tag:theconversation.com,2011:/us/topics/china-tariffs-51554/articlesChina tariffs – The Conversation2023-01-18T19:23:40Ztag:theconversation.com,2011:article/1978922023-01-18T19:23:40Z2023-01-18T19:23:40ZBring on the Year of the Rabbit: why there’s new hope and prosperity tipped for Australia-China relations<p>For the first time in a long time, a year can begin with a realistic assessment that Australia-China relations are on an upward trajectory again.</p>
<p>After winning last May’s federal election, the new Albanese government set “stabilisation” as the objective for Canberra’s relations with Beijing. </p>
<p>Rather than reaching for something loftier, “stabilisation” made sense given the new Labor government was inheriting a relationship in its <a href="https://theconversation.com/from-handshakes-to-threats-can-the-election-bring-a-fresh-start-in-our-fractured-relationship-with-china-178415">worst state</a> since 1972, the year the Whitlam government moved to <a href="https://www.dfat.gov.au/geo/taiwan/australia-taiwan-relationship">recognise</a> Beijing (instead of Taipei) as China’s sole legal government. </p>
<p>Under the previous Morrison government, there had been no senior-level political dialogue for more than two years. Disputes between the two governments had spilled over to hurt other parts of the bilateral relationship, like <a href="https://theconversation.com/theres-no-need-for-panic-over-chinas-trade-threats-149828">trade</a> and <a href="https://www.afr.com/world/asia/chinese-investment-in-australia-plunges-70-per-cent-20220421-p5af59">investment</a>. </p>
<p>The Albanese government should feel satisfied the “stabilisation” objective has now been achieved in just nine short months. </p>
<p>This was punctuated by a <a href="https://www.pm.gov.au/media/opening-remarks-bilateral-meeting-bali-indonesia">meeting</a> between Prime Minister Anthony Albanese and Chinese President Xi Jinping last November, followed by a formal <a href="https://www.foreignminister.gov.au/minister/penny-wong/speech/opening-remarks-australia-china-foreign-and-strategic-dialogue">visit</a> to Beijing by Foreign Minister Penny Wong just before Christmas. Wong’s trip resulted in a commitment by both sides to pursue a wide-ranging dialogue agenda, even extending to defence issues.</p>
<p>Trade blockages are being removed, too. Earlier this month, the first <a href="https://www.reuters.com/business/energy/china-energy-places-order-import-australian-coal-sources-say-2023-01-06/">order</a> of Australian coal to China since 2020 was booked by a Chinese company, to be shipped soon. </p>
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<p>The Australian lobster trade looks like the next to be <a href="https://www.scmp.com/economy/global-economy/article/3206578/china-australia-relations-envoys-rock-lobster-visit-raises-hopes-further-easing-trade-bans">revived</a>. </p>
<p>And in another sign of deescalating tensions, both <a href="https://www.theguardian.com/australia-news/2022/jul/06/australian-trade-minister-offers-compromise-with-china-over-anti-dumping-tariffs">Canberra</a> and <a href="https://www.afr.com/politics/federal/talks-under-way-to-end-trade-disputes-chinese-envoy-20230110-p5cbhs">Beijing</a> are talking up the prospect that tariffs on Australia’s barley and wine exports to China might be addressed through bilateral discussions rather a drawn-out legal process at the World Trade Organization. </p>
<p>Last weekend, Albanese raised his sights even more, insisting “it is in both countries’ interests to continue to develop more positive relations”. This upbeat aspiration was <a href="https://www.chinadaily.com.cn/a/202301/15/WS63c3e5e0a31057c47eba9af6.html">widely reported and welcomed</a> in Chinese state media – a sharp departure from the caustic tone the media had taken toward Australia in recent years. </p>
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Read more:
<a href="https://theconversation.com/albanese-xi-meeting-wont-resolve-australias-grievances-overnight-but-it-is-a-real-step-forward-194511">Albanese-Xi meeting won't resolve Australia's grievances overnight. But it is a real step forward</a>
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<h2>Why differences will not ‘hijack’ the thawing relationship</h2>
<p>To be sure, Canberra-Beijing relations will not be completely smooth-sailing going forward. </p>
<p>Two of my colleagues at the Australia-China Relations Institute have laid out five major issues that could <a href="https://thediplomat.com/2022/12/australia-china-relations-the-outlook-for-2023/">derail</a> an improvement in official ties this year. </p>
<p>One problem could be the way Beijing interprets expected announcements by Australia related to its military posture and new defence acquisitions (such as <a href="https://theconversation.com/why-nuclear-submarines-are-a-smart-military-move-for-australia-and-could-deter-china-further-168064">nuclear-powered submarines</a>) in the wake of the 2021 AUKUS pact with the US and UK. Beijing may see this as evidence Canberra is lining up with Washington to confront China militarily. </p>
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<img alt="US warships in the South China Sea" src="https://images.theconversation.com/files/505053/original/file-20230118-14-ku18vu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/505053/original/file-20230118-14-ku18vu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/505053/original/file-20230118-14-ku18vu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/505053/original/file-20230118-14-ku18vu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/505053/original/file-20230118-14-ku18vu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/505053/original/file-20230118-14-ku18vu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/505053/original/file-20230118-14-ku18vu.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">The South China Sea remains a potential flashpoint between China and the US and its allies, including Australia.</span>
<span class="attribution"><span class="source">US Navy Office of Information/EPA</span></span>
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<p>And trade blockages are just one problem needing resolution. As long as Australian citizens like journalist Cheng Lei and writer Yang Hengjun remain detained in China on unclear grounds, any improvement in relations <a href="https://www.foreignminister.gov.au/minister/penny-wong/transcript/prime-minister-leader-government-senate-minister-foreign-affairs">will only be able to run so far</a>. </p>
<p>But neither will Canberra and Beijing be keen to quickly return to the lose-lose state of relations in recent years. Both sides are also embarking on re-engagement with grounded expectations. </p>
<p>Last week, the Chinese ambassador to Australia, Xiao Qian, <a href="http://au.china-embassy.gov.cn/eng/sghdxwfb_1/202301/t20230111_11005823.htm">acknowledged</a>, “we do have differences, in certain respects. We even have disputes”. But he then emphasised a further important point:</p>
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<p>we can address the differences in a way that will not allow the differences to hijack the overall relationship. </p>
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<p>Importantly, Australia-China relations are about more than just diplomatic relations between the capitals. Extensive business links and people-to-people ties have long given the broader relationship ballast, even as the diplomatic relationship has <a href="https://unsw.press/books/australias-china-odyssey/">historically waxed and waned</a>. </p>
<p>In fact, last year, the total <a href="https://www.abs.gov.au/statistics/economy/international-trade/international-trade-goods-and-services-australia/latest-release">value</a> of Australia’s goods exports to China hit the second-highest level ever, despite all of the trade disruptions, and Australian companies becoming more sensitive to risks stemming from exposure to the Chinese market. This followed a new record high set in 2021. </p>
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<h2>Reasons for hope: clean energy, education and tourism</h2>
<p>And even amid the political challenges of recent years, new areas of win-win cooperation are opening up. </p>
<p>China has rapidly emerged as the global production hub for manufactured goods essential to the world’s net-zero emissions transition, such as electric vehicles. This has been a bonanza for resources companies around the world. </p>
<p>Australia’s exports of raw lithium (used to make batteries for electric vehicles) have <a href="https://www.smh.com.au/business/companies/new-lithium-mine-starts-exports-to-china-s-electric-car-industry-20230102-p5c9ug.html#:%7E:text=Australia's%20newest%20lithium%20mine%20is,cars%20and%20clean%20energy%20infrastructure.">gone</a> from just A$1 billion in 2020 to A$16 billion now – with China <a href="https://www.abs.gov.au/articles/insights-australian-exports-lithium">buying</a> more than 90% of it. </p>
<p>Chinese companies have also transferred their world-leading lithium processing <a href="https://www.scmp.com/economy/global-economy/article/3205076/china-australia-lithium-tie-highlights-symbiotic-bond-mutual-respect-amid-green-energy-drive">technology</a> to Australia via joint ventures, allowing Australia to move up the value chain beyond mining. </p>
<p>Beijing’s <a href="https://theconversation.com/chinas-loosened-covid-19-policies-following-years-of-aggressive-lockdowns-and-quarantines-have-left-the-country-vulnerable-196179">abandonment</a> of its “dynamic COVID zero” policy last December and the re-opening of China’s borders this month will give another shot in the arm to the broader relationship.</p>
<p>In the year ending September 2019, Australia <a href="https://www.tra.gov.au/data-and-research/reports/international-visitor-survey-results/international-visitor-survey-results">hosted</a> 1.3 million Chinese visitors, collectively injecting $10.2 billion into the local economy. By last year, these numbers had plummeted to just 62,120 and $1.3 billion. </p>
<p>The uncertain state of China’s economy, coupled with the Australian government requirement that arrivals from China must submit evidence of a negative COVID test, will likely <a href="https://www.abc.net.au/news/2023-01-08/chinese-tourists-australia-border-travel-rules-china-covid/101828010">dampen</a> the appetite for long-haul travel to Australia in the near-term. </p>
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<strong>
Read more:
<a href="https://theconversation.com/how-the-pandemic-has-changed-chinas-economy-perhaps-for-good-167597">How the pandemic has changed China’s economy – perhaps for good</a>
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<p>But airlines are already ramping up their China-Australia offerings in anticipation of a positive shift in their fortunes. China Southern Airlines, for example, has <a href="https://www.theguardian.com/world/2023/jan/11/travel-between-china-and-australia-tipped-to-rebound-rapidly-as-chinese-airlines-ramp-up-flights">announced</a> it will begin flying daily services between Sydney and Guangzhou by the end of this month, up from just once a week. </p>
<p>Adding to their confidence ledger is the fact the number of Chinese students enrolled at Australian education providers has remained remarkably <a href="https://www.education.gov.au/international-education-data-and-research/student-visa-holders-and-outside-australia">resilient</a>. As of last October, there were still 119,107 Chinese citizens holding student visas, nearly double the 67,975 from India in second place. </p>
<p>In the second half of 2022, new visa applications by prospective Chinese students <a href="https://www.afr.com/work-and-careers/education/india-drives-record-rebound-in-foreign-students-20230105-p5cajw">reached</a> 38,701, <a href="https://data.gov.au/dataset/ds-dga-324aa4f7-46bb-4d56-bc2d-772333a2317e/details">not far off</a> the previous peak of 42,526 in 2019. </p>
<p>Investment bank JPMorgan <a href="https://www.cnbc.com/2023/01/10/chinas-earlier-reopening-australia-economy-jpm.html">estimates</a> there’s potential for a boost in tourism and education links with China to add one percentage point to Australian economic growth over this year and next. </p>
<p>Bring on the Year of the Rabbit.</p><img src="https://counter.theconversation.com/content/197892/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James Laurenceson 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>Now that diplomatic relations are out of the deep freeze, business and cultural ties between China and Australia are set for a major rebound.James Laurenceson, Director and Professor, Australia-China Relations Institute (ACRI), University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1775282022-04-06T12:23:25Z2022-04-06T12:23:25ZTo understand why Biden extended tariffs on solar panels, take a closer look at their historical impact<figure><img src="https://images.theconversation.com/files/456426/original/file-20220405-24-mj6ho3.jpg?ixlib=rb-1.1.0&rect=0%2C26%2C5991%2C3961&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China's cheaper solar panels made it harder for U.S. companies to compete.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/an-employee-works-on-the-production-line-of-solar-panels-news-photo/1362904374">Ruan Xuefeng/VCG via Getty Images</a></span></figcaption></figure><p>President Joe Biden <a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2022/02/04/a-proclamation-to-continue-facilitating-positive-adjustment-to-competition-from-imports-of-certain-crystalline-silicon-photovoltaic-cells-whether-or-not-partially-or-fully-assembled-into-other-produc/">extended tariffs on imported solar panels</a> in February 2022 in a bid to protect domestic manufacturing. These tariffs add a 14%-15% tax on cheaper imports, raising their cost in the U.S. At the same time, the Biden administration is urging an expansion of renewable energy and energy security, two priorities for many countries.</p>
