkei.com/Opinion/US-and-China-the-great-decoupling">decouple</a>”.</p>
<p>Malaysia, Japan, Pakistan, Thailand and the Philippines lead the nations gaining from US and Chinese companies buying goods elsewhere. Vietnam, Malaysia, Singapore and India are the top beneficiaries from US companies <a href="https://www.forbes.com/sites/vinnielauria/2019/02/19/u-s-china-trade-war-boosts-fast-growing-southeast-asia-2/#5abb4bad6f5e">shifting production away from China</a>. </p>
<p>Several Asian countries have also seized the opportunity to play the US and China against each other. </p>
<p>The <a href="http://www.fsi.gov.ph/the-philippines-pivot-to-china-a-review-of-perspectives/">Philippines</a> has revitalised relations with China to manage the <a href="https://www.scmp.com/video/asia/2158598/south-china-sea-dispute-explained">South China Sea dispute</a> more independently from the US. This has not stopped it remaining by far the <a href="http://philippineslifestyle.com/military-aid-usa-philippines/">largest recipient of US military aid</a> in Asia.</p>
<p><a href="https://jia.sipa.columbia.edu/online-articles/south-koreas-options-admidst-us-china-trade-war">South Korea</a> has signed bilateral free-trade agreements with both China and the US, positioning itself as an intermediary that will allow American and Chinese companies to trade in a way that circumvents the tariffs. </p>
<p>Malaysia’s <a href="https://www.scmp.com/week-asia/geopolitics/article/2160552/what-malaysias-mahathir-doctrine-means-china-us-rivalry">government</a> has affirmed strategic neutrality by pulling back from deals that would put it in debt to <a href="https://www.ft.com/content/12ea931e-34f0-11e9-bb0c-42459962a812">Chinese investors</a>.</p>
<p>This is arguably an unprecedented opportunity for Australia to start carving a more independent foreign policy. </p>
<p>Our interests lie in taking an active role in promoting a world system <a href="http://oxfordre.com/politics/view/10.1093/acrefore/9780190228637.001.0001/acrefore-9780190228637-e-119">truly based on multilateral rules</a> rather than <a href="http://www.eastasiaforum.org/2018/02/12/a-new-model-of-great-power-relations/">great power relations</a>. </p>
<p>The worst-case scenario for an ongoing US-China trade war is that it turns into real war. But that’s unlikely. </p>
<p>So long as it remains a manageable trade dispute, it is better for Australia, and much of the rest of the world, than trade peace leading to a bilateral world system.</p><img src="https://counter.theconversation.com/content/111608/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Giovanni Di Lieto does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Trade wars are generally bad. But far worse for Australia is that the US and China make peace through a deal to establish a bilateral world order.Giovanni Di Lieto, Senior Lecturer of international trade law, Monash Business School, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1124882019-02-26T11:41:00Z2019-02-26T11:41:00ZWTO offers Trump a solution to enforcing a trade deal with a China that breaks promises<p><a href="https://www.bloomberg.com/news/articles/2019-02-24/trump-extends-china-tariff-truce-after-substantial-progress?srnd=premium">Optimism is growing</a> that China and the U.S. will be able reach a deal to end the year-old trade war, with President Donald Trump extending his March 2 deadline. </p>
<p>One of the <a href="https://www.nytimes.com/2019/02/12/business/us-china-trade-talks.html">biggest stumbling blocks</a> between the two countries has been a lack of trust, a key to <a href="https://www.pon.harvard.edu/daily/dealmaking-aily/dealmaking-negotiations-how-to-build-trust-at-the-bargaining-table/">any successful negotiation</a>. The Trump administration <a href="https://www.bloomberg.com/news/articles/2019-02-24/trump-extends-china-tariff-truce-after-substantial-progress?srnd=premium">has insisted</a> it will make a strong enforcement mechanism part of any deal. But what might that look like? </p>
<p>As a trade economist, I believe the answer to the trust conundrum lies in learning from an international body the <a href="https://www.bbc.com/news/world-us-canada-45364150">president disdains</a>: the World Trade Organization. </p>
<h2>Empty words?</h2>
<p>From the American perspective, a key issue is that in the past the Chinese have <a href="https://itif.org/publications/2015/09/17/false-promises-yawning-gap-between-china%E2%80%99s-wto-commitments-and-practices">made all sorts of promises</a> to address U.S. concerns that they later reneged on. Or, China has taken so long to act that when it finally did it made little difference. </p>
<p>Several examples of Chinese promises going unkept readily come to mind. </p>
<p>When China joined the World Trade Organization in 2001, <a href="http://news.bbc.co.uk/2/hi/business/1702241.stm">it was given “developing country” status</a>. This <a href="http://www.eastasiaforum.org/2019/01/21/chinas-developing-country-status-in-the-wto-time-for-an-upgrade/">allowed China to levy high tariffs</a> on imports from the U.S. and Europe even as it benefited from low duties on its exports. </p>
<p>The <a href="https://itif.org/publications/2015/09/17/false-promises-yawning-gap-between-china%E2%80%99s-wto-commitments-and-practices">understanding at that time</a> was that as its economy grew, China would gradually adopt market-based economic principles and commit itself to the basic tenets of liberalized trade and globalization. But this has not happened. </p>
<p>Sometime after China joined the WTO, the <a href="https://qz.com/938648/if-us-trade-with-china-is-so-unfair-why-is-gm-the-best-selling-car-there/">country imposed a 21 percent to 30 percent tariff</a> on cars. It was only this past December, and under pressure because of the current trade talks, that the Chinese finally <a href="https://www.cnn.com/2018/12/14/business/china-us-auto-tariffs/index.html">agreed to temporarily reduce</a> the tariff to 15 percent. In contrast, the corresponding U.S. tariff on Chinese auto imports has long been 2.5 percent. </p>
<p>More generally, also after becoming a WTO member, China <a href="https://www.innovationfiles.org/top-9-false-promises-that-china-made-in-joining-the-world-trade-organization">promised to open up</a> its banking, telecommunications and electronic payment processing sectors. But action in these areas has either <a href="https://www.nytimes.com/2019/02/12/business/us-china-trade-talks.html?emc=edit_th_190213&nl=todaysheadlines&nlid=253946410213">been non-existent or half-hearted</a>. </p>
<p>Even now, the Chinese telecommunications industry <a href="https://www.nytimes.com/2019/02/12/business/us-china-trade-talks.html">remains very much under government control</a>, and the government <a href="https://www.nytimes.com/2018/08/06/technology/china-generation-blocked-internet.html">has effectively precluded</a> Facebook and Google from offering their services in China. </p>
<p>Concerns about the reliability of the Chinese are not limited to economic and technological matters. To see this, note that on a state visit to the U.S. in 2015, President Xi Jinping <a href="https://www.reuters.com/article/us-usa-china-pacific/xi-denies-china-turning-artificial-islands-into-military-bases-idUSKCN0RP1ZH20150925">promised not to militarize</a> the artificial islands on disputed reefs that the Chinese were building in the South China Sea. </p>
<p>However, we <a href="https://www.economist.com/asia/2018/06/21/china-has-militarised-the-south-china-sea-and-got-away-with-it">now have clear evidence</a> that he has done exactly what he promised he would not do. </p>
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<img alt="" src="https://images.theconversation.com/files/259169/original/file-20190214-1748-r7zwhb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/259169/original/file-20190214-1748-r7zwhb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/259169/original/file-20190214-1748-r7zwhb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/259169/original/file-20190214-1748-r7zwhb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/259169/original/file-20190214-1748-r7zwhb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/259169/original/file-20190214-1748-r7zwhb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/259169/original/file-20190214-1748-r7zwhb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Chinese and U.S. negotiators chat before sitting down for formal talks.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/China-US-Trade-Talks/601606d295b3441d87ddad9fb3ba0419/4/0">AP Photo/Mark Schiefelbein</a></span>
</figcaption>
</figure>
<h2>Holding China’s feet to the fire</h2>
<p>Given all this, I believe it would be rather naïve on the part of the U.S. to agree to any Chinese promises in the current trade talks without also building a robust enforcement mechanism into any deal. </p>
<p>Indeed, the negotiators themselves seem to understand this, but difficulty finding a way to enforce any agreements – both past and present – <a href="https://www.nytimes.com/2019/02/12/business/us-china-trade-talks.html">is making it harder</a> to come to a deal. And that’s where the WTO and its enforcement mechanisms come in. </p>