<p>As an <a href="https://www.nrel.gov/research/staff/david-feldman.html">energy analyst</a> focused on renewable electricity generation, I follow the impact of solar policies. To understand why the tariffs were extended, it’s helpful to understand their historical impact.</p>
<h2>The U.S. was a solar leader once</h2>
<p>U.S. engineers <a href="https://www.aps.org/publications/apsnews/200904/physicshistory.cfm">invented the solar cell</a>, the part of the panel that generates electricity, in the 1950s at Bell Labs. The country was a world leader in manufacturing until about 20 years ago.</p>
<p>Several solar cells connected together make up a typical photovoltaic solar module. Producing the most common type of PV module, a <a href="https://www.energy.gov/eere/solar/crystalline-silicon-photovoltaics-research">crystalline silicon module</a>, is a multistep process. As global demand for solar-generated energy increased, many of these steps began occurring in China or involved Chinese companies in Southeast Asia.</p>
<p>Until 2011, the U.S. was a <a href="https://www.woodmac.com/industry/power-and-renewables/us-solar-market-insight/">net exporter</a> of PV modules. As PV module prices dropped precipitously in 2010, many U.S. and German companies could no longer compete and <a href="https://www.greentechmedia.com/articles/read/the-mercifully-short-list-of-fallen-solar-companies-2015-edition">closed operations</a>. U.S. companies asserted that China was providing unfair subsidies and its companies were <a href="https://www.nytimes.com/2012/05/18/business/energy-environment/us-slaps-tariffs-on-chinese-solar-panels.html">dumping solar cells</a> – selling them at less than the cost to manufacture them – to drive out competition.</p>
<figure class="align-center ">
<img alt="A small, square solar cell in plastic dish." src="https://images.theconversation.com/files/456431/original/file-20220405-2973-qkyz91.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/456431/original/file-20220405-2973-qkyz91.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=386&fit=crop&dpr=1 600w, https://images.theconversation.com/files/456431/original/file-20220405-2973-qkyz91.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=386&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/456431/original/file-20220405-2973-qkyz91.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=386&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/456431/original/file-20220405-2973-qkyz91.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=485&fit=crop&dpr=1 754w, https://images.theconversation.com/files/456431/original/file-20220405-2973-qkyz91.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=485&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/456431/original/file-20220405-2973-qkyz91.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=485&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">Scientists at the National Renewable Energy Lab have been developing next-generation solar cells. A PV module, or solar panel, is made up of several cells.</span>
<span class="attribution"><a class="source" href="https://images.nrel.gov/soda/GetObject?ikey=21D9871C58C79072327F196813A49544EF7965C0B8AEA641E8C9018EFEE26EDF&user=publicguest&mode=inline&note=MX+drag+and+drop&target=61447.JPG">Dennis Schroeder / NREL</a></span>
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<h2>How the solar tariffs work</h2>
<p>The U.S. placed its <a href="https://www.reuters.com/article/us-china-trade/u-s-sets-new-tariffs-on-chinese-solar-imports-idUSBRE84G19U20120517">first</a> and <a href="https://www.usitc.gov/press_room/news_release/2015/er0121ll329.htm">second</a> set of tariffs on Chinese cells and modules in 2012 and 2015, citing unfair trade practices.</p>
<p>However, low-cost modules and cells <a href="https://www.usitc.gov/press_room/us_safeguard.htm">still came into the United States</a> from outside China, particularly as Chinese companies added manufacturing in neighboring countries not subject to those duties. Most of the material to make cells and modules was still increasingly coming from China.</p>
<p>In 2018, the U.S. government put in place the Section 201 tariff, a four-year safeguard to give domestic PV manufacturers <a href="https://www.usitc.gov/press_room/us_safeguard.htm">temporary relief from the “serious” injury</a> imports were causing them.</p>
<p>The duties <a href="https://www.govinfo.gov/content/pkg/FR-2018-01-25/pdf/2018-01592.pdf">began at 30%</a> on most imported modules, decreasing 5% each year until 2022, when the rate dropped to 15%. PV cells were also subject to these duties, but the first 2.5 gigawatts of imported cells were exempt to allow companies that assemble modules some relief while encouraging PV cell manufacturing in the U.S.</p>
<p>Modules produced from cadmium telluride, rather than crystalline silicon, were also exempt, and in 2019 bifacial modules – which are designed with a clear backing so that energy is produced when light hits the front or the back of the panel – also <a href="https://www.photon.info/en/news/bifacial-pv-modules-can-be-imported-us-free-punitive-tariffs">became exempt</a>. Both are used primarily for large solar farms.</p>
<h2>U.S. module industry ramps up</h2>
<p>The tariffs are considered a <a href="https://www.nrel.gov/docs/fy21osti/74807.pdf">major factor</a> in the <a href="https://www.woodmac.com/industry/power-and-renewables/us-solar-market-insight/">more than tripling</a> of crystalline silicon module assembly capacity in the U.S. between 2018 and 2020, and also in the recent scale-up of cadmium telluride module manufacturing by First Solar. That U.S. company benefited from the increased market price of competing crystalline silicon PV modules.</p>
<p>In addition to the tariffs, many module assembly manufacturers cited supply contracts with utilities or roofing companies and the 2018 U.S. corporate tax reduction as critical <a href="https://www.nrel.gov/docs/fy21osti/74807.pdf">deciding factors for ramping up manufacturing</a>.</p>
<p>Companies assembling modules in the U.S. benefited from the ability to import virtually all of their cells without tariffs – <a href="https://www.nrel.gov/docs/fy21osti/74807.pdf">the 2.5-gigawatt quota was not hit</a> until a month before the initial four-year term ended – while competing against imported modules that were subject to the tariff.</p>
<figure class="align-center ">
<img alt="A worker in a hard hat and construction vest walks between rows of solar panels in a field." src="https://images.theconversation.com/files/456432/original/file-20220405-2973-r9mhfs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/456432/original/file-20220405-2973-r9mhfs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=379&fit=crop&dpr=1 600w, https://images.theconversation.com/files/456432/original/file-20220405-2973-r9mhfs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=379&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/456432/original/file-20220405-2973-r9mhfs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=379&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/456432/original/file-20220405-2973-r9mhfs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=477&fit=crop&dpr=1 754w, https://images.theconversation.com/files/456432/original/file-20220405-2973-r9mhfs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=477&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/456432/original/file-20220405-2973-r9mhfs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=477&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">Utility-scale solar use has grown quickly in the U.S. in recent years.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/employees-from-a-radian-generations-operations-and-news-photo/893158122">Robert Nickelsberg/Getty Images</a></span>
</figcaption>
</figure>
<p>Still, even with the tariffs in place, around 80% of solar modules installed in the U.S. during the initial four-year term were imported. According to trade data, just over half of PV modules imported in 2020 were <a href="https://dataweb.usitc.gov/">not subject to the Section 201 tariffs</a>.</p>
<p>Additionally, modules produced in the U.S. still <a href="https://www.nrel.gov/docs/fy21osti/74807.pdf">rely heavily on China for parts</a>, such as the aluminum frame and glass. Soon after the Section 201 tariffs were put in place, the U.S. government placed <a href="https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/august/ustr-statement-section-301-tariff">Section 301 tariffs</a> on these Chinese products, increasing the cost of assembling PV modules in the U.S.</p>
<h2>How did tariffs affect the U.S. solar industry?</h2>
<p>The tariffs did not result in an increase in the domestic production of PV cells.</p>
<p>Because the Section 201 tariffs did not apply to the first 2.5 gigawatts of imported cells, a cap that was not reached in the <a href="https://www.usitc.gov/press_room/news_release/2021/er1124ll1852.htm">first three years of tariff implementation</a>, virtually all cells bought in the U.S. have been <a href="https://dataweb.usitc.gov/">free of Section 201 tariffs</a>. </p>
<p>Therefore, the tariff provided no competitive advantage for PV cells domestically produced. As of the end of 2021, there was <a href="https://www.woodmac.com/industry/power-and-renewables/us-solar-market-insight/">no PV cell production</a> in the United States.</p>
<p>The impact of the tariff on solar deployment in the U.S. is less clear.</p>
<p>The tariffs were put in place during a period when global PV module prices were falling. So, while there was a general runup in price when the tariffs were first proposed, U.S. panel prices have since trended downward and are lower than before the tariffs took effect, though they remain above global average prices. In fact, more <a href="https://www.eia.gov/electricity/monthly/">solar capacity was installed</a> in the U.S. during the Section 201 tariffs than at any other time in history, in large part because of the low cost.</p>
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<img alt="Two workers in wide-rimmed hats install solar panels on a roof" src="https://images.theconversation.com/files/456424/original/file-20220405-18-ayraf7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/456424/original/file-20220405-18-ayraf7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=390&fit=crop&dpr=1 600w, https://images.theconversation.com/files/456424/original/file-20220405-18-ayraf7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=390&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/456424/original/file-20220405-18-ayraf7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=390&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/456424/original/file-20220405-18-ayraf7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=490&fit=crop&dpr=1 754w, https://images.theconversation.com/files/456424/original/file-20220405-18-ayraf7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=490&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/456424/original/file-20220405-18-ayraf7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=490&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">The tariffs on solar panel imports raised concerns about U.S. installation jobs, which were among the fastest-growing job sectors in the country.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/roger-garbey-and-andres-hernandez-from-the-goldin-solar-news-photo/909389746">Joe Raedle/Getty Images</a></span>
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<p>Still, the U.S. solar trade group, the Solar Energy Industries Association, claims that the U.S. would have installed <a href="https://www.seia.org/research-resources/adverse-impact-section-201-tariffs">11% more solar</a>, employed 62,000 more people and had US$19 billion more in investment without the tariffs. Most U.S. solar jobs are associated with building projects, not manufacturing equipment, and <a href="https://www.greentechmedia.com/articles/read/cypress-creek-halts-1-5-gw-solar-development-tariffs-exemption">developers have said</a> the higher prices forced them to <a href="https://www.reuters.com/article/us-trump-effect-solar-insight/billions-in-u-s-solar-projects-shelved-after-trump-panel-tariff-idUSKCN1J30CT">delay or cancel</a> solar projects. At the end of 2020, of 231,000 U.S. solar jobs, only 31,000, 13%, were in manufacturing.</p>
<h2>How will the next four years affect solar expansion?</h2>
<p>The Biden administration set a U.S. goal in 2021 to reach <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/04/22/fact-sheet-president-biden-sets-2030-greenhouse-gas-pollution-reduction-target-aimed-at-creating-good-paying-union-jobs-and-securing-u-s-leadership-on-clean-energy-technologies/">zero carbon emissions</a> from the electricity sector by 2035 to stop its role in climate change. That will require <a href="https://www.energy.gov/sites/default/files/2021-09/Solar%20Futures%20Study.pdf">quadrupling 2020’s record level</a> of annual solar deployment by the end of the decade.</p>
<p>Tariffs have the potential to slow deployment by making PV systems more expensive. That could be offset, however, by mandates and significant public and private investment in the solar sector.</p>
<p>The U.S. goals are part of a larger global effort to both increase local energy security and reduce greenhouse gas emissions, which will likely require significant expansion of solar manufacturing. The U.S. has the potential to be part of this larger global supply chain, but it must scale up to compete.</p><img src="https://counter.theconversation.com/content/177528/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David J. Feldman 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>The tariffs targeting cheap Chinese imports mean prices in the US are higher than average, at the same time Biden is pushing for more renewable energy. But their effect might surprise you.David J. Feldman, Financial Analyst, National Renewable Energy LaboratoryLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1624242021-06-10T05:19:07Z2021-06-10T05:19:07ZMorrison’s dilemma: Australia needs a dual strategy for its trade relationship with China<p>En route to this year’s <a href="https://www.g7uk.org/">G7+ Summit</a> in the UK, Australia’s Prime Minister Scott Morrison delivered a speech in Perth on “<a href="https://www.pm.gov.au/media/address-perth-usasia-centre-perth-wa">A world order that favours freedom</a>”.</p>
<p>He spoke of “Australia’s preparedness to withstand economic coercion in recent times”. As “the most practical way to address economic coercion”, he called for reform of the World Trade Organization, particularly “the restoration of the global trading body’s binding dispute settlement system”.</p>
<p>It wasn’t hard to work out what – and who – he was talking about: China.</p>
<p>But Morrison faces a conundrum in his pitch to reform the WTO to resolve <a href="https://www.theguardian.com/australia-news/2021/apr/29/fuel-on-the-fire-war-of-words-between-australia-and-china-stokes-tension">trade disputes with China</a>, which has blocked or restricted <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3806162">Australian exports</a> of beef, wheat, lobster, timber and coal, and imposed high tariffs on barley and wine. </p>
<p>But it isn’t China that has undermined the role of the WTO as the global mechanism for settling trade disputes peacefully through agreed rules and procedures. </p>
<p>The blame for that rests with the United States, which under the Trump administration effectively rendered <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3399300">the organisation’s appeals process</a> inoperable. </p>
<p>By emphasising China’s economic coercion and using it to appeal to the US and others to reform the World Trade Organization, the Morrison government is playing a risky game. It may be squandering an opportunity to engage more constructively with China on common interests.</p>
<h2>Trade disputes with China</h2>
<p>As diplomatic relations between China and Australia deteriorated over the past 18 months – fuelled by things such as Australia leading the call for an independent investigation into the origins of the COVID-19 virus – China’s trade restrictions on Australian imports escalated. </p>
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Read more:
<a href="https://theconversation.com/why-the-australia-china-relationship-is-unravelling-faster-than-we-could-have-imagined-145836">Why the Australia-China relationship is unravelling faster than we could have imagined</a>
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<p>By December 2020 Australia was ready to make its very first complaint against China <a href="https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds598_e.htm">to the WTO</a> – over China’s five-year 80.5% tariff on Australian barley. The Morrison government is now <a href="https://www.cnbc.com/2021/06/02/australia-china-wine-trade-dispute-canberra-considers-involving-wto.html">contemplating a second WTO complaint</a> over China’s tariffs of as high as 200% on Australian wine.</p>
<h2>Appellate Court in limbo</h2>
<p>The WTO established a panel to review the barley tariff in May. </p>
<p>Even if Australia does win its case, it faces the <a href="https://theconversation.com/taking-china-to-the-world-trade-organisation-plants-a-seed-it-wont-be-a-quick-or-easy-win-152173">uncertainty</a> of how long China takes in acting on the WTO ruling. </p>
<p>But before that is the problem of the WTO making a final ruling. </p>
<p>Like other court systems the WTO has an appeals mechanism, known as the Appellate Body. The Appellate Body is meant to have seven members, and requires a quorum of three judges to hear an appeal. Members are appointed to four-year terms. Appointments require all of the WTO’s 164 member nations to agree.</p>
<p>The US, however, has blocked every appointment and reappointment over the past four years or so. Now the Appellate Body has no members. So no dispute taken to the WTO can be resolved if one of the disputing parties appeals. </p>
<p>If Australia does win its case against China, and China appeals, the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3399300">dispute will remain in limbo</a> until the Appellate Body can hear that appeal.</p>
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Read more:
<a href="https://theconversation.com/taking-china-to-the-world-trade-organisation-plants-a-seed-it-wont-be-a-quick-or-easy-win-152173">Taking China to the World Trade Organisation plants a seed. It won't be a quick or easy win</a>
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<h2>Shared trade interests</h2>
<p>On this issue, Australia and China have a shared position. In 2018, for example, they <a href="http://grupopuntadeleste.com/es/wp-content/uploads/2019/06/WTGC197-Dec-14-2018.pdf">joined forces</a> with other countries to push for the appointment of Appellate Body members. </p>
<p>They also have common interests on some other reform issues in trade that Morrison mentioned in his speech, such as the digital economy and environmental sustainability. Reducing pollution from <a href="https://www.wto.org/english/news_e/news20_e/envir_17nov20_e.htm">trade in plastics</a> is an example.</p>
<p>Morrison’s speech, however, tended to highlight the differences rather than shared interests in the international trading system.</p>
<p>“We are facing heightened competition in the Indo-Pacific region,” he said. “We know that because we live here. The task is to manage that competition. Competition does not have to lead to conflict. Nor does competition justify coercion.”</p>
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Read more:
<a href="https://theconversation.com/what-a-biden-presidency-means-for-world-trade-and-allies-like-australia-149735">What a Biden presidency means for world trade and allies like Australia</a>
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<h2>Need for a dual strategy</h2>
<p>Morrison’s speech did acknowledge the need for “all nations to participate in the global system”. Australia, he said, “stands ready to engage in dialogue with all countries on shared challenges, including China when they are ready to do so with us”.</p>
<p>But Australia’s national interest demands more than just standing ready. The government needs to do the proverbial walking and chewing gum at the same time. </p>
<p>Though its primary motivation for WTO reform may be Australia’s trade disputes with China, it cannot ignore the need to promote that reform through engaging and collaborating with China, now the world’s biggest economy and Australia’s <a href="https://www.dfat.gov.au/sites/default/files/trade-investment-glance-2020.pdf">most important trading partner</a> by far. </p>
<p>This won’t be easy. There are some big differences that separate China from Australia and its allies. The Chinese government is far more involved in its economy than the market-based ethos that drove the establishment of the World Trade Organization in the first place.</p>
<p>Negotiating these differences peacefully will require delicate conversations over the boundaries of trade law and policy. That will be impossible in an environment of mutual distrust. </p>
<p>Any WTO reform will <a href="https://www.scmp.com/economy/article/3133534/chinas-wto-reform-aspirations-take-centre-stage-globalisation-seminar">need China on board</a>. </p>
<p>Finding common ground on reinstating a reformed WTO Appellate Body could be a starting point for tempering this lack of trust. It could pave the way for the two nations to de-escalate and move closer to resolving their disputes.</p><img src="https://counter.theconversation.com/content/162424/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Markus Wagner is the Executive Vice-President of the Society of International Economic Law. He writes in his personal capacity. </span></em></p><p class="fine-print"><em><span>Weihuan Zhou 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>Australia’s Prime Minister wants reform of the World Trade Organization to rein in China’s ‘economic coercion’. But it also needs to constructively engage with China on that reform.Weihuan Zhou, Associate Professor, Director of Research and member of Herbert Smith Freehills CIBEL Centre, Faculty of Law and Justice, UNSW Sydney, UNSW SydneyMarkus Wagner, Associate Professor of Law and Director of the UOW Transnational Law and Policy Centre, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1521732020-12-17T03:44:58Z2020-12-17T03:44:58ZTaking China to the World Trade Organisation plants a seed. It won’t be a quick or easy win<p>Australia is <a href="https://www.abc.net.au/news/2020-12-16/australia-refers-china-to-world-trade-organization-barley-tariff/12966728">reportedly ready</a> to initiate its first litigation against China at the World Trade Organisation. </p>
<p>China has this year <a href="https://www.scmp.com/economy/china-economy/article/3114066/china-australia-relations-canberra-very-concerned-over">taken punitive action</a> against imports of Australian coal, wine, beef, lobster and barley. </p>
<p>It is the five-year 80.5% barley tariff China imposed in May that Australia will take to the World Trade Organisation. More than half of all Australian barley exports in 2019 were sold to China, worth about A$600 million a year to Australian farmers.</p>
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<p>Chinese authorities began an anti-dumping investigation into Australian barley in <a href="https://theconversation.com/barley-is-not-a-random-choice-heres-the-real-reason-china-is-taking-on-australia-over-dumping-107271">November 2018</a>. Anti-dumping trade rules are meant to protect local producers from unfair competition from “dumped” imported goods. </p>
<p>Dumping occurs where a firm sells goods in an overseas market at a price lower than the normal value of the goods. China calculated the normal value of barley using “best information available” on the grounds that Australian producers and exporters failed to provide all information Chinese investigators requested.</p>
<p>The barley tariff will last for five years unless Chinese investigators initiate a review and decide to extend it beyond 2025.</p>
<p>What can Australia hope to achieve from a WTO dispute? </p>
<p>Not a quick and easy win. A formal resolution will likely take years. But it plants a seed, starting a structured process for dialogue. This is an important step in the right direction.</p>
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Read more:
<a href="https://theconversation.com/barley-is-not-a-random-choice-heres-the-real-reason-china-is-taking-on-australia-over-dumping-107271">Barley is not a random choice – here's the real reason China is taking on Australia over dumping</a>
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<h2>A lengthy process</h2>
<p>WTO litigation is no quick fix. There is a set process that moves through three phases – consultation, adjudication and compliance. </p>
<p>The standard timetable would ideally have disputes move through consultation and adjudication within a year. In reality it often take several years, particularly if appeals or compliance actions are involved.</p>
<p>The timetable schedules 60 days for the first stage of negotiations, though these can take many more months. That’s worthwhile if it leads to a resolution. But given the tensions between China and Australia, a quick resolution looks remote.</p>
<p>The adjudication process typically involves a decision by a WTO panel followed by an appeal to the organisation’s Appellate Body. </p>
<p>A WTO panel is meant to issue its decision within nine months of its establishment, but it usually takes much more time. If the panel’s decision is appealed, the Appellate Body is meant to make its decisions within 90 days, but nor is this time frame met in many cases. </p>
<p>Once a WTO decision is final, it is up to the losing party to comply with the ruling. That may include a request for time to make the necessary changes. In practice, this can <a href="http://www.worldtradelaw.net/databases/rptawards.php">take six to 15 months</a>.</p>
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Read more:
<a href="https://theconversation.com/an-all-out-trade-war-with-china-would-cost-australia-6-of-gdp-151070">An all-out trade war with China would cost Australia 6% of GDP</a>
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<h2>Appeals blockage</h2>
<p>One complication is the current non-functioning WTO appeals process. Appointing judges to the WTO’s Appellate Body requires agreement from all WTO member nations. <a href="https://www.eastasiaforum.org/2019/05/28/triage-care-for-the-wto/">US obstruction</a> of new appointments has reduced the number of judges to zero, and the Appellate Body requires three judges to hear appeals.</p>