<p>For example, China agreed to <a href="https://www.wto.org/english/news_e/pres01_e/pr243_e.htm">just such a mechanism</a> with its WTO ascension. This enforcement rule permitted a nation to automatically levy tariffs on certain Chinese goods and services if that country’s domestic market was hurt by those same exports. Unfortunately, like most WTO rules, this rule had a finite life and was allowed to lapse at the end in 2013. Even though this mechanism has been infrequently used, President Barack Obama <a href="https://ustr.gov/about-us/policy-offices/press-office/press-releases/2010/december/united-states-prevails-wto-section-421-safeguard">took advantage of it with some success</a> in 2009 to impose tariffs on Chinese-made tires that were harming U.S. manufacturers.</p>
<p>If such an enforcement mechanism can be built into a trade deal, then the U.S. would not have to plead its case before some international body before it retaliated against the Chinese. Instead, when confronted with one or more broken promises, it would have the legal right to act unilaterally to hold China accountable. </p>
<p>That said, since the current negotiations are between two sovereign nations, the key is to devise an enforcement mechanism that is agreeable to both the U.S. and China. Only then will a resulting trade deal be self-enforcing.</p>
<p>Since the U.S. and China are both members of the WTO, another but less potent enforcement mechanism would lie in utilizing its <a href="https://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm">dispute settlement mechanism</a> to address any disagreements that may arise after a deal is reached. The U.S. has <a href="https://www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm">had success in the past</a> in using this WTO mechanism as well to <a href="https://www.npr.org/2013/08/05/209097983/wto-sides-with-u-s-in-poultry-dispute-with-china">hold China accountable</a>. </p>
<h2>A deal worth the paper it’s printed on</h2>
<p>The venerable Chinese sage Sun Tzu <a href="https://www.goodreads.com/quotes/659546-in-the-midst-of-chaos-there-is-also-opportunity">once said</a> that “in the midst of chaos, there is also opportunity.” </p>
<p>The U.S. now has an opportunity to conclude a meaningful trade deal with China that also has enforcement built into it. Therefore, the American negotiators ought to seize this opportunity and ensure a deal isn’t backed primarily by Chinese promises. </p>
<p>Otherwise, it won’t be the last time a U.S. president fumes about unfair Chinese trading practices. </p>
<p><em>This is an updated version of an <a href="https://theconversation.com/us-china-trade-talks-will-the-chinese-keep-promises-to-stop-bad-behavior-111900">article originally published</a> on Feb. 19, 2019.</em></p><img src="https://counter.theconversation.com/content/112488/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amitrajeet A. Batabyal does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>American and Chinese trade negotiators are pushing hard to get a deal, but a major sticking point remains: ensuring China honors any promises it makes.Amitrajeet A. Batabyal, Arthur J. Gosnell Professor of Economics, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1100122019-02-13T12:05:32Z2019-02-13T12:05:32ZWhy Trump failed to convince North Korea to give up its nuclear weapons, and how he can do better at the next summit<figure><img src="https://images.theconversation.com/files/258605/original/file-20190212-174867-1e16rx9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Donald Trump meets with Kim Jong Un in Singapore, 2018.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/APTOPIX-Trump-Kim-Summit/45ec8217a39b46308685b4f17c3b4f22/7/0">AP Photo/Evan Vucci</a></span></figcaption></figure><p>President Donald Trump and North Korean leader Kim Jong Un will meet in Vietnam in late February for <a href="https://www.nytimes.com/2019/01/18/us/politics/trump-north-korea-summit.html">a second summit</a>, with the goal of ending a nuclear standoff between the two countries.</p>
<p>After the first meeting between the two leaders in Singapore in the summer of 2018, Trump declared a breakthrough in U.S.-North Korean relations. He <a href="https://twitter.com/realDonaldTrump/status/1006837823469735936">tweeted</a> that there is “no longer a Nuclear Threat from North Korea.” </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1006837823469735936"}"></div></p>
<p>Eight months later, however, it is clear that North Korea’s nuclear weapons arsenal have not been curtailed in any significant way. The arsenal is estimated to include as many as <a href="https://www.cfr.org/backgrounder/north-koreas-military-capabilities">60 weapons</a> and the rockets to deploy them are able to reach <a href="https://www.cnn.com/2017/11/28/politics/north-korea-missile-launch/index.html">any spot in the U.S.</a> </p>
<p>The U.S. intelligence community’s <a href="https://www.dni.gov/files/ODNI/documents/2019-ATA-SFR---SSCI.pdf">Worldwide Threat Assessment</a>, released in January, declares that North Korea has retained its nuclear arsenal. The Pentagon’s <a href="https://www.defense.gov/Portals/1/Interactive/2018/11-2019-Missile-Defense-Review/The%202019%20MDR_Executive%20Summary.pdf">2019 Missile Defense Report</a> calls the regime an “extraordinary threat” to the United States. </p>
<p>Why have the nuclear negotiations failed to yield progress in the nuclear disarmament of North Korea? </p>
<p><a href="https://scholar.google.com/citations?user=dMo5aFUAAAAJ&amp;hl=en">My research</a> on diplomacy has led me to believe the stalemate is a result of Trump’s trade strategy toward North Korea’s neighbor and trading partner, China, and the U.S.’ sanctions strategy towards North Korea. </p>
<p>Both will need to change if progress is to be made.</p>
<h2>China’s role</h2>
<p>Trump decided to launch a <a href="https://www.cnbc.com/2018/11/30/timeline-of-us-china-trade-war-as-trump-and-xi-meet-at-g-20-in-argentina.html">trade war with China</a> in 2018, immediately following his summit with North Korea. </p>
<p>That’s a problem because Chinese cooperation is key to Trump’s effort to impose <a href="https://www.ft.com/content/3509002e-5f6d-11e8-9334-2218e7146b04">maximum pressure</a> on North Korea to give up its nuclear weapons. More than 90 percent of <a href="https://www.statista.com/statistics/745703/north-korea-share-of-trade-with-china/">all North Korean trade</a> is conducted with China alone – giving Beijing, by far, the greatest economic leverage over Pyongyang. China began wielding this leverage in 2017 as it <a href="https://www.theguardian.com/world/2017/sep/23/china-to-enforce-un-sanctions-against-north-korea">started enforcing</a> UN trade sanctions on North Korea. However, in the past year, China has retaliated against Trump’s tariff hikes on Chinese exports in part by relaxing its <a href="https://www.nbcnews.com/news/north-korea/china-eases-economic-pressure-north-korea-undercutting-trump-admin-n906166?cid=par-xfinity_20180905">enforcement of sanctions</a> on North Korea. </p>
<p>Coal imports, construction projects and tourism from China to North Korea have all increased. There has been a sharp spike in <a href="https://www.washingtonpost.com/world/national-security/a-massive-spike-in-oil-smuggling-has-eased-the-economic-pressure-on-north-korea/2018/09/20/1f6b684a-bc35-11e8-8792-78719177250f_story.html?noredirect=on&amp;utm_term=.4aba78b4ecfc">oil and gasoline smuggling</a> operations into North Korea, mostly from Chinese ships.</p>
<p>U.S. allies and major trade partners, including Europe and Japan, share many of Trump’s concerns about China’s suspect trade practices and how it <a href="https://www.cnbc.com/2016/07/13/china-economy-news-beijing-should-remove-trade-barriers-speed-up-reform-juncker-says.html">harms their economies</a>. But they believe less combative <a href="https://www.bloomberg.com/news/articles/2018-12-17/eu-blasts-trump-trade-policy-for-crisis-at-wto-risk-to-growth">approaches to China</a> are preferable. A shift away from the confrontational approach would likely lead to increased Chinese cooperation with the sanctions campaign on North Korea.</p>
<h2>Beyond sanctions</h2>
<p>The U.S. strategy towards North Korea is based solely on forcing the country to surrender its entire nuclear program before offering relief from sanctions. </p>
<p><a href="https://www.brookings.edu/book/honey-and-vinegar/">Studies have shown</a> that sanctions alone <a href="https://carnegieendowment.org/2000/04/18/sanctions-decade-assessing-un-strategies-in-1990s-event-50">can be insufficient</a> to convince a foreign government to abandon a program that it has long viewed as essential for its survival. </p>
<p>Kim Jong Un <a href="https://www.washingtonpost.com/world/north-koreas-kim-ready-to-meet-trump-but-warns-us-not-to-misjudge-patience/2018/12/31/bb0b7348-0d62-11e9-92b8-6dd99e2d80e1_story.html?noredirect=on&utm_term=.1468b5ec3576">has vowed</a> that North Korean disarmament will not happen without the U.S. making concessions. </p>
<p>The U.S. could just as easily use gradual relief from sanctions as leverage in exchange for disarmament steps. In the past, when North Korea took nuclear disarmament steps <a href="https://www.cfr.org/timeline/north-korean-nuclear-negotiations">in 1994 and 2008</a>, they did so partially in response to offers of sanctions relief and aid from the United States, South Korea, Japan and other allies.</p>
<p>There are steps beyond sanctions relief that can also prod North Korea towards disarmament. Security guarantees are among the most important incentives to offer during negotiations. North Korea has <a href="https://www.bbc.com/news/world-asia-44142046">made it clear</a>, that any substantial disarmament will come only after the U.S. and its regional allies promise never to attack North Korea. </p>