<p>This paralysis has created a major loophole, enabling an “appeal into the void” to block unfavourable rulings.</p>
<p>In light of this, the 27 European Union nations and 22 other WTO members – including both China and Australia – have signed on to a temporary appeals process known as the “<a href="https://trade.ec.europa.eu/doclib/press/index.cfm?id=2176">multi-party interim appeal arbitration arrangement</a>” (MPIA). </p>
<p>Given China’s <a href="http://english.www.gov.cn/archive/white_paper/2018/06/28/content_281476201898696.htm">commitment</a> to the WTO and its dispute settlement system, there is no reason to anticipate it snubbing interim arrangements if an appeal arises. But the appeal process is also likely to take just as long as the Appellate Body procedure.</p>
<h2>No guaranteed win</h2>
<p>Federal Trade Minister Simon Birmingham has expressed confidence in Australia’s “<a href="https://www.smh.com.au/world/asia/australia-to-take-china-to-the-wto-over-barley-tariffs-20201216-p56nzf.html">strong case</a>” but victory against China is not assured. </p>
<p>China’s tariff on Australian barley comprises an “<a href="http://trb.mofcom.gov.cn/article/cs/202005/20200502965862.shtml">anti-dumping duty</a>” of 73.6% and a “<a href="http://trb.mofcom.gov.cn/article/cs/202005/20200502965863.shtml">countervailing duty</a>” of 6.9%. Anti-dumping and countervailing calculations are highly technical. Whether China’s barley tariff has violated WTO rules will require detailed examination of its methodology. </p>
<p>A key challenge to the Chinese methodology is that it largely disregarded information on domestic sales by Australian barley producers and used data from Australian sales to Egypt.</p>
<p>The WTO has found China’s use of similar methods in several past <a href="https://www.bloomsburyprofessional.com/uk/chinas-implementation-of-the-rulings-of-the-world-trade-organization-9781509913565/">disputes</a> breached WTO rules. But every case depends on very specific facts. The past rulings against China do not necessarily predict the result here.</p>
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Read more:
<a href="https://theconversation.com/why-china-believed-it-had-a-case-to-hit-australian-barley-with-tariffs-140633">Why China believed it had a case to hit Australian barley with tariffs</a>
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<h2>No compensation</h2>
<p>Even if Australia is successful, a “win” isn’t total. </p>
<p>The WTO system is designed to make states change their ways. It is not designed to compensate those harmed by illegal trade measures. In other words, an Australian win may require China only to remove the tariff, not compensate those who paid more or lost revenue as a result.</p>
<p>There is also a risk that China could simply initiate a re-investigation of the barley tariff, which might lead to a decision to impose duties very similar to the original ones. In some past disputes, it took China <a href="https://www.bloomsburyprofessional.com/uk/chinas-implementation-of-the-rulings-of-the-world-trade-organization-9781509913565/">five years or longer</a> to remove duties. </p>
<p>So even if the World Trade Organisation rules in favour of Australia, this might not lead to the tariff’s end before its current expiry date in 2025. </p>
<h2>Still the best option</h2>
<p>Despite all this, the World Trade Organisation is Australia’s best step.</p>
<p>The WTO is not perfect, but it is now a tested and respected mechanism to resolve trade disputes. </p>
<p>WTO litigation also compels the disputing parties to enter into consultations – and talking is something Australia’s officials have had difficulty having with their Chinese counterparts.</p>
<p>China might drag its heels in other ways, but it can be expected to respect the WTO’s procedural rules and enter into these negotiations. Those talks could help repair communication channels better than missives through social media and press conferences.</p>
<h2>Litigation the new normal</h2>
<p>In commencing a formal dispute, Australia also sends a firm but dignified message – that it is willing to use international rules and procedures to solve grievances. </p>
<p>WTO litigation is a normal feature of trade relations between countries. Even close allies bring disputes against one another – such as New Zealand’s <a href="https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds367_e.htm">case against Australia’s restrictions</a> on New Zealand apples, or Australia’s case <a href="https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds537_e.htm">against Canadian restrictions </a> on imported wines in liquor stores. </p>
<p>China and Australia badly need a <a href="https://theconversation.com/australia-can-repair-its-relationship-with-china-here-are-3-ways-to-start-150455">relationship reset</a>. Meeting in a rules-based forum with structured processes for dialogue can do no harm.</p><img src="https://counter.theconversation.com/content/152173/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lisa Toohey is a 2020 Fulbright Fellow, sponsored by the Australian Department of Foreign Affairs and Trade.</span></em></p><p class="fine-print"><em><span>Weihuan Zhou 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>A formal resolution off Australia’s complaint about Chinese barley tariffs will likely take years. But at least it starts a structured process for dialogue.Weihuan Zhou, Senior Lecturer and member of Herbert Smith Freehills CIBEL Centre, Faculty of Law, UNSW Sydney, UNSW SydneyLisa Toohey, Professor of Law, University of NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1275052019-12-13T21:14:40Z2019-12-13T21:14:40ZUS-China trade deal: 3 fundamental issues remain unresolved<figure><img src="https://images.theconversation.com/files/306898/original/file-20191213-85412-3ig0ci.jpg?ixlib=rb-1.1.0&rect=966%2C34%2C5716%2C2945&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The game is far from over.</span> <span class="attribution"><span class="source">rawf8/Shutterstock.com</span></span></figcaption></figure><p>The U.S. and China <a href="https://www.wsj.com/articles/china-offers-no-confirmation-on-u-s-trade-deal-11576234325">have reportedly reached</a> a so-called phase one deal in their ongoing trade war. </p>
<p>While few details have been disclosed, the agreement principally seems to involve the U.S. calling off a new round of tariffs that were slated to take effect on Dec. 15 and removing others already in place in exchange for more Chinese purchases of U.S. farm products. </p>
<p>Good news, right? The end of the trade war is nigh? Don’t get your hopes up. </p>
<p>While business leaders in both countries will be temporarily relieved, the underlying tensions between them will not end easily. </p>
<p>As an <a href="https://scholar.google.com/citations?user=2ZSlHs4AAAAJ&hl=en&oi=ao">economist who closely studies the U.S. relationship with China</a>, I believe there are fundamental issues that won’t be resolved anytime soon. </p>
<h2>Doing it in phases</h2>
<p>Tariffs and other trade issues have received most of the attention during the trade war, but the more fundamental – and difficult – challenges are with lax intellectual property protection and China’s industrial policy.</p>
<p>The <a href="https://www.whitehouse.gov/briefings-statements/statement-president-regarding-trade-china-2/">U.S. is unhappy with China’s use</a> of these tools to develop its economy, and to help its companies compete – unfairly, from the U.S. perspective. And many of the Trump administration’s demands challenge China’s normal business and policy practices.</p>
<p>China’s leaders can’t be seen by Chinese citizens as giving into the U.S., while Trump wants to show that he is tough on China ahead of his reelection. This makes the negotiations very sensitive on both sides.</p>
<p>That’s why American and Chinese negotiators, <a href="https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/">who have been engaged</a> in talks for almost two years, decided to try to get to an agreement in phases.</p>
<p>Phase one has focused on the trade balance and tariffs. Phase two is expected to then deal more deeply with intellectual property enforcement and economic reform in China. </p>
<p>Given the negotiations have gone on so long with fairly little to show for it, it’s fair to ask, why are these issues so difficult to resolve? I believe there are basically three issues that have made finding any common ground difficult – and phase one won’t change that.</p>
<h2>Government subsidies</h2>
<p>First, China’s successful growth has combined market competition with government-led industrial policy. For example, when China’s leaders decided the economy needed more innovation, <a href="https://chinapower.csis.org/patents/">it created incentives and targets</a> for companies and research institutes to create patents. The number of patents filed has soared as a result. </p>
<p>A wide range of government subsidies is used to direct and assist private as well as state investment in similar ways. </p>
<p>The U.S. does this as well but not on the same scale, and therefore <a href="https://www.uscc.gov/sites/default/files/2019-11/2019%20Annual%20Report%20to%20Congress.pdf">views it</a> as unfair. </p>
<p>From China’s perspective, however, it is not reasonable for the U.S. to require China to change its development model in exchange for removing tariffs.</p>
<h2>Protecting intellectual property</h2>
<p>Getting China to do more to protect the intellectual property of new technologies is another especially thorny issue.</p>
<p>Both countries are facing economic challenges that can be aided by improved technology. But since in many areas Chinese capabilities have caught up with those of the U.S., or are being rapidly developed, <a href="https://www.washingtonpost.com/business/2019/10/26/trump-administration-considers-blacklisting-chinese-companies-that-repeatedly-steal-us-intellectual-property/">there is much more pressure</a> from the U.S. for China to accept global norms on intellectual property rights. </p>
<p>Even while China’s own IP protections <a href="https://foreignpolicy.com/2019/10/16/china-intellectual-property-theft-progress/">have improved</a> at home, there is ample evidence that Chinese companies have copied foreign technology without permission or payment, <a href="https://www.uscc.gov/sites/default/files/2019-11/2019%20Annual%20Report%20to%20Congress.pdf">despite China’s acceptance</a> of IP protection as part of World Trade Organization membership. </p>
<p>Foreign companies <a href="https://www.uscc.gov/sites/default/files/2019-11/2019%20Annual%20Report%20to%20Congress.pdf">also report being compelled</a> to share advanced technology in order to do business in China. While, technically, the companies can decide to pull out of China’s market, the U.S. argues that this hurts the competitiveness of U.S. businesses. It either means they must lose their technological advantage or not have access to the business opportunities that China’s large market offers.</p>
<p>There is no reciprocal requirement of Chinese companies doing business in the U.S.</p>
<h2>Military concerns</h2>
<p>Finally, technology capabilities are related to growing military concerns. </p>
<p>Many of the advanced technologies that China is racing to obtain have military as well as civilian uses. U.S. policy under the current administration <a href="https://www.whitehouse.gov/briefings-statements/remarks-vice-president-pence-frederic-v-malek-memorial-lecture/">has indicated a wariness</a> about China’s military intentions and is considering options.</p>
<p>This wariness <a href="https://www.foreignaffairs.com/articles/china/china-plan-rule-asia">has been bolstered</a> by China’s military buildup, especially naval capabilities in Asia. <a href="https://www.hudson.org/experts/724-michael-pillsbury">Some advisers</a> to the Trump administration argue that China’s ultimate long-term goal is to replace the U.S. as the dominant global power. </p>
<h2>China’s rise</h2>
<p>Differences in the U.S. and China’s economic systems were less of a problem so long as Chinese companies lagged far behind their American counterparts in terms of technology and competitiveness.</p>
<p>As China has grown more technologically advanced, its relationship with the U.S. has come under increasing strain. This will only get worst as China’s economy develops and its companies compete more with the U.S. and others. The different approaches will continue to create conflict. </p>
<p>Chinese leaders are weighing how much good relations with the U.S. will matter to their future. Their answer will help determine how much they are willing to meet U.S. demands. </p>
<p>[ <em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/127505/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Penelope B. Prime is the founding director of the China Research Center, a non-profit organization based in Atlanta, GA. </span></em></p>The US and China have reportedly agreed on a partial deal to ease tensions in the two-year old trade war. Does that mean it’s almost over? Fat chance, an economist says.Penelope B. Prime, Clinical Professor of International Business, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1285862019-12-10T13:55:36Z2019-12-10T13:55:36ZA brief guide to how the China-US trade war will affect your holiday shopping<figure><img src="https://images.theconversation.com/files/305981/original/file-20191209-90588-1ilrdsm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some gifts may soon get more expensive. </span> <span class="attribution"><span class="source">imtmphoto/Shutterstock.com</span></span></figcaption></figure><p>With more tariffs on Chinese imports set to take effect this month, holiday shoppers in the U.S. face a dilemma: buy the <a href="https://fortune.com/2019/09/11/apple-iphone-11-price-china-tariffs/">Apple iPhone 11</a> or <a href="https://www.washingtonpost.com/business/2019/10/22/hasbro-shares-plunge-after-toy-giant-blames-tariffs-canceled-orders/">Hasbro toy action figures</a> now or risk facing higher prices later. </p>
<p>On Dec. 15, in the middle of the holiday shopping season, the Trump administration <a href="https://www.cnbc.com/2019/12/03/investors-fear-repeat-of-last-decembers-sell-off-if-trump-lets-tariffs-take-effect-dec-15.html">plans to slap</a> new 15% tariffs on US$160 billion of <a href="https://www.nytimes.com/aponline/2019/12/07/business/ap-manufacturing-slump-us-economy.html">electronics, toys, clothing, power tools</a> and many other consumer goods. </p>
<p>U.S.-based importers have to pay the extra tax before bringing those products into the country. Whether or not they pass the bill on to consumers is hard to predict, but a <a href="https://www.cnn.com/2019/08/20/business/tariffs-cost-trade-war-consumers/index.html">recent report</a> put the cost for the average household at $1,000 a year once the newest tariffs take effect. </p>
<p>As a <a href="https://scholar.google.com/citations?user=Y58-EhUAAAAJ&hl=en&oi=ao">political economist</a>, I usually write about how President Donald Trump’s trade policies affect things like industrial production, employment and international relations. But with the China tariffs and even a <a href="https://nypost.com/2019/12/02/u-s-vows-100-tariffs-on-french-champagne-cheese-handbags-over-digital-tax/">100% tax on imports of French champagne and cheese looming</a> over holiday shoppers, I thought it would be helpful to offer a short guide on how these issues affect consumers.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/306125/original/file-20191210-95173-dkh297.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/306125/original/file-20191210-95173-dkh297.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/306125/original/file-20191210-95173-dkh297.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/306125/original/file-20191210-95173-dkh297.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/306125/original/file-20191210-95173-dkh297.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/306125/original/file-20191210-95173-dkh297.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/306125/original/file-20191210-95173-dkh297.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">Hasbro currently makes most of its toys in China.</span>
<span class="attribution"><span class="source">Kamira/Shutterstock.com</span></span>
</figcaption>
</figure>
<h2>Trade war timeline</h2>
<p>Trump’s <a href="https://www.piie.com/blogs/trade-investment-policy-watch/trump-trade-war-china-date-guide">trade war began in January 2018</a>, when he ordered tariffs on solar panels and washing machines, followed by duties on steel and aluminum with exemptions for some countries. </p>
<p>Then came the main event: the conflict with China. It began small, with tariffs on about $50 billion of Chinese imports. That sparked retaliation and then a tit for tat cycle until <a href="https://www.marketwatch.com/story/us-tariffs-on-china-have-oddly-little-effect-on-import-prices-whats-going-on-2019-11-25">about $370 billion</a> of Chinese goods became subject to additional tariffs of as much as 25%. </p>
<p>If Chinese and American negotiators <a href="https://www.politico.com/news/2019/11/27/us-trade-deal-china-074230">fail to reach some sort of deal</a> by Dec. 15, virtually <a href="https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china">all $540 billion</a> in imports from China – approaching a quarter of all U.S. imports – will faced hefty import penalties. </p>
<p>Deal or no deal, more tariffs on other countries also seem increasingly likely. </p>
<p><a href="https://www.nytimes.com/2019/12/02/business/trump-tariff-france.html">There is talk</a> of a 100% tariff on French wines and cheeses in retaliation for that country’s efforts to tax the activities of U.S. technology giants – with more possible on products from Italy, Austria and Turkey over the same issue. And the administration, <a href="https://theconversation.com/currency-manipulation-and-why-trump-is-picking-on-brazil-and-argentina-128210">complaining of currency manipulation</a>, has recently withdrawn the exemption om steel and aluminum tariffs enjoyed by Brazil and Argentina.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/306115/original/file-20191210-95111-zknrq6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/306115/original/file-20191210-95111-zknrq6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/306115/original/file-20191210-95111-zknrq6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/306115/original/file-20191210-95111-zknrq6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/306115/original/file-20191210-95111-zknrq6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/306115/original/file-20191210-95111-zknrq6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/306115/original/file-20191210-95111-zknrq6.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">That wheel of Reblochon de Savoie cheese you love may soon get a lot more expensive.</span>
<span class="attribution"><span class="source">Picture Partners/Shutterstock.com</span></span>
</figcaption>
</figure>
<h2>Who pays the higher costs?</h2>
<p>With new developments in this global war coming every day, it’s hard for even trade scholars like me to follow along. That makes it doubly difficult for consumers, who <a href="https://www.reuters.com/article/us-usa-trade-china-tariffs-explainer/who-pays-trumps-tariffs-china-or-u-s-customers-and-companies-idUSKCN1SR1UI">often bear much of the costs</a> of tariffs. </p>
<p>Perhaps the most direct way to understand buyer impact is with a roundup of the consumer products currently covered by the Trump tariffs.</p>
<p>As I noted, the trade war started with solar panels and washing machines. Further rounds of tariffs <a href="https://www.businessinsider.com/trump-china-trade-war-list-of-goods-tariffs-2018-9">covered a variety of consumer products</a>, including consumer electronics like smartwatches, safety equipment such as bicycle helmets and child car seats, seafood, dairy, perfumes, paper and many other items. Among the products covered by the anticipated Dec. 15 tariffs <a href="https://www.cbsnews.com/news/tariffs-on-china-no-trade-deal-with-china-u-s-consumers-could-pay-more-for-electronics/">are cell phones, laptops, toys, scarves and even nativity scenes</a>.</p>
<p>Importers must pay the tax on these products as they cross the border, anywhere from 10% to 25% or even more. </p>
<p>The Trump administration intends this to hurt Chinese manufacturers by raising their prices and lowering their competitiveness. But this cost is also borne by American retailers, such as <a href="https://www.cnn.com/2019/05/23/business/china-tariffs-trump-trade-walmart-retail/index.html">Walmart and Target</a>, which source a large percentage of their products from China. A significant portion of this cost <a href="https://www.reuters.com/article/us-usa-trade-china-tariffs-explainer/who-pays-trumps-tariffs-china-or-u-s-customers-and-companies-idUSKCN1SR1UI">is often passed</a> to American consumers. </p>
<p>Of course, a 30% tariff doesn’t automatically translate into a 30% price hike. How much of the tariff that sellers pass on to buyers depends on the nature of the product’s market. If competition is high, sellers may have to eat much of the additional tariff cost. </p>
<p>In other words, they may have to accept a lower profit margin on every product sold or <a href="https://www.cato.org/publications/commentary/here-are-202-companies-hurt-trumps-tariffs">cut back</a> on jobs and investment. <a href="https://www.cnbc.com/2019/09/03/some-retailers-resist-price-hikes-on-tariff-hit-goods-casabella-founder-says.html">Many retailers</a> in particular fear that passing on the full brunt of the tariffs will be unsustainable for their sales.</p>
<p>But if competition is low and demand for the product is relatively insensitive to price, importers may be able to pass close to the entirety of the additional cost to the consumer. For example, a study <a href="https://www.wsj.com/articles/consumers-bore-cost-for-u-s-tariffs-on-washing-machines-paper-finds-11555936276">found</a> that the cost of washing machines went up 12% due to the tariffs. And prices of
Apple products <a href="https://www.forbes.com/sites/advisor/2019/09/01/7-things-to-buy-before-more-trump-tariffs-take-effect-on-december-15/#2e2c7ed77b8a">could go up 10%</a> if the latest tariffs take effect. </p>
<h2>What’s a consumer to do?</h2>
<p>Tariffs on consumer goods are not the only trade policies that can adversely affect consumers. Taxes on commodities and on capital and intermediate goods, all of which are used in the production of consumer goods, can also hit consumers.</p>
<p>Many of these sorts of products <a href="https://www.businessinsider.com/trump-china-trade-war-list-of-goods-tariffs-2018-9">have also been affected</a> by Trump’s trade disputes, notably steel, aluminum, ores, chemicals, fertilizer, plastic, rubber and wood. When these products are hit with tariffs, it raises production costs and often translates into higher prices for finished goods. How high depends on the availability and cost of substitute inputs.</p>
<p>All of this is to say that the hikes in tariff rates that we have seen over the last two years, and the ones that we may see in the near future, are certain to affect consumers this season. </p>
<p>Sadly, the uncertainty in U.S. trade policy is almost a bigger problem for consumers than the tariffs themselves. So as you shop for holiday gifts, you may want to try to be just a bit more flexible in what you buy and when you buy it.</p>
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<p class="fine-print"><em><span>Charles Hankla 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>New tariffs on $160 billion of Chinese goods including smartphones and sneakers are set to take effect on Dec. 15.Charles Hankla, Associate Professor of Political Science, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1214052019-08-05T12:57:51Z2019-08-05T12:57:51ZWill Trump’s trade war with China ever end?<p>President Donald Trump recently escalated his trade war with China, threatening to impose a 10% tariff on the <a href="https://www.bbc.com/news/business-49199559">remaining US$300 billion</a> of untaxed Chinese imports.</p>
<p>If the new tariff goes into effect in September as promised, <a href="https://www.bloomberg.com/news/articles/2019-08-01/trump-ratchets-up-trade-war-with-new-tariffs-on-chinese-imports?srnd=premium">virtually all Chinese exports</a> to the U.S. would be subject to levies ranging from 10% to 25%. <a href="https://www.bloomberg.com/news/articles/2019-08-05/china-hits-back-at-trump-with-weaker-yuan-halt-on-crop-imports">China retaliated</a> by letting the value of its currency fall to the lowest level in more than a decade and halting all crop imports. </p>
<p>Many Americans like me are now wondering: Is there any end in sight?</p>
<h2>How to win an economic war</h2>
<p>As a <a href="https://shared.cas.gsu.edu/profile/charles-hankla-2-2/">scholar of trade policy</a>, I’ve repeatedly <a href="https://theconversation.com/economic-history-shows-why-trumps-america-first-tariff-policy-is-so-dangerous-92715">made the point</a> that free exchange is a <a href="https://www.thenewbarcelonapost.com/en/200-years-david-ricardo-principles-trade-and-distribution/">positive sum game</a> – meaning every participating country can benefit – rather than zero sum — as <a href="https://www.cnbc.com/video/2018/03/12/trump-thinks-trade-is-a-zero-sum-game-says-expert.html">Trump seems to believe</a>. This is why commercial disputes are certain to harm all participants. </p>
<p><a href="https://theconversation.com/trumps-go-it-alone-approach-to-china-trade-ignores-wtos-better-way-to-win-93918">I believe</a> that the United States could have avoided its current predicament by using the World Trade Organization’s existing <a href="https://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm">dispute resolution process</a> to address its justifiable concerns with Chinese behavior.</p>
<p>Still, from the perspective of a single country, starting a trade war could potentially be justified if the end result ultimately shifts the terms of trade in its favor. </p>
<p>Such a victory can only be achieved when the country has more <a href="https://www.hup.harvard.edu/catalog.php?isbn=9780674840317&content=reviews">bargaining leverage</a> than its opponent – in other words, when it can impose more pain on its adversary than it experiences itself. </p>
<p>And the longer the trade war continues, the more concessions that country will have to win in order to compensate for the damage caused.</p>
<p>So, after nearly 18 months of escalating disputes between the U.S. and China, where are we? Is either side winning, and can any concessions justify the <a href="https://thehill.com/opinion/finance/443255-us-china-trade-war-major-pain-little-gain">economic harm</a> that both sides have already experienced?</p>
<h2>China’s pain</h2>
<p>First and foremost, it has become increasingly clear that the trade war is hurting the economies <a href="https://www.bloomberg.com/opinion/articles/2019-08-01/trump-s-trade-war-has-hurt-both-the-u-s-and-china">of both countries</a>. Neither will emerge from this conflict unscathed. </p>