<p>A large economic, energy and food aid package from the U.S. and its allies could markedly improve the quality of life in North Korea. The country urgently needs assistance, and the ability of the U.S. to meet this need gives Washington leverage over Pyongyang. In his recent speech, <a href="https://www.38north.org/2019/01/gford010919/%20%22%22">Kim Jong Un declared</a> that economic growth is the nation’s top priority. <a href="https://www.bbc.com/news/world-asia-41228181">Per capita income</a> in the country is just one-tenth that of South Korea, and <a href="https://www.bbc.com/news/world-asia-39349726">40 percent</a> of the population suffers from malnutrition. </p>
<h2>Sharing the burden</h2>
<p>Aid would not be cheap. </p>
<p>A study estimated that an effective aid package <a href="https://www.voanews.com/a/north-korea-pricey-denuclearization/4426577.html">would cost US$30 billion</a>. However, the costs could be spread over time, and would be shared across donor nations. </p>
<p>This happened in 1994, when nearly 50 countries contributed financially to a deal which, although it eventually broke down, significantly <a href="https://www.govinfo.gov/content/pkg/CHRG-105shrg50815/pdf/CHRG-105shrg50815.pdf">curbed North Korea’s nuclear activities</a> for many years.</p>
<p>Trump’s second summit with North Korea provides him a second chance to reconsider his unyielding trade approach to China, and his reluctance to use incentives to encourage North Korean disarmament. </p>
<p>Persuading China to resume its cooperation with the embargo would increase for Kim the costs of resistance, and adding incentives would enhance the benefits of compromise. </p>
<p>Taken together, these measures could increase the chances that North Korea will finally begin dismantling its nuclear arsenal.</p><img src="https://counter.theconversation.com/content/110012/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Collins does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Relying only on sanctions against North Korea may not be a productive way to get the country to give up its nuclear arms. Offering relief and aid may be more effective.Stephen Collins, Professor of Political Science, Kennesaw State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1098222019-01-16T13:27:05Z2019-01-16T13:27:05ZWhy there will be no winners from the US-China trade war<figure><img src="https://images.theconversation.com/files/253926/original/file-20190115-152995-z2xnk1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/flags-usa-china-painted-on-cracked-355422692?src=haYx6mvFdE4Y07D52n5mUQ-1-55">Shutterstock</a></span></figcaption></figure><p>The clock is ticking for China and the US to resolve their trade dispute. Some <a href="https://edition.cnn.com/2019/01/09/politics/us-china-trade-talks/index.html">progress</a> was made at the last round of talks (January 7-9) but negotiators must find a comprehensive agreement by March 2. If they fail, the US government plans to raise tariffs from 10% to 25% on US$200 billion of Chinese imports. This would have an enormous impact not just on US-China bilateral trade but also on many other countries due to global supply chain linkages. </p>
<p>The US president, Donald Trump, wishes to adjust the “terms of trade” between both countries, addressing what he alleges are China’s “unfair” trading practices. Many observers <a href="https://worldview.stratfor.com/article/us-and-china-economic-fight-century-begins">believe</a> this is a battle not just about trade but also about economic and technological supremacy. </p>
<p>The Trump administration accuses China of stealing technology from American companies. It has also been critical of the Chinese government’s <a href="https://theconversation.com/how-chinese-products-went-from-cheap-and-cheerful-to-weapons-in-us-trade-war-94461">strategic plans</a> to make the country a world leader in industry sectors such as aerospace, renewable energy, robotics and electric vehicles. The recent successful landing of a Chinese spacecraft <a href="https://theconversation.com/china-lands-on-the-far-side-of-moon-here-is-the-science-behind-the-mission-108566">on the Moon</a> would have caused further consternation among Americans fearful of China’s new technological capacities. </p>
<p>The US says it wants China to become a free market economy and ditch its state management approach. Ironically, the credibility of America’s position on this matter is undermined by Trump’s own protectionist stance on trade, which itself constitutes significant state intervention in the marketplace. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/253935/original/file-20190115-152965-1pyjerf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/253935/original/file-20190115-152965-1pyjerf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/253935/original/file-20190115-152965-1pyjerf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/253935/original/file-20190115-152965-1pyjerf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/253935/original/file-20190115-152965-1pyjerf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/253935/original/file-20190115-152965-1pyjerf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/253935/original/file-20190115-152965-1pyjerf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Donald Trump advocates an ‘America First’ trade strategy.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/donald-trump-speaks-first-nation-leadership-283689917?src=LRgCMkryRCLEDiYEPVwuJw-1-2">Andrew Cline / Shutterstock.com</a></span>
</figcaption>
</figure>
<p>But, despite their political and economic differences, the reality is that the US and China’s economies are deeply interconnected through various layers of commercial, financial and production links. The two are so entwined that they have been dubbed a <a href="https://www.theatlantic.com/technology/archive/2019/01/five-ways-to-look-at-apples-surprise-bad-news/579334">symbiotic “Chimerica” economy</a>. </p>
<h2>Economic interdependence</h2>
<p>US-China economic interdependence has to be carefully managed and many companies are critical of the Trump administration’s decision <a href="https://www.nbclosangeles.com/news/business/US-Firms-Dont-Raise-Tariffs-Chinese-Goods-491242471.html">to raise tariffs</a>. They rightly <a href="https://www.cnbc.com/2018/09/07/proposed-tariff-list-covers-wide-range-of-apple-products-report.html">warn</a> that aggressive US actions against China will ultimately harm American firms, workers and consumers. What’s more, the world’s two largest national economies lie at the core of an ever more integrated global economy. Any significant disruption to their relationship will have major ramifications for businesses worldwide.</p>
<p>From his actions and tweeted thinking to date, it appears that Trump is failing to acknowledge the extent of US-China economic interdependence, or is choosing to ignore it. While the US trade deficit of US$336 billion with China in 2017 is at some level a cause for concern, China recycles much of its surplus back <a href="https://www.thebalance.com/how-much-u-s-debt-does-china-own-417016">through buying US government securities</a>. </p>
<p>Taking the car industry as an example, we can reasonably assume that Trump wishes to see more cars made by Ford, General Motors and other American firms in the US, which get sold both at home and in foreign markets. Ideally, in Trump’s view, they would also be sourcing materials and parts from US-based companies, thus overall generating more jobs and prosperity for Americans. But this cannot be sustainably achieved through protectionist trade measures. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/253934/original/file-20190115-152962-txxo3d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/253934/original/file-20190115-152962-txxo3d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/253934/original/file-20190115-152962-txxo3d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/253934/original/file-20190115-152962-txxo3d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/253934/original/file-20190115-152962-txxo3d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/253934/original/file-20190115-152962-txxo3d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/253934/original/file-20190115-152962-txxo3d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Global supply chains are interlinked.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/rotterdam-netherlands-february-15-2016-ultra-1163114560?src=vSWEPCEtxVb__VWC_dL4Nw-1-2">Corine van Kapel / Shutterstock.com</a></span>
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</figure>
<p>Trump’s adoption of a defensive economic nationalist position and a simplistic <a href="https://eu.desmoinesregister.com/story/opinion/columnists/iowa-view/2018/03/09/exports-good-and-imports-bad-right-nonsense/410993002">“imports bad, exports good” mindset</a> chimes with a 19th-century view of the world economy. Then it was the norm for companies to organise production in one nation and simply export from it. Today, technological advances mean companies increasingly organise their production across nations, mainly for reasons of cost efficiency, making goods cheaper to buy and providing wider consumer choice. In many of the world’s major industries, it makes no economic sense today to do otherwise. </p>
<h2>Competitive advantage</h2>
<p>For companies, the ultimate arbiter of success is the consumer. The fundamental reason why the sales of American car manufacturers <a href="https://www.ft.com/content/e40d55b0-f0ab-11e7-b220-857e26d1aca4">have fallen over the years</a> – both at home and in export markets – is not due to “unfair” trade practices but because they lack competitiveness. The same logic applies to other industries.</p>