<p>Unfortunately, however, the last 18 months have done little to clarify who is winning – that is, who is hurting less and can credibly hold out for longer.</p>
<p>Take China. Before the trade war, it was already facing a number of significant challenges, first among them how to effect a transition from its current reliance on cheap manufacturing <a href="https://www.washingtonpost.com/news/monkey-cage/wp/2018/05/03/what-is-made-in-china-2025-and-why-is-it-a-threat-to-trumps-trade-goals/?noredirect=on&utm_term=.ee3e3095db09">to the production of higher value-added goods</a>. China’s political stability is also somewhat precarious, as evidenced by recent events in <a href="https://www.cnn.com/asia/live-news/hong-kong-protest-mong-kok-intl-hnk/index.html">Hong Kong</a> and <a href="https://www.nytimes.com/2019/07/10/world/asia/china-xinjiang-rights.html">Xianjing</a>, as well as Chinese leader Xi Jinping’s <a href="https://www.nytimes.com/2018/03/07/world/asia/china-xi-jinping-party-term-limit.html">authoritarian crackdown</a>.</p>
<p>Moreover, China’s economic growth has slowed to a <a href="https://www.cnn.com/2019/07/15/economy/china-gdp-growth/index.html">27-year</a> low of 6.2%. And perhaps more ominously for the country, there are growing signs that foreign companies from America and elsewhere are <a href="https://www.forbes.com/sites/kenrapoza/2019/07/16/europe-joins-us-companies-moving-out-of-china/#24b2deb615bf">looking outside China</a> as they expand their sourcing, production and distribution activities.</p>
<p>Of course, China’s growth rate still makes it among the fastest-expanding economies in the world, so the recent slowdown can hardly be termed a crisis. And the shift away from China, limited as it is, began before the trade war, spurred on by <a href="https://www.economist.com/business/2011/06/09/the-end-of-cheap-goods">rising prices</a>, <a href="https://www.marketwatch.com/story/why-is-the-us-accusing-china-of-stealing-intellectual-property-2018-04-05">intellectual property theft</a> and other issues.</p>
<h2>Not necessarily America’s gain</h2>
<p>The problem for the U.S. is that Americans are also increasingly feeling the pinch.<br>
Perhaps most notably, farmers – many of whom continue to <a href="https://www.cnbc.com/2019/05/19/farmers-are-hurting-but-they-still-support-trump-and-his-trade-war-for-now.html">support Trump</a> – are <a href="https://www.msn.com/en-us/money/markets/farmers-are-losing-patience-with-trumps-trade-war/ar-AABv8iG">beginning to tire</a> of the sacrifices they are making for his uncompromising positions. With the Chinese government <a href="https://www.bloomberg.com/news/articles/2019-08-02/china-s-trump-retaliation-options-range-from-soybeans-to-boeing">threatening to retaliate</a> if Trump follows through on the new tariffs, their willingness to go along may be even more sorely tested.</p>
<p>To keep agriculture on its side, the Trump administration has channeled <a href="https://www.washingtonpost.com/politics/2019/08/01/nine-in-counties-that-voted-trump-have-received-subsidies-fight-trade-war/?utm_term=.f8e22f004d13">billions of dollars in subsidies</a> to those hurt by his trade policies. But this approach also has its political costs, with more fiscally conservative backers of the president <a href="https://time.com/5347827/republicans-fume-at-president-trumps-12-billion-plan-to-aid-farmers/">balking at the price tag</a>.</p>
<p>From a broader perspective, recent studies have undercut <a href="https://www.whitehouse.gov/briefings-statements/remarks-president-trump-marine-one-departure-56/">Trump’s claim</a> that Chinese companies are bearing the brunt of the tariff payments, showing that the <a href="https://www.nber.org/papers/w25672.pdf">bulk of costs</a> are passed to U.S. companies and consumers. And the stock market is <a href="https://www.nytimes.com/2019/08/02/business/economy/china-us-trade-threats.html">reacting negatively</a> to the latest Trump threats.</p>
<p>It is true that the overall American economy remains strong, with <a href="https://www.wsj.com/articles/u-s-july-nonfarm-payrolls-grew-by-164-000-11564749103">expanding employment</a> and a fast, though slowing, <a href="https://www.npr.org/2019/07/26/745547982/the-u-s-economy-is-slowing-as-trade-war-takes-a-toll">growth rate</a> of 2.1% in the most recent period. But China has one more strategic advantage that could make a substantial difference: It can wait out Trump’s presidency. </p>
<p>If the Trump administration’s approach to trade represented a <a href="https://www.politico.com/magazine/story/2017/01/yes-a-bipartisan-foreign-policy-is-possibleeven-now-214617">bipartisan consensus</a>, the U.S. could keep up the pressure over the long term. Containment policy during the Cold War, in which the United States committed itself to curbing Soviet influence, represents the <a href="https://www.hoover.org/research/orienting-principle-foreign-policy">classic example of a consensus</a> that was credibly maintained, in one form or another, across several administrations.</p>
<p>But because the tariffs are so associated with Trump’s personality, the Chinese government can <a href="https://www.cnbc.com/2019/08/02/china-has-can-hold-out-longer-than-the-us-in-the-trade-war-expert.html">afford to wait</a> for a new president. If a Democrat wins in 2020, he or she will <a href="https://www.vox.com/policy-and-politics/2019/2/18/18215442/2020-democratic-presidential-candidates-policies-trade">likely maintain</a> a harder line on China than we saw before Trump, but will <a href="https://www.bloomberg.com/news/articles/2019-07-31/democratic-candidates-target-bungled-trump-trade-war-in-debate">probably repudiate</a> the current president’s penchant for punitive and precipitous tariffs. </p>
<p>In a sense, America’s negotiating credibility has become yet another casualty of its polarized politics. </p>
<h2>In other words: No end in sight</h2>
<p>In the final analysis, China may have the most to lose from the ongoing dispute. But the U.S. bargaining position is more politically vulnerable. </p>
<p>And the Chinese can credibly claim that buckling under American pressure would be <a href="https://www.nytimes.com/2019/05/14/world/asia/china-propaganda-trade.html">unacceptable to their domestic audience</a>. </p>
<p><a href="https://www.jstor.org/stable/3687811?seq=1#page_scan_tab_contents">Studies of shooting wars</a> indicate that they tend to continue until events on the ground reveal which side is likely to win. The same is surely true for trade wars. </p>
<p>Since neither side is clearly winning or losing, we have probably not seen the end of this conflict.</p>
<p>[ <em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/121405/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Charles Hankla 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>Trump’s endgame for the US-China trade war still seems elusive as the conflict continues to escalate.Charles Hankla, Associate Professor of Political Science, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1192822019-07-09T11:22:17Z2019-07-09T11:22:17ZHow Congress lost power over trade deals – and why some lawmakers want it back<figure><img src="https://images.theconversation.com/files/283154/original/file-20190708-51268-hivpss.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Congress was once the seat of all power on U.S. trade policy</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Watchf-Associated-Press-Domestic-News-Dist-of-/ec258ba4e9b648b3a4d4c1296000b230/87/0">AP Photo</a></span></figcaption></figure><p>Some in Congress <a href="https://www.thegazette.com/subject/opinion/staff-columnist/chuck-grassley-congress-should-take-back-trade-authority-from-the-president-20190620">want to wrest control</a> of trade policy back from the president. It might surprise you to learn that lawmakers ever had it.</p>
<p>Until the 1930s, it was Congress that set the terms of U.S. trade negotiations with other countries and raised and lowered tariffs as it saw fit, while the president did little but sign his name. Over the ensuing decades, however, the legislative branch began to cede more and more power to the executive after a trade war sparked by protectionist tariffs worsened the Great Depression.</p>
<p>As a result, President Donald Trump today has been able to <a href="https://www.vox.com/2018/3/8/17097206/trump-tariffs-congress">unilaterally raise tariffs</a> and launch trade wars with several countries – including allies – without a word from Congress. For some lawmakers, his <a href="https://twitter.com/realDonaldTrump/status/1134240653926232064">recent threat</a>, since aborted, to impose a 5% tariff on everything that crosses the border from Mexico <a href="https://www.washingtonpost.com/business/economy/citing-mexico-tariffs-threat-lawmakers-say-n-american-trade-deal-is-in-peril/2019/06/03/73c4eaac-863c-11e9-a491-25df61c78dc4_story.html">was the last straw</a>.</p>
<p>I’m an economist who has worked on the <a href="https://pdfs.semanticscholar.org/8577/c45813f305cda2a94615b7dd7a0ba4a34b3d.pdf">political economy</a> of <a href="https://www.doi.org/10.1111/j.1468-0343.2011.00387.x">U.S. trade policy</a>. To provide context on what’s happening today, I thought it was worth revisiting the history of how lawmakers lost their trade powers. </p>
<h2>The Constitution and trade</h2>
<p>Until the 20th century, the president had little say in how the U.S. conducted trade. </p>
<p><a href="https://constitutioncenter.org/interactive-constitution/articles/article-i#section-8">Article I, Section 8 of the U.S. Constitution</a> gives Congress the exclusive authority to raise taxes. And since tariffs are by definition a type of tax paid on goods and services imported from overseas, Congress carefully guarded its authority in this area, particularly since they were the <a href="https://pocketsense.com/united-states-government-funded-prior-income-tax-12769.html">largest source of revenue</a> for the federal government until the creation of the income tax in 1913. </p>
<p>As a result, debates over tariffs made up the biggest economic fights of the 19th century and <a href="https://www.thoughtco.com/tariff-of-abominations-1773349">were often used</a> to <a href="https://www.vox.com/policy-and-politics/2019/3/6/18250469/1888-great-tariff-debate-mckinley">embarrass political rivals</a>.</p>
<p>This is not to say that the president had no influence over trade policy. But all changes in tariffs necessarily started as legislation in the House of Representatives since they were, after all, <a href="https://www.heritage.org/the-constitution/report/hands-my-purse-why-money-bills-originate-the-house">revenue bills</a>. Therefore, before the bill got to the president’s desk, it would go through a full congressional debate with committee reports, amendments, filibusters and the like. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=466&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=466&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=466&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=586&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=586&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283156/original/file-20190708-51273-ckhox4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=586&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">FDR was the first president to seize some control of trade policy in 1934.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Watchf-Associated-Press-Domestic-News-Dist-of-/99cb21cf376d4566a2a5a7a4b1355aa9/321/0">AP Photo</a></span>
</figcaption>
</figure>
<h2>Smoot-Hawley prompts FDR to seize control</h2>
<p>The Great Depression marked a sharp turning point in U.S. trade policy.</p>
<p>Just as the Depression began, Congress <a href="https://www.bloomberg.com/news/articles/2018-07-27/lessons-learned-and-forgotten-from-last-trade-war-quicktake">passed what has become known as the Smoot-Hawley Tariff of 1930</a>. It raised prices on imported commodities like wool rags, which were necessary in the clothing industry. It also <a href="https://www.cato.org/blog/smoot-hawley-tariff-great-depression">harmed the economies of U.S. trading partners</a> – which in turn hurt America. For example, Germany, still recovering from World War I and subsequent reparations payments, saw its exports to the U.S. fall by $181 million. As a result, German consumers had fewer U.S. dollars to spend, and U.S. exports to Germany fell by $277 million.</p>
<p>And that’s the problem when hundreds of lawmakers with scores of often narrow interests are in charge of trade policy. As <a href="https://doi.org/10.1111/j.1468-0343.2011.00387.x">I noted in a 2011 paper</a>, tariffs imposed during this era weren’t designed to maximize national welfare; they instead represented the wishes of interest groups and institutions of the legislative branch.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=620&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=620&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=620&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=779&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=779&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283149/original/file-20190708-51288-1dby7jb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=779&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Rep. Willis C. Hawley, left, and Sen. Reed Smoot co-sponsored the tariff act that prolonged the Great Depression.</span>