<p>Sales of foreign cars in Japan illustrates this. While the Japanese car market is hard for foreign firms to penetrate, Japan does not apply import tariffs in this sector. So both European and US firms face the same challenges in satisfying the discerning Japanese consumer. </p>
<p>From 2013 to 2016, <a href="http://www.eastasiaforum.org/2017/02/12/trumps-stoush-with-japan-over-autos/">Japan’s imports</a> of US cars fell from 23,381 to 19,933, whereas imports of European vehicles increased from 239,090 to 251,155. If Trump wishes American car makers to expand production and exports, they need to produce more competitive and desirable products. </p>
<p>Sometimes, this is extraordinarily difficult to achieve in industries experiencing deep structural decline, such as the US steel sector. There are, of course, many other sectors where American firms have developed a competitive advantage over their foreign rivals, such as cinema and television shows, popular culture, financial services and university education. </p>
<p>Higher tariffs on US imports of goods from China and other countries will in most cases be passed on as higher prices to American consumers, raising inflation and, in turn, interest rates. One of the ironies of imposing import tariffs on goods from China is that a high volume of these will come from US companies such as Apple and Dell, which assemble their products cost competitively in China, then export them to US consumers. Trump calls for these firms to relocate their production <a href="https://www.theguardian.com/us-news/2018/sep/09/donald-trump-apple-should-make-products-in-the-us-to-avoid-tariffs">back to the US</a>, but comparatively much higher labour and other costs would lead to higher prices for consumers and inflation. </p>
<p>It is time for the US president to end his short-sighted and self-harming trade policies, and fully appreciate the inter-connected nature of the 21st-century global economy and society. The future health of the global economy depends on a good working partnership between the US and China. Both countries must quickly end this trade war and focus instead on establishing more harmonious relations – for all our sakes.</p><img src="https://counter.theconversation.com/content/109822/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christopher Dent does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The clock is ticking before the US ramps up tariffs on Chinese imports.Christopher Dent, Senior Lecturer in Economics and International Business, Edge Hill UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1097552019-01-14T12:08:56Z2019-01-14T12:08:56ZEurozone is recovery resistant but it could also be recession-proof<figure><img src="https://images.theconversation.com/files/253638/original/file-20190114-43532-83rxjt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/damaged-euro-coin-shrouded-bad-weather-753476629?src=aXZiZjDsMX6w23qC93jr0Q-1-11">Shutterstock</a></span></figcaption></figure><p>For years, the eurozone has grown more slowly than the US and its growth has been unbalanced. Germany has enjoyed strong <a href="https://www.handelsblatt.com/today/finance/promoting-trade-germany-first-the-return-of-mercantilism/23570190.html?ticket=ST-830847-Un31ZhQTfNAhShmpzVtX-ap4">external trade and GDP growth</a> while Italy and France stagnate, and some smaller members submerge. </p>
<p>This has led many to condemn the eurozone’s design <a href="https://www.theguardian.com/business/2018/jun/13/euro-growth-eurozone-joseph-stiglitz">as fundamentally flawed</a> and predict that it could lose peripheral members – or break up altogether – if the world economy gets hit by an American or Chinese downturn. </p>
<p>But as fears grow of an unruly US derailing a fragile China <a href="https://www.smh.com.au/business/the-economy/china-europe-warn-trade-war-could-trigger-a-global-recession-20180626-p4znp1.html">to cause world recession</a>, the 19-member euro area is starting to look more stable, even if it isn’t growing. Fears that a <a href="https://www.dailymail.co.uk/news/article-6576821/Germany-looks-set-enter-RECESSION-Europes-financial-giant-sees-unexpected-collapse.html">German slowdown</a> will drag France, Italy and others into recession assume that Germany is the eurozone’s “engine of growth”. In reality its high savings and external surplus <a href="https://www.cer.eu/in-the-press/deflating-german-excuses">have long been a brake</a>, and a downturn that forces Germans to spend more might do their trading partners no harm. </p>
<h2>Self-containment</h2>
<p>Because its rules compel most members to operate at less than full capacity, with <a href="https://ec.europa.eu/eurostat/documents/2995521/9477410/3-09012019-AP-EN.pdf/1f232ebb-1dcc-4de2-85d1-5765fae86ea8">high (5%+) unemployment</a>, the eurozone runs a small but persistent external surplus. It exports more than enough to finance all imports, despite needing external fossil-fuel supplies. </p>
<p>This enables the eurozone to be a small net exporter of capital (accumulating financial and real assets in other regions) as well as a large supplier of remittances <a href="https://ec.europa.eu/eurostat/documents/2995521/9376912/2-15112018-BP-EN.pdf/63ece99d-8609-4b46-bbd5-d0552149150b">to the rest of the world</a>. Despite slow GDP growth, eurozone countries have steadily reduced their budget deficits since the 2008 global financial crisis, and achieved an <a href="https://ec.europa.eu/eurostat/documents/2995521/9332933/2-23102018-BP-EN.pdf/993b7e66-003e-41bf-95ec-00d2359188bf">overall budget balance in 2018</a>. </p>
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<a href="https://theconversation.com/greece-exits-its-third-bailout-but-eurozone-still-has-much-to-learn-from-the-crisis-101709">Greece exits its third bailout – but eurozone still has much to learn from the crisis</a>
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<p>That was done largely by strengthening the eurozone’s tax base, to <a href="https://ec.europa.eu/eurostat/documents/2995521/9409920/2-28112018-AP-EN.pdf/54409e5e-6800-4019-b7c1-580797a67001">more than 40% of GDP on average</a>, enabling many members to shield public investment and welfare programmes. Its debt is also relatively stable <a href="https://ec.europa.eu/eurostat/documents/2995521/9332918/2-23102018-AP-EN.pdf/62d87091-1ff0-41f6-9f26-afffb1a307b6">at 86% of its GDP</a>. Though far above the Maastricht Treaty “ceiling” of 60%, this is economically safe since it is denominated in its own currency and owed mainly to its own residents. </p>
<p>In contrast, the US runs a <a href="http://www.bea.gov/data/intl-trade-investment/international-transactions">chronic external deficit</a> which is set to widen as rising demand runs up against domestic labour shortages (despite the trade war on China being meant to bring it down). This is matched by an equally enduring fiscal deficit, which had only just begun to fall (thanks to former president Barack Obama’s stimulus plan) when current president Donald Trump’s tax cuts set it on course <a href="https://www.cbo.gov/publication/53919">for an unprecedented rise</a>. On wider measures the federal government debt is already <a href="https://fred.stlouisfed.org/series/GFDEGDQ188S">above 100% of GDP</a>, with its budgetary costs set to grow as the Federal Reserve announces interest rate rises.</p>
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<a href="https://theconversation.com/i-predicted-the-last-financial-crisis-now-soaring-global-debt-levels-pose-risk-of-another-84136">I predicted the last financial crisis – now soaring global debt levels pose risk of another</a>
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<p>China’s economy is looking even more unbalanced, after its own promotion of public and private borrowing to ride out the 2007-08 credit crunch. With official data likely hiding a <a href="https://www.lowyinstitute.org/the-interpreter/china-looming-financial-crisis">slide towards recession</a>, there is <a href="https://www.bloomberg.com/quicktake/chinas-debt-bomb">mounting evidence</a> that high corporate and local government debt could overwhelm the stronger balance sheets of households and central government. </p>
<p>As for the UK, the slide in the pound which fuelled hopes of a pre-Brexit narrowing of the current account deficit has actually raised it <a href="https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/balanceofpayments/julytoseptember2018">to 5% of GDP</a>. This requires financing by foreign investment, which has shown signs of slowing <a href="https://www.ey.com/uk/en/newsroom/news-releases/18-03-29-signs-of-a-brexit-impact-on-uk-foreign-direct-investment">as Brexit approaches</a>. If the UK can’t boost exports, or attract more inward investment, it’ll just have to import less, which invariably means slower growth of income and spending.</p>
<h2>De-leverage us from evil</h2>
<p>The global financial crisis drew attention to private (household and corporate) debt as potentially much more dangerous than public debt. Where they borrowed too much before 2008, eurozone households have reduced their debt far more effectively <a href="https://www.mckinsey.com/%7E/media/McKinsey/Industries/Financial%20Services/Our%20Insights/A%20decade%20after%20the%20global%20financial%20crisis%20What%20has%20and%20hasnt%20changed/MGI-Briefing-A-decade-after-the-global-financial-crisis-What-has-and-hasnt-changed.ashx">than those in the US or UK</a>. </p>