<span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/Smoot–Hawley_Tariff_Act#/media/File:Smoot_and_Hawley_standing_together,_April_11,_1929.jpg">Library of Congress</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>While this misbegotten legislation did not cause the Great Depression, it almost certainly <a href="https://www.britannica.com/topic/Smoot-Hawley-Tariff-Act">hindered the recovery</a>. And as a result, the Roosevelt administration worked to seize control of trade policy from Congress. This effort led to the the <a href="https://history.house.gov/Historical-Highlights/1901-1950/The-Reciprocal-Trade-Agreement-Act-of-1934/">Reciprocal Trade Agreements Act in 1934</a>, which provided the president with the authority to negotiate tariff agreements with foreign governments as long as both sides mutually lowered their trade barriers. </p>
<p>Congress’ role was reduced to primarily ratifying those agreements – or not – with a simple majority vote. </p>
<p>Raising tariffs, however, still required an act of Congress. </p>
<h2>Freer trade and ‘fast track’</h2>
<p><a href="https://www.cambridge.org/core/journals/world-politics/article/institutional-roots-of-american-trade-policy-politics-coalitions-and-international-trade/8905528F9C4B5C1A2332C789A3B54595">Several scholars have argued</a> that this legislation, by removing power over tariffs from Congress and linking trade policy to agreements negotiated by the president, was key to winning political support for freer trade across the world, including the General Agreement on Tariffs and Trade and its successor, the World Trade Organization.</p>
<p>Average U.S. tariffs fell from <a href="https://www.nber.org/chapters/c6899.pdf">nearly 60% in 1934 to about 12% in 1954</a>. This increase in free trade was one of the institutional underpinnings of the <a href="http://factsanddetails.com/japan/cat24/sub155/item2800.html">postwar economic miracle</a> in <a href="https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/WESS_2017_ch2.pdf">several Western countries</a>, <a href="http://www.let.rug.nl/usa/outlines/history-1994/postwar-america/the-postwar-economy-1945-1960.php">including the U.S.</a> </p>
<p>More authority shifted to the president with the <a href="https://www.investopedia.com/terms/s/section-232-trade-expansion-act.asp">Trade Expansion Act of 1962</a>, which gave him the authority to unilaterally raise tariffs on national security grounds. Trump <a href="https://www.cbp.gov/trade/remedies/232-tariffs-aluminum-and-steel">used this provision</a>, known as Section 232, as justification for the steel and aluminum tariffs that he imposed on most U.S. trading partners in the spring of 2018.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=717&fit=crop&dpr=1 600w, https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=717&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=717&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=901&fit=crop&dpr=1 754w, https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=901&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/283152/original/file-20190708-51312-149nwt1.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=901&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Tariffs tended to represent the interests of narrow interests groups rather than what’s best for the country in the 19th and early 20th centuries.</span>
<span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/Tariff_in_United_States_history#/media/File:Theodore_Roosevelt_cartoon_Iowa-ohio.JPG">Brooklyn Eagle</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>The <a href="https://www.investopedia.com/terms/t/trade-act-of-1974.asp">Trade Act of 1974</a> established for the first time what is known as <a href="https://www.everycrsreport.com/reports/RL33743.html">trade promotion authority</a>. Also called “fast track,” this let the president negotiate comprehensive trade deals that included a broad array of non-tariff issues such as quotas and intellectual property protections. Congress could only approve with an up-or-down vote within 90 days – no amendments or filibusters allowed. </p>
<p>That authority expired in 1980, and Congress has reauthorized it six times since, <a href="https://www.thebalance.com/trade-promotion-authority-3305899">most recently in 2015</a>.</p>
<p>Proponents of fast track <a href="https://ricochet.com/260926/archives/the-game-theory-argument-for-fast-track-trade-authority/">argue</a> that it is necessary to give the president credibility when negotiating agreements. If foreign counterparts believe that an agreement is likely to become bottled up in or amended by Congress, they may be reluctant to make concessions. </p>
<p><a href="https://www.aier.org/article/constitution-gives-trade-power-congress-alone">Opponents argue</a> that it delegates too much authority to the executive branch and unduly limits the ability of Congress to debate whether a particular agreement is in the national interest.</p>
<h2>Will Congress reassert its power?</h2>
<p>While the tariffs Trump <a href="https://www.voanews.com/usa/us-lawmakers-alarmed-new-trump-tariffs-chinese-goods">has imposed on China</a> and <a href="https://www.nytimes.com/2019/05/14/us/politics/trump-tariffs-china.html">allies like Canada</a> have alarmed lawmakers, the threat to place duties on all imports from Mexico <a href="https://www.vox.com/2019/6/5/18652791/trump-mexico-tariff-congressional-republicans">went too far for some</a>, <a href="https://www.politico.com/story/2019/06/05/firingsquad-gop-1354652">including Republicans</a>. </p>
<p>Trump’s claim that <a href="https://www.treasury.gov/resource-center/sanctions/Documents/ieepa.pdf">emergency powers</a> gave him authority to impose the tariffs, as well as the <a href="https://www.perrymangroup.com/publications/report/the-economic-cost-of-proposed-5-tariffs-on-imports-from-mexico/">severe economic costs</a> expected to result, galvanized Senate Republicans to <a href="https://www.washingtonpost.com/world/the_americas/mexico-sees-80-percent-chance-of-a-deal-to-head-off-trump-tariffs/2019/06/04/53bdce08-86c4-11e9-98c1-e945ae5db8fb_story.html?noredirect=on&utm_term=.ce53169c03af">threaten to pass legislation blocking the tariffs with a veto-proof majority</a>. </p>
<p>The <a href="https://www.politico.com/story/2019/06/05/firingsquad-gop-1354652">pushback from Congress</a> may point to a broader reassertion of its role in tariff policy. Even as far back as 2015, when the <a href="https://www.thebalance.com/trade-promotion-authority-3305899">Obama administration sought</a> reauthorization of fast track, lawmakers in the House <a href="https://govtrackinsider.com/how-congress-voted-on-trade-afb8b4438823">barely passed the bill</a>, with most Democrats in opposition. </p>
<p>While Democrats and Republicans are largely coming at this issue from different directions, both have found reason in recent years to question the decades-old consensus that has made trade policy the prerogative of the executive branch. </p>
<p>And Trump’s trade policies have put him on a <a href="https://theweek.com/articles/845449/trumps-new-trade-war-senate-republicans">collision course with the pro-business wing of the Republican Party</a>.</p><img src="https://counter.theconversation.com/content/119282/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>William Hauk has received funding from the Center for International Business Education and Research, which is a program administered by the U.S. Department of Education.</span></em></p>President Trump has unilaterally raised tariffs and sparked trade wars, all without consulting Congress. A century ago, the roles were reversed.William Hauk, Associate Professor of Economics, University of South CarolinaLicensed 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>
<p><iframe id="Oa7Cb" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Oa7Cb/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<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>
<p><iframe id="vwu8j" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/vwu8j/4/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<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/1037332018-09-24T10:21:45Z2018-09-24T10:21:45ZThe next cold war? US-China trade war risks something worse<figure><img src="https://images.theconversation.com/files/237622/original/file-20180923-170656-1cktjyc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There's a chill in the air these days.</span> <span class="attribution"><span class="source">AP Photo/Andy Wong</span></span></figcaption></figure><p>President Donald Trump is <a href="https://www.cnn.com/2018/09/17/politics/us-china-tariff-trade-war/index.html">making good</a> on his pledge to escalate the trade war with China by imposing tariffs on US$200 billion of Chinese goods. The Chinese government, for its part, is <a href="https://accounts.wsj.com/login?target=http%3A%2F%2Fwww.wsj.com%2Farticles%2Fchinese-officials-scramble-to-respond-to-trumps-new-tariffs-1537275015">already retaliating</a> with new taxes on $60 billion of American imports. </p>
<p>If you’re curious why China’s sanctions don’t match Trump’s, there’s an easy explanation. As a <a href="https://www.scmp.com/economy/china-economy/article/2164907/chinas-running-out-us-goods-tax-so-what-other-ways-can-it-hit">number</a> of <a href="http://www.latimes.com/business/la-fi-trump-china-tariffs-20180711-story.html">commentators</a> have correctly pointed out, Beijing is <a href="https://www.nytimes.com/2018/09/18/business/china-trade-war-retaliate.html">running out</a> of American products to target. Americans bought <a href="https://www.census.gov/foreign-trade/balance/c5700.html">$375 billion</a> more stuff from China than the Chinese bought from the U.S. last year, which means Trump has a lot more to punish. </p>
<p>While this may mean that China’s leverage on trade is limited, it doesn’t mean that Trump can easily win this confrontation. </p>
<p>That’s because China has many other ways to retaliate, such as dumping its considerable holdings of U.S. debt or making it harder for Trump to get a nuclear deal with North Korea. In these and other areas, Beijing has enormous leverage. This has led <a href="https://www.nytimes.com/2018/09/19/us/politics/trump-china-trade-war.html">some to suggest</a> that the trade war may soon turn into a “new cold war.”</p>
<p>Could the U.S. and China really be on the verge of the kind of geopolitical stalemate that dominated the second half of the 20th century? </p>
<p>Much will depend on how China responds to the latest tariffs. I believe that this response could take four forms.</p>
<h2>Cooler heads</h2>
<p>First, China could choose to de-escalate the confrontation. This could be done quickly by negotiating some resolution with the Trump administration – though the <a href="https://www.politico.com/story/2018/06/23/trump-china-trade-confusion-635865">president’s terms</a> for ending the trade war remain unclear.</p>
<p>Alternatively, China could let the conflict simmer by keeping the fight in the trade arena, allowing it to continue to retaliate while appearing “reasonable.” This approach would avoid any major embarrassment for China while kicking the dispute down the road in the hope that the November elections, or the 2020 presidential elections, will soften American policy. In fact, China <a href="https://www.bloomberg.com/news/articles/2018-09-22/tariff-deadline-nears-as-u-s-china-trade-dialogue-breaks-down?srnd=premium">has already said</a> that it won’t negotiate until after the midterms.</p>
<p>A conciliatory strategy might be attractive to moderates in Beijing who are keenly aware that <a href="https://realmoney.thestreet.com/articles/06/19/2018/jim-cramer-china-needs-us-more-we-need-china">China needs the U.S.</a> as much as the U.S. needs China. It would also reassure China’s other trading partners that it is serious about honoring its commitments. </p>
<h2>Economic pain</h2>
<p>Another option for China is to escalate the confrontation by using its substantial economic leverage outside of trade. </p>
<p>The most obvious way that China could retaliate would be by <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">reducing its purchases</a> of American Treasuries or by selling some of the <a href="https://www.reuters.com/article/usa-trade-chinabonds/column-as-trade-war-escalates-chinas-us-treasury-holdings-back-in-focus-mcgeever-idUSL8N1W45A2">$1.18 trillion in its possession</a>. Overall, China owns <a href="https://www.thebalance.com/u-s-debt-to-china-how-much-does-it-own-3306355">almost a fifth of the U.S. national debt</a> currently held by foreign countries. </p>
<p>Though it would probably be <a href="https://www.cfr.org/blog/what-would-happen-if-china-started-selling-its-treasury-portfolio">less apocalyptic</a> than is sometimes assumed, a Chinese policy of reducing its holdings would substantially drive up the cost of many of the goods that Americans buy every day.</p>
<p>The problem with this approach for China is that it would also <a href="https://www.marketwatch.com/story/why-chinas-treasury-hoard-isnt-much-of-a-weapon-in-trade-spat-with-us-2018-04-06">strengthen the yuan</a> and make Chinese goods more expensive for foreigners. Such a form of financial retaliation may not be a credible option for Beijing.</p>
<p>A more feasible strategy would be to target U.S. companies operating in China with more regulations and interference. While such targeting would be contrary to <a href="https://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art3_e.pdf">international law</a>, it would be fairly easy for Beijing to deny responsibility. </p>
<p>Indeed, there is reason to believe that China has used <a href="https://money.cnn.com/2018/06/27/news/economy/us-china-trade-war-companies/index.html">this approach before</a> with South Korean corporations – and there are <a href="https://www.cnbc.com/2018/09/11/the-associated-press-china-puts-off-licenses-for-us-companies-amid-tariff-battle.html">indications</a> that it has already begun delaying license applications from American companies.</p>