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<p>Some are still awash in private sector debt, as the eurozone’s own array of vulnerability measures <a href="https://ec.europa.eu/eurostat/documents/2995521/9394392/2-21112018-AP-EN/5885909b-2ffd-4df3-aab6-40f7b1696ca8">makes clear</a>. But Italy, Portugal, Belgium and Greece remain the only four members where both private and public sectors have borrowed more than 100% of GDP – with no indication that this will undermine them, if a sharp rise in interest rates is avoided. </p>
<h2>Still vulnerable</h2>
<p>The eurozone banking sector still looks vulnerable to external disturbance, since it emerged from the 2008 crash with many weaker and less profitable players <a href="https://www.cnbc.com/2017/07/12/banks-jpmorgan-fed-citigroup-rbs-deutsche-bank-wall-street-brexit-yellen.html">than in the US</a>. Some may look even shakier if regulators are right <a href="https://www.bbc.co.uk/news/business-46382722">in suspecting ill-gotten capital gains</a>.</p>
<p>But eurozone banks look weak only when judged by the standards of the US, where large firms borrow more directly from the market via bond issues. The obverse is that America’s corporate debt remains almost twice the size of Europe’s, while China’s has <a href="https://www.mckinsey.com/%7E/media/McKinsey/Industries/Financial%20Services/Our%20Insights/A%20decade%20after%20the%20global%20financial%20crisis%20What%20has%20and%20hasnt%20changed/MGI-Briefing-A-decade-after-the-global-financial-crisis-What-has-and-hasnt-changed.ashx">grown at unusual speed since 2008</a>, leaving both at greater risk if corporate earnings start to recede. </p>
<p>Because it lacks central fiscal capacity, <a href="https://theconversation.com/greece-exits-its-third-bailout-but-eurozone-still-has-much-to-learn-from-the-crisis-101709">fears about the eurozone’s future</a> are not overblown. But while it looks like a swamp of stagnation in a reviving world economy, the eurozone is configured to be the island of tranquillity when lands around it submerge. </p>
<p>It trades mainly within itself, re-invests its own savings, and doesn’t rely on large transfers into or out of other regions. So if another financial or commercial shock sends the rest of the world running backwards, the unloved single currency area may defy gravity as stubbornly as it resists reform.</p><img src="https://counter.theconversation.com/content/109755/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alan Shipman has previously funding from the British Academy / Leverhulme Trust. </span></em></p>As fears of a US-China trade war grow, the eurozone is starting to look like a rock.Alan Shipman, Lecturer in Economics, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1084782018-12-10T23:16:00Z2018-12-10T23:16:00ZHuawei executive’s arrest will further test an already shaky US-China relationship<figure><img src="https://images.theconversation.com/files/249804/original/file-20181210-76989-1klvs9y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Huawei executive Meng Wanzhou's extradition to the US is being sought, and carries highly charged politics with it.</span> <span class="attribution"><span class="source">wikiglobals.com</span></span></figcaption></figure><p>When US Vice President Mike Pence got to his feet at the conservative Hudson Institute in Washington on October 4, it was clear that US-China relations were entering a new, certainly fractious, possibly destructive phase.</p>
<p>In those <a href="https://www.hudson.org/events/1610-vice-president-mike-pence-s-remarks-on-the-administration-s-policy-towards-china102018">remarks</a>, Pence did not hold back. They bear repeating in light of the latest blow-up in an increasingly testy relationship, this time over the <a href="https://www.abc.net.au/news/2018-12-09/china-calls-on-canada-to-free-huawei-cfo-or-face-consequences/10597884">arrest in Canada</a> of the daughter of one of China’s most prominent business figures. </p>
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<p>The Chinese Communist Party has used an arsenal of policies inconsistent with free and fair trade, including tariffs, quotas, currency manipulation, forced technology transfer, intellectual theft and industrial subsidies that are handed out like candy to foreign investment. These policies have built Beijing’s manufacturing base, at the expense of its competitors – especially the United States of America.</p>
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<p><a href="https://www.reuters.com/article/us-usa-china-huawei-tech-documents/huawei-cfo-seeks-bail-cites-health-fears-behind-bars-court-documents-idUSKBN1O80SO">Meng Wanzhou</a>, a senior executive in telecommunications manufacturing giant Huawei and daughter of its founder, is alleged by the United States to have violated sanctions on selling technology to Iran.</p>
<p>Her extradition to the US to stand trial is being sought. This is an explosive issue, not least because – rightly or wrongly – it will be perceived in Beijing as a component of a trade war driven by a hostile US administration.</p>
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<a href="https://theconversation.com/g20-summit-bring-a-truce-in-us-china-trade-relations-but-its-likely-to-be-temporary-108017">G20 summit bring a truce in US-China trade relations – but it's likely to be temporary</a>
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<p>What will also be playing out in China is the issue of “face”. An inability by China’s leadership to bring about Meng’s release will involve “loss of face” in a country where nationalist sentiments remain potent, overlaid by a lingering sense of grievance over foreign interference.</p>
<p>China could not have drawn any conclusion from the Pence Hudson Institute speech other than that Washington viewed Chinese business practices as war by another means. </p>
<p>In Pence’s remarks, there was little concession to a grand bargain between the US and China sought by successive administrations. Rather, the US vice president delivered a warning to Beijing that his country was intent on a more confrontational approach to perceived Chinese mercantilism – and lawbreaking.</p>
<p>The gloves were off. Inevitably, Meng’s arrest will be viewed in Beijing through this prism, whether circumstances are material or not.</p>
<p>What is relevant in Huawei’s case is <a href="https://www.smh.com.au/business/companies/bt-to-strip-chinas-huawei-from-core-networks-limit-5g-access-20181206-p50ki7.html">an effective veto</a> on it building 5G networks in Anglosphere countries around the world.</p>
<p>Four members of the Five Eyes – the US, United Kingdom, Australia and New Zealand – have banned Huawei from participating in advanced 5G networks. Canada is <a href="https://www.ctvnews.ca/politics/national-security-comes-first-on-huawei-5g-review-infrastructure-minister-1.4211896">reviewing</a> its options.</p>
<p>This coordinated resistance by intelligence-sharing allies reflects misgivings about risks to communications networks in their countries from a company with <a href="https://www.theguardian.com/technology/2018/dec/08/the-giant-that-no-one-trusts-why-huaweis-history-haunts-it">murky links to the Chinese military</a>.</p>
<p>While there is no explicit connection between Meng’s arrest and pushback against Huawei’s 5G business, China will inevitably link the two episodes as examples of Western efforts to stifle competition from a Chinese behemoth.</p>
<p>This would be an understandable reaction, but on the face of it these are separate issues.</p>
<p>What is the case is the Pence Hudson Institute speech signals a potential rupture in the nearly half century of relative amity – leaving aside outrage over the <a href="https://edition.cnn.com/2013/09/15/world/asia/tiananmen-square-fast-facts/index.html">Tiananmen Square bloodletting</a> of 1989 – dating from the <a href="https://history.state.gov/historicaldocuments/frus1969-76v17/d203">Shanghai Communique</a> of 1972.</p>
<p>This was signed by visiting President Richard Nixon and Chinese Premier Zhou Enlai. After years of contentiousness on Taiwan and other issues, the US and China agreed to work towards normalising relations.</p>
<p>What is different now is that, seemingly in the blink of an eye, China has grown its economy to the point where it is the world’s biggest on a purchasing power parity basis. It’s set to become the largest overall within the next ten years.</p>
<p>Companies like Huawei symbolise China’s extraordinary economic success and the threat this poses to established businesses in the West.</p>
<p>Back in 1972, no-one could have anticipated China would move as far and fast as it has – to the point where it is challenging the US and its allies on many fronts.</p>
<p>This returns us to the issue of Meng Wenzhou, whose arrest is threatening to derail <a href="https://www.nytimes.com/2018/12/01/world/trump-xi-g20-merkel.html">trade negotiations advanced by Presidents Donald Trump and Xi Jinping</a> at a dinner engagement at the recent Buenos Aires G20 summit.</p>
<p>China’s official response had been relatively measured in what appears to be an attempt to <a href="https://www.nytimes.com/2018/12/09/technology/canada-china-huawei-meng-wanzhou.html">compartmentalise</a> the Meng arrest issue and not allow it to bring important trade talks unstuck.</p>
<p>Trump and Xi agreed on a 90-day window ending on March 1 to enable the trade negotiations – aimed at forestalling increases of US tariffs on Chinese imports – to proceed. However, Meng’s arrest casts doubt on this process.</p>