<h2>Geopolitical games</h2>
<p>The U.S. relationship with China is multifaceted, a fact that could allow China to retaliate outside the economic arena altogether.</p>
<p>One way would be to use its influence with North Korea to undermine U.S. efforts to disarm Kim Jong Un, perhaps by <a href="http://www.latimes.com/business/la-fg-china-north-korea-sanctions-2018-story.html">not enforcing U.S. sanctions</a>.</p>
<p>Or China could confront the U.S. in the <a href="https://www.nytimes.com/2018/09/20/world/asia/south-china-sea-navy.html">South China Sea</a>, probably the most dangerous strategic flashpoint in East Asia. As Beijing rushes to claim more islands and seaways south of its coast, a falling out with the United States over trade could encourage it to become even more belligerent.</p>
<p>Other options would be to ramp up its <a href="https://nationalinterest.org/blog/buzz/asias-next-crisis-coming-conflict-over-taiwan-31567">attempts to isolate</a> Taiwan, deepen <a href="https://www.nbcnews.com/news/world/russia-china-embrace-uneasily-aim-desirable-world-order-n910116">ties with Russia</a> as a counterbalance to the U.S. or accelerate its <a href="http://www.atimes.com/a-sleeping-dragon-rises-chinas-military-buildup/">military buildup</a>.</p>
<h2>Hegemony on steroids</h2>
<p>Finally, China could take America’s aggressive approach on trade as a reason to speed up its efforts to establish regional hegemony and greater economic independence.</p>
<p>The <a href="https://www.cfr.org/backgrounder/made-china-2025-threat-global-trade">China 2025</a> program, a set of industrial policies aimed at moving the country closer to the technological frontier, could get a boost from the confrontation. China’s famous “<a href="http://english.gov.cn/beltAndRoad/">Belt and Road Initiative</a>,” an enormous economic corridor funded by Beijing, could be expanded, as could the country’s efforts to grow its <a href="https://www.bloomberg.com/view/articles/2018-09-21/africa-economy-west-should-try-to-match-chinese-investment">influence in Africa</a>. China could also pump more cash into its alternative to the World Bank, the <a href="https://www.bloomberg.com/news/articles/2017-06-18/aiib-pledges-to-do-more-by-itself-as-regional-influence-expands">Asian Infrastructure Development Bank</a>.</p>
<p>Of course, China has sought to grow its influence, using all of the mechanisms discussed above, for some time. A more aggressive United States, however, could add to China’s sense of urgency. </p>
<h2>What will China do?</h2>
<p>The most likely Chinese response, in my judgment as a political economist, is some mixture of all four options. </p>
<p>Keeping the confrontation limited to trade – at least on the surface – is the safest bet for China’s leaders. And so I expect that Beijing will reserve its overt retaliation for tariffs. At the same time, I anticipate that China will engage in other noticeable but more informal and deniable actions against U.S economic and security interests – from causing headaches for American companies to building up its military. </p>
<p>In short, the Chinese government will seek to expand its powers so that it is able to deter future threats like these from the United States. </p>
<h2>A different kind of cold war</h2>
<p>In other words, President Trump is playing a risky game of whack-a-mole. In trying to tackle the trade deficit with a sledgehammer, he’s creating a host of other serious challenges to U.S. interests that may persist for years to come. </p>
<p>The enormous and persistent U.S. <a href="https://www.census.gov/foreign-trade/balance/c5700.html">trade deficit</a> with China needs a solution, but tariffs aren’t it. A wiser American approach would be to use the <a href="https://theconversation.com/trumps-go-it-alone-approach-to-china-trade-ignores-wtos-better-way-to-win-93918">existing mechanisms</a> of the international order to resolve its legitimate trade grievances with China.</p>
<p>And there are other ways to <a href="https://www.cnbc.com/2018/09/01/trade-deficit-is-made-in-america-wont-be-helped-by-trump-tariffs.html">reduce the trade deficit</a> and mitigate its ill effects, such as by encouraging higher savings rates, cutting the <a href="https://www.cnbc.com/2018/09/01/trade-deficit-is-made-in-america-wont-be-helped-by-trump-tariffs.html">federal deficit</a> (made worse by Trump’s tax cuts) and promoting competitiveness through job retraining and investment.</p>
<p>But back to our original question, are we heading for a <a href="https://nationalinterest.org/commentary/can-china-rise-peacefully-10204">new cold war</a>? </p>
<p>In short, no, at least not the kind fought between the U.S. and Soviet Union after World War II. The <a href="http://www.history.com/topics/cold-war/cold-war-history">Cold War</a> may have been frozen in Europe, but it led, directly or indirectly, to terrible conflicts in Korea, Vietnam and beyond. It also divided the world into two mutually antagonistic blocs constantly struggling for the upper hand. </p>
<p>Certainly, a growing conflict between the world’s two largest powers could again encourage the formation of <a href="https://www.amazon.com/Cold-War-New-History-ebook/dp/B000SEI9MY/ref=sr_1_4?ie=UTF8&qid=1537720576&sr=8-4&keywords=cold+war">opposing spheres</a> of influence. But the economic interdependence between the U.S. and China – as well as the existence of other major powers – would make such a “cold war” quite different, and probably milder, than the previous one.</p>
<p>Nevertheless, it is better for the U.S. to avoid a confrontational relationship with China altogether. It’s natural to defend one’s interests, but an escalating fight, leading who knows where, would benefit no one.</p><img src="https://counter.theconversation.com/content/103733/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Charles Hankla 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>The US and China once again exchanged fire in their escalating trade war. Tariffs have been the main source of ammunition thus far, but China has other weapons it could begin to deploy.Charles Hankla, Associate Professor of Political Science, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1007122018-09-18T10:48:38Z2018-09-18T10:48:38ZTrump should wage a war on waste instead of battling the world over trade<figure><img src="https://images.theconversation.com/files/236767/original/file-20180917-158213-63ervb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Instead of fighting other countries, we should be fighting our overflowing landfills.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/truck-working-landfill-birds-looking-food-169420184?src=tBJTZucNQ5HHgAxz1sDUug-1-14">Huguette Roe/shutterstock.com</a></span></figcaption></figure><p>President Donald Trump is fighting the wrong fight in his ongoing <a href="https://theconversation.com/us/topics/trade-wars-50746">trade war</a> with the rest of the world. </p>
<p>That’s because it’s premised on the old-school notion of the linear economy in which someone in another country, such as China, digs up raw materials and sends them to a factory, where they get turned into the finished product and shipped to the U.S. In exchange, <a href="https://www.washingtonpost.com/business/2018/08/03/trump-hates-trade-deficit-its-track-be-biggest-decade/?noredirect=on&utm_term=.83c540dd4382">money leaves the U.S. economy</a> and flows to the countries where the product was made – creating the <a href="https://www.nytimes.com/2018/03/05/us/politics/trade-deficit-tariffs-economists-trump.html">trade deficit Trump despises</a>.</p>
<p>And here’s the important bit. Americans use the product for a while, throw it away, and it ends up in a dump. And then we buy another import. </p>
<p>The long-term effect? Our money goes to a foreign economy, and Americans end up with piles of garbage. Then we pay <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=2ahUKEwi76bT9hLvdAhVyc98KHbDWB7sQFjABegQIBRAB&url=https%3A%2F%2Fwww.omicsonline.org%2Fopen-access%2Feffects-of-electronic-waste-on-developing-countries-2475-7675-1000128.php%3Faid%3D88750&usg=AOvVaw3M_1XDBboG9MhanJSttUSG">a foreign economy one more time to take the garbage off our hands</a>. China is one country that used to take a lot of our garbage, but <a href="https://www.sciencedirect.com/science/article/pii/S1364032115011855">India, Pakistan and Nigeria</a> are also big in this business. </p>
<p>A circular economy, by contrast, starts with the finished product, which can then be recycled domestically and reused, often at <a href="http://circularfoundation.org/sites/default/files/tce_report1_2012.pdf">a fraction of the cost of manufacturing them new elsewhere</a>. This <a href="http://circularfoundation.org/sites/default/files/tce_report1_2012.pdf">keeps the money at home</a>, which produces more domestic jobs and wealth. </p>
<p>As a researcher of corporate social responsibility, <a href="https://doi.org/10.1007/978-3-319-66023-3_178">I’ve been exploring</a> whether consumers are willing to buy more goods that have been remanufactured. My research suggests the answer is yes – if companies can figure how to produce more of them. And that’s where Trump and the federal government could play a big role. </p>
<h2>Companies leading the charge</h2>
<p>For now, companies and others in the American private sector are trying to lead the way, such as construction and mining equipment maker Caterpillar and automaker General Motors.</p>
<p>Caterpillar, for example, currently <a href="https://www.rit.edu/research/sites/rit.edu.research/files/research-magazines/RIT-Research-Magazine-Spring-Summer-2018.pdf">remanufactures 85 million tons</a> of material a year, while GM has 142 manufacturing and other facilities <a href="http://media.gm.com/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2018/feb/0228-landfill-free.html">that don’t produce any garbage</a> by recycling, reusing or converting all waste to energy. GM also participates in a new <a href="https://pathway21.com/about-2/">online exchange</a> that has about 1,000 partner companies buying and selling their recycled waste as raw material. </p>
<p>The nonprofit sector has also been playing a role, both in terms of research and practical efforts. Since 1991, the <a href="https://www.rit.edu/gis/remanufacturing/">Center for Remanufacturing and Resource Recovery</a> at my own Rochester Institute of Technology in upstate New York, for example, has been working with organizations such as the U.S. Marines Corps and Staples to take advantage of circular economy principles. </p>
<p>The center helped the Marines <a href="https://www.rit.edu/research/sites/rit.edu.research/files/research-magazines/RIT-Research-Magazine-Spring-Summer-2018.pdf">remanufacture defective drive shafts</a> for light armored vehicles, which has saved the military force 78 percent versus the cost of buying them new. It also partnered with Staples to cut the use of non-recycled materials in office furniture by almost 90 percent while reducing the cost to the customer by over 40 percent. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/236766/original/file-20180917-158228-1acaf2r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/236766/original/file-20180917-158228-1acaf2r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/236766/original/file-20180917-158228-1acaf2r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/236766/original/file-20180917-158228-1acaf2r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/236766/original/file-20180917-158228-1acaf2r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/236766/original/file-20180917-158228-1acaf2r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/236766/original/file-20180917-158228-1acaf2r.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 U.S. could reuse more of their plastics, like Kenya did when they sailed the first dhow boat made entirely of recycled plastic.</span>
<span class="attribution"><a class="source" href="http://pictures.reuters.com/C.aspx?VP3=SearchResult&VBID=2C0FCIB6AB2MS&SMLS=1&RW=1264&RH=744&POPUPPN=6&POPUPIID=2C0FQEQ5SKOCG">Reuters/Baz Ratner</a></span>
</figcaption>
</figure>
<h2>Benefits of circular logic</h2>
<p>The benefits can add up quickly. </p>
<p>General Motors, for example <a href="https://www.greenbiz.com/article/materials-matchmaking-how-gm-drives-1-billion-annual-revenue">boasts revenue and savings</a> of US$1 billion a year from its circular economy initiatives. </p>
<p>That’s just one company. Scaling up could yield over <a href="http://thebusinessleadership.academy/wp-content/uploads/2016/03/Circular_economy.pdf">$1 trillion a year</a> in savings globally – and that’s just in terms of mining and processing fewer raw materials. More broadly, were the European Union, for example, to replace all its imports with locally reused or recycled alternatives, it alone <a href="http://circularfoundation.org/sites/default/files/tce_report1_2012.pdf">could generate</a> $300 billion to $600 billion a year in savings, according to a 2012 report by the Ellen MacArthur Foundation, a U.K. charity focused on promoting the transition to a circular economy. </p>
<p>Remanufacturing in the U.S. is already responsible for <a href="https://www.rit.edu/gis/remanroadmap/docs/Technology%20roadmap%20for%20remanufacturing%20in%20the%20circular%20economy.pdf">180,000 jobs across sectors</a> as diverse as aerospace, consumer products, office furniture and retreaded tires. Given how much the <a href="https://www.bea.gov/data/intl-trade-investment/international-trade-goods