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Read more:
<a href="https://theconversation.com/the-risks-of-a-new-cold-war-between-the-us-and-china-are-real-heres-why-103772">The risks of a new Cold War between the US and China are real: here's why</a>
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<p>In the past 48 hours, China has stiffened its official rhetoric. This includes the <a href="https://www.smh.com.au/world/asia/vile-china-ramps-up-pressure-ahead-of-huawei-bail-verdict-20181210-p50l7b.html">summoning of the US ambassador in Beijing</a> for a dressing down. Chinese displeasure was summed up in a Foreign Ministry statement:</p>
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<p>The actions of the US seriously violated the lawful and legitimate rights of the Chinese citizen, and by their nature were extremely nasty. China will respond further depending on US actions.</p>
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<p>What this portends is anybody’s guess, but once they have swung into action, US legal processes are relentless. In the meantime, Canada finds itself in a Chinese firing line as its own judiciary deals with a politically charged extradition process.</p>
<p>In the wider scheme of things, it is hard to envision a more unhelpful development at a critical moment in US-China relations. This is not a complication that is doing anyone any favours, least of all world markets, or the friends and trading partners of those at its centre.</p><img src="https://counter.theconversation.com/content/108478/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Walker does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Meng Wanzhou’s arrest in Canada has caused further tensions in the strained relationship between China and the US.Tony Walker, Adjunct Professor, School of Communications, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1080402018-12-03T11:34:17Z2018-12-03T11:34:17ZUS-China trade war truce: 2 reasons why it’s unlikely to last<figure><img src="https://images.theconversation.com/files/248334/original/file-20181203-194956-1eg1364.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Presidents Xi and Trump don't always see eye to eye.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Trump-Argentina-G20-Summit/deff854f42674788914a2066b35acf28/9/0">(AP Photo/Pablo Martinez Monsivais</a></span></figcaption></figure><p>Presidents Donald Trump and Xi Jinping have agreed to a ceasefire in their increasingly painful trade war, yet their governments’ <a href="https://www.bloomberg.com/news/articles/2018-12-02/u-s-china-trade-truce-side-by-side-comparison-of-statements">differing depictions</a> of the deal show just how far apart they really are. </p>
<p>While the Trump administration <a href="https://www.bloomberg.com/news/articles/2018-12-02/u-s-china-trade-truce-side-by-side-comparison-of-statements">emphasized</a> trade issues such as a 90-day moratorium on raising tariffs and Xi’s concession to buy “very substantial” amounts of U.S. goods, China focused on diplomacy, regional issues and an agreement to try to quickly resolve their differences. </p>
<p>That’s because for China, Trump’s trade war <a href="https://www.latimes.com/opinion/op-ed/la-oe-kucik-menon-tariffs-wont-change-china-20181009-story.html">has never been</a> only – or <a href="https://www.cnbc.com/2018/10/09/us-china-trade-war-is-not-about-the-trade-deficit-barclays-says.html">even mainly</a> – about trade. </p>
<p>As a <a href="https://sgpp.arizona.edu/user/jeff-kucik">political scientist</a> following the escalating tensions, I believe that the statements coming out of the G-20 meeting reveal that a wide gap still separates Xi and Trump, both in terms of what matters most to them and their approach to getting it. </p>
<h2>Territory trumps trade</h2>
<p>One of China’s major concerns is U.S. interference in areas it considers “internal” matters. </p>
<p>A major flashpoint is Taiwan. Earlier this year, for example, Trump approved a <a href="https://www.bloomberg.com/news/articles/2018-09-25/u-s-approves-new-military-sale-to-taiwan-risking-china-s-ire">US$330 million arms deal</a> with Taiwan, following up on a <a href="http://fortune.com/2017/06/30/us-taiwan-arms-sale/">previous deal</a> of $1.3 billion. </p>
<p>These sales irk China because they directly conflict with Beijing’s long-standing policy that there is only one Chinese government, and Taiwan is merely a breakaway province that will inevitably be reunited with the mainland.</p>
<p>Another sticking point is the South China Sea, where the Chinese government has been increasingly aggressive in asserting territorial claims at odds with its neighbors. In the past, the U.S. has acted as a counterweight to China’s claims, Now <a href="https://www.nytimes.com/2017/05/10/world/asia/trump-south-china-sea-allies.html">inconsistency in Trump’s stance</a> has added to tensions in the region. </p>
<p>Both of these issues have implications for the trade war. China is <a href="https://www.wsj.com/articles/an-economic-cold-war-looms-between-the-u-s-and-china-1537968600?emailToken=6fb9037978d5de1f58f5e439af52dfe6/3yME3gXb2X58+9rgf2wOiEBrQxGsjYhAwdJYkuUHKlhm7BqGOLI2n9CXaP25oATdrFcN/RFDrHyn2HpsdcywpD8b1Y/tS6VNbIY2VbiQGA%3D">willing to absorb economic losses</a> in exchange for standing firm on issues vital to the national interest. </p>
<p>That’s precisely why China’s statement highlighted Trump’s apparent commitment to continue respecting the so-called <a href="https://www.bbc.com/news/world-asia-china-38285354">one China policy</a> – something not mentioned by the Americans. As it so often does, trade takes a back seat to territory. </p>
<h2>Taking the high road</h2>
<p>China’s statement also placed greater emphasis on economic cooperation and restoring diplomatic relations, the kind of high-minded talk that for decades has been more typical of American presidents. </p>
<p>Specifically, China highlighted that the two leaders plan to visit each other’s countries at some point and that both sides would work toward scrapping all tariffs to reach a mutually beneficial, win-win agreement. </p>
<p>Contrast that with the U.S. statement, which focused more narrowly on the truce’s benefits for its side. </p>
<p>It’s another stark demonstration of the contrast between the two leaders on the global stage. Trump has been focused on putting “America first” and <a href="https://www.cnn.com/2017/11/10/politics/donald-trump-apec-vietnam-trade/index.html">urging</a> other countries to also pursue economic nationalism. Meanwhile, Xi has <a href="https://www.nytimes.com/2017/08/10/world/asia/north-korea-china-trump.html">cultivated</a> an outward-looking posture that aims for cooperation and compromise, <a href="https://www.cnbc.com/2017/11/10/chinas-xi-delivers-speech-at-apec-summit-in-vietnam.html">embracing the virtues</a> of economic cooperation, <a href="https://www.reuters.com/article/us-davos-meeting-china-idUSKBN15118V">free trade</a> and <a href="https://www.scmp.com/news/china/diplomacy/article/2175911/xi-jinping-calls-protection-trade-system-g20-showdown-donald">global leadership</a>.</p>
<p>Ultimately, a meaningful, lasting deal is unlikely in the 90-day window. Quite apart from trade deficits or jobs, the trade war has grown to represent a deeper geopolitical rivalry. If Trump wants a win from this battle, he’ll need to understand that Xi won’t give in easily. And China’s leader will likely expect compromise on complex territorial issues like Taiwan or the South China Sea before the ceasefire will begin to look like a full-fledged peace accord. </p>
<p>With the two leaders’ approach to the world looking increasingly different, it’s likely that the G-20 truce will merely have paused the trade war – not stopped it.</p><img src="https://counter.theconversation.com/content/108040/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeffrey Kucik does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite agreeing to a ceasefire, the two sides offered differing depictions of their trade war truce that show a lasting peace may still be out of reach.Jeffrey Kucik, Assistant Professor of Political Science, University of ArizonaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1080172018-12-03T01:41:55Z2018-12-03T01:41:55ZG20 summit bring a truce in US-China trade relations – but it’s likely to be temporary<p>The United States and China have arrived at a temporary truce in a trade conflict that was threatening to further destabilise world equity markets, entrench a global slowdown and cause more damage to a rules-based international order.</p>
<p><a href="https://www.cnbc.com/2018/12/01/us-china-wont-impose-additional-tariffs-after-january-1-report.html">Agreement by US President Donald Trump and his Chinese counterpart, Xi Jinping,</a> to allow further negotiations before threatened tariff increases on Chinese imports come into effect is a welcome development.</p>
<p>However, this is a temporary respite, a short-term fix, not a long-term solution to myriad trade and other tensions that have put the US and China at odds with each other.</p>
<p>For their own purposes and in their own interests, Trump and Xi have come away from the Argentine capital with a deal that papers over differences that extend from China’s activities in the South China Sea to its mercantilist trade policies.</p>
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Read more:
<a href="https://theconversation.com/much-at-stake-as-donald-trump-and-xi-jinping-meet-at-g20-106774">Much at stake as Donald Trump and Xi Jinping meet at G20</a>
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<p>As far as we know, China’s ruthless assertion of its sovereignty over disputed waters in the South China Sea was not a material subject for discussion in Buenos Aires except, possibly, in passing.</p>
<p>China’s rise and America’s relative decline ensure these global economic superpowers will continue to bump up against each other.</p>
<p>So, what was achieved and what are the prospects for an accord reached on the sidelines of the G20?</p>
<p>In their efforts to lower trade tensions and prevent a further erosion of global confidence, Trump and Xi agreed to a 90-day extension on the imposition of additional US tariffs on some US$200 billion of Chinese imports.</p>
<p>Trump had threatened to increase tariffs from 10% to 25% on an initial batch of Chinese imports from January 1. He had also flagged his intention to impose levies on another US$267 billion worth of imports if progress was not made in resolving broad-based trade differences.</p>
<p>A joint statement laid out a timeline for continuing negotiations. It reads:</p>
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<p>Both parties agree that they will endeavour to have this transaction completed within the next 90 days. If, at the end of this period of time, the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent.</p>
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<p>In return for these temporary concessions, China agreed to:</p>
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<p>… purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between the two countries. China has agreed to start purchasing agricultural product immediately.</p>
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<p>China also agreed to crack down on sales of Fentanyl by making it a controlled substance. The US is battling an opioid crisis in which <a href="https://theconversation.com/the-war-on-fentanyl-the-drug-linked-to-60-deaths-in-the-uk-since-2016-81981">Fentanyl is a lethal component</a>.</p>
<p>In retaliation for US trade actions, China had imposed duties on US$110 billion of imports. A principal component of this is soybeans, effectively killing one of America’s more lucrative export markets.</p>
<p>Trump has been under huge pressure from his Mid-Western rural heartland over a collapse in the Chinese market for American agricultural products.</p>
<p>The two sides also agreed to address structural problems in the trading relationship. These extend to five areas – forced technology transfer, <a href="https://theconversation.com/why-china-is-a-leader-in-intellectual-property-and-what-the-us-has-to-do-with-it-93950">intellectual property protection</a>, <a href="https://www.bbc.com/news/world-latin-america-46413196">non-tariff barriers</a>, <a href="https://theconversation.com/explainer-why-chinese-telecoms-participating-in-australias-5g-network-could-be-a-problem-97690">cyber intrusions</a> and cyber theft.</p>
<p>These are highly complex issues and unlikely to be resolved in the short term, if at all.</p>
<p>In the wash-up of the Xi-Trump discussions it appears China has got more out of the deal than the US – at least for now. It has secured a stay of execution for the implementation of tariff increases and forestalled, for the time being, tariffs on an additional bloc of Chinese exports.</p>
<p>In return, it has agreed to buy unspecified quantities of US products and to talk about differences.</p>
<p>Trump’s willingness to compromise after months of bombast reflects pressures from a shellshocked grain-producing constituency and alarm on Wall Street at prospects of a full-blown trade war.</p>
<p>From Beijing’s perspective, China has demonstrated that its growing economic heft has enabled it to avoid the appearance of yielding to US pressure.</p>
<p>If not a “win-win” for China – as Chinese officials are fond of saying – it is certainly not a “lose-lose”.</p>
<p>In a statement at odds with months of fire-breathing rhetoric over China’s allegedly perfidious trade practices, Trump <a href="https://asia.nikkei.com/Economy/Trade-War/Trump-and-Xi-declare-a-temporary-truce-to-cool-trade-war-tensions">hailed his understanding with Xi</a>. He said:</p>
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<p>This was an amazing and productive meeting with unlimited possibilities for both the US and China.</p>
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<p>For their part, Chinese officials were more circumspect.</p>
<p>Foreign Minister Wang Yi said the talks were conducted in a “friendly and candid atmosphere”. The presidents:</p>
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<p>agreed that the two sides can and must get bilateral relations right… China is willing to increase imports in accordance with the needs of its domestic market and the people’s needs.</p>
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<p>Impetus for a face-saving deal in Buenos Aires has been prompted by growing concerns about the global economy. The signs of a slowdown are clear. Trade volumes had begun to moderate in the third quarter, heightening worries of a global retrenchment.</p>
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<img alt="" src="https://images.theconversation.com/files/248328/original/file-20181203-194956-1v9esmu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/248328/original/file-20181203-194956-1v9esmu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/248328/original/file-20181203-194956-1v9esmu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/248328/original/file-20181203-194956-1v9esmu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/248328/original/file-20181203-194956-1v9esmu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/248328/original/file-20181203-194956-1v9esmu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/248328/original/file-20181203-194956-1v9esmu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">International Monetary Fund managing director Christine Lagarde at the G20 summit.</span>
<span class="attribution"><span class="source">AAP/EPA/G20 handout</span></span>
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<p>On the sidelines of the G20, the International Monetary Fund’s managing director, <a href="https://www.reuters.com/article/us-g20-argentina-lagarde/lagarde-warns-g20-leaders-that-trade-tensions-threaten-global-economy-idUSKCN1O03NP">Christine Lagarde, noted</a>:</p>
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<p>Pressures on emerging markets have been rising and trade tensions have begun to have a negative impact, increasing downside risks.</p>
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<p>In its <a href="https://www.imf.org/en/Publications/WEO/Issues/2018/09/24/world-economic-outlook-october-2018">October Outlook</a> statement, the IMF warned about threats to global growth due to trade disturbances.</p>
<p>In their <a href="http://www.g20.utoronto.ca/2018/2018-leaders-declaration.html">final communique</a>, G20 leaders danced around contentious issues on trade to accommodate American objections to having the word “protectionism” inserted in the document.</p>
<p>In the end, participants settled on the need for reform of the World Trade Organisation to describe a world trading system that is falling short of its objectives. Washington has been agitating for a review of the WTO to strengthen its dispute resolution and appeal procedures.</p>
<p>The US has also objected to a continuing <a href="https://www.cnbc.com/2018/04/25/what-trump-gets-right-about-china-and-trade.html">description of China as a developing country</a>, with concessions that enable it to take advantage of less developed country status in its access to global markets.</p>
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Read more:
<a href="https://theconversation.com/as-tensions-ratchet-up-between-china-and-the-us-australia-risks-being-caught-in-the-crossfire-107178">As tensions ratchet up between China and the US, Australia risks being caught in the crossfire</a>
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<p>On climate change, Washington separated itself from the other G20 members. All, except the US, reaffirmed their commitment to the <a href="https://www.abc.net.au/news/2016-12-09/the-paris-agreement-explained/8107100">Paris Agreement</a>. The US announced in 2017 it was pulling out of Paris.</p>
<p>Foreign policy specialists will be sceptical about a de-escalation of trade hostilities given the range of issues bedevilling the US-China relationship.</p>
<p>Reflecting a hardening of US attitudes towards China, and in contrast to the optimism that had prevailed for much of the past two decades, <a href="https://www.foreignaffairs.com/articles/china/2018-11-27/there-no-grand-bargain-china">Ely Ratner in Foreign Affairs</a> notes:</p>
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<p>Even if tariffs are put on hold, the United States will continue to restructure the US-China economic relationship through investment restrictions, export controls, and sustained law enforcement actions against Chinese industrial and cyber-espionage.</p>
<p>At the same time, there are no serious prospects for Washington and Beijing to resolve other important areas of dispute, including the South China Sea, human rights and the larger contest over the norms, rules and institutions that govern relations in Asia.</p>
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<p>A stiffening view in the US towards China is shared more or less across the board. In those circumstances, a temporary ceasefire in Buenos Aires is unlikely to be sustained.</p><img src="https://counter.theconversation.com/content/108017/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Walker does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the wash-up of the G20 meetings, it seems China has come away with the better deal – at least for now.Tony Walker, Adjunct Professor, School of Communications, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1079122018-11-30T14:12:32Z2018-11-30T14:12:32ZG20 will be about Donald Trump and his tariffs – but China will dominate the new world order<figure><img src="https://images.theconversation.com/files/248123/original/file-20181130-194935-ixamkt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/us-china-trade-war-united-states-1113089519?src=haYx6mvFdE4Y07D52n5mUQ-1-3">Lightspring / Shutterstock</a></span></figcaption></figure><p>Tensions loom over Argentina, which plays host to the 2018 summit of the G20 starting on November 30. The <a href="https://www.g20.org/en/g20/what-is-the-g20">G20</a> is an international forum of the EU and the heads of state of 19 major economies, which discusses global economic challenges. And the challenges are mounting.</p>
<p>Globalisation is in reverse, as the US threatens to escalate its trade war with China and other trading partners; and xenophobia is rife in many Western countries. These challenges are a threat to global prosperity, but what will shape much of the long-term evolution of the global economy is the rise of China and other emerging economies.</p>
<p>Much of the focus at the G20 will be on the US president, Donald Trump, and his series of sidebar meetings with other leaders, especially the Chinese president, Xi Jinping. Trump <a href="https://www.reuters.com/article/us-usa-trade-china/trump-says-he-expects-to-raise-china-tariffs-wall-street-journal-idUSKCN1NV2MV">has said</a> that it is “highly unlikely” that he would postpone the planned increase in tariff levels from 10% to 25% on US$200 billion of Chinese goods in January 2019. </p>
<p>Of course, this may be bluster and a <a href="https://www.economist.com/united-states/2018/11/24/donald-trump-is-attacking-the-rule-of-law-and-may-well-get-away-with-it">frequent refrain</a> from apologists for Trump is: “Take note of what the president does, not what he says.” But we may be on the cusp of a full-blown trade war, which will not be confined to the US and China and which will reverse and reconfigure globalisation. Entering foreign markets will be more costly and global supply chains will be disrupted.</p>
<h2>Globalisation is not inevitable</h2>
<p>The notion that globalisation is a natural phenomenon, akin to the change in the seasons or the weather or gravity, is a frequent refrain. During his tenure as prime minister of the United Kingdom, <a href="http://news.bbc.co.uk/1/hi/uk_politics/4287370.stm">Tony Blair opined</a>: “I hear people say we have to stop and debate globalisation. You might as well debate whether autumn should follow summer.” A pithy turn of phrase, but patently not true. </p>
<p>The configuration and extent of globalisation is shaped by public policy and technological change. When this changes, it can in turn accelerate, slow, or reverse globalisation. In periods of severe economic crisis it has been common for countries to become inward looking – blaming “others” for economic problems and resorting to protectionism and controls on immigration. </p>
<p>In the interwar period, for example, the <a href="https://www.dartmouth.edu/%7Edirwin/Eichengreen-IrwinJEH.pdf">response to the Great Depression</a> was a trade war and competitive devaluations as the Gold Standard unravelled. Similarly, since the 2008-09 financial crisis and the Great Recession that followed, there has been a worldwide <a href="https://uk.reuters.com/article/us-global-economy-protectionism/world-has-racked-up-7000-protectionist-measures-since-crisis-study-idUKKBN1DF005">rise in protectionist measures</a> and Trump’s interventions may lead to a new phase of “deglobalisation”.</p>
<h2>An evolving global economic order</h2>
<p>Major economic crises often reflect endemic flaws within the structure of the global economy and lead to major changes in global economic leadership. The crises and lessons of the interwar period led to the establishment of the <a href="https://www.brettonwoodsproject.org/2005/08/art-320747/">Bretton Woods system</a>, which managed the world economy during the post-war golden age of capitalism until the early 1970s. It was the system that created <a href="https://www.nber.org/papers/w3951">new international institutions</a> (the IMF, World Bank and GATT, which was the forerunner of the WTO) and this was underpinned by the dominance of the US economy.</p>
<p>But the relative strength of the US (and the dollar) declined and the system <a href="https://www.wider.unu.edu/sites/default/files/wp2016-97.pdf">unravelled in the late 1960s and early 1970s</a>. This collapse, and a series of oil crises, led to another major economic crisis which temporarily stalled globalisation and led to shifting reliance on the power of unfettered market forces.</p>
<p>Liberal market capitalism may have been unleashed, but is still not ubiquitous in the world economy. The picture of a fully globalised world and the dominance of free markets is a partial distortion of a complex picture. The extent to which countries have embraced the global market agenda is highly variable.</p>
<p>Although many developed countries have deregulated financial markets, capital controls and managed currencies are still highly prevalent in developing countries. In terms of trade, tariffs have been reduced since World War II but they have not been eradicated. Meanwhile, the use of <a href="https://www.instituteforgovernment.org.uk/explainers/non-tariff-barriers">non-tariff barriers</a> has increased, with roughly <a href="https://unctad.org/meetings/en/SessionalDocuments/ditc-tab-MC11-UNCTAD-NTMs.pdf">80% of all traded goods</a> affected by these restrictive rules and regulations – and these are prevalent in developed countries. The ongoing <a href="https://theconversation.com/brexit-deal-sealed-in-brussels-believe-it-or-not-that-was-the-easy-bit-107582">chaos of Brexit</a> illustrates that “free trade” is not a natural state but is negotiated, complex and dependent on a litany of regulations and agreements.</p>
<p>Deregulation, <a href="https://academic.oup.com/cjres/article/11/3/389/5146445">the hollowing out of the welfare state</a> and intensified global competition has led to rising income and wealth inequality in many Western countries. And many of those who have not benefited from globalisation have also borne the <a href="https://theconversation.com/un-envoy-is-correct-to-call-for-greater-social-rights-protections-in-the-uk-says-former-rapporteur-106814">brunt of the austerity policies</a> that followed the financial crisis and the Great Recession. The resulting backlash against globalisation helps explain the <a href="https://theconversation.com/anthill-8-goodbye-2016-hello-2017-70717">election of Trump and the vote for Brexit</a>.</p>
<h2>The rise of China</h2>
<p>The G20 will focus on current instability but there are long-term structural shifts, which are leading to a rebalancing of the global economy. The balance of power is shifting from West to East and we are in the early stages of transition to China as the dominant world economy. </p>
<p>China is already the largest economy in the world (measured in purchasing power parity) and accountancy giant <a href="https://www.pwc.com/gx/en/world-2050/assets/pwc-the-world-in-2050-full-report-feb-2017.pdf">PwC</a> (using World Bank data) estimates that, by 2050, the Chinese economy will be 72% larger than the US. Further, by 2050, six of largest eight economies will be countries that are still emerging markets. </p>
<p>China is home to many of the <a href="https://www.forbes.com/global2000/#7a269b5c335d">world’s largest companies</a>, including <a href="https://www.marketwatch.com/story/china-has-9-of-the-worlds-20-biggest-tech-companies-2018-05-31">major tech companies</a> like Alibaba and Tencent. It is investing rapidly in <a href="https://chinapower.csis.org/china-research-and-development-rnd/">research and innovation</a> and, although the dollar remains the dominant world currency, the IMF has added the renminbi to its <a href="https://www.imf.org/en/News/Articles/2016/09/29/AM16-NA093016IMF-Adds-Chinese-Renminbi-to-Special-Drawing-Rights-Basket">basket of global reserve currencies</a>. It will only become more important as <a href="https://www.project-syndicate.org/commentary/trump-policies-undermining-the-dollar-by-jeffrey-d-sachs-2018-09">Trump’s policy of American isolationism continues</a>.</p>
<p>This year’s G20 summit will focus on maintaining some semblance of international cooperation and preventing a global trade war. The short-term noise will probably come from Trump. But China can play a long-term game as its position in the global economy is on the rise. In the face of the gales of the long-term shifts in the global economy, Trump can blow hard now – but as far as the future is concerned, he will be blowing in the wind.</p><img src="https://counter.theconversation.com/content/107912/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Kitson has received funding from BIS, HEFCE, EPSRC, ESRC, AHRC, NERC and the MRC.</span></em></p>We may be on the cusp of a full-blow trade war that could reconfigure globalisation.Michael Kitson, University Senior Lecturer in International Macroeconomics, Cambridge Judge Business SchoolLicensed as Creative Commons – attribution, no derivatives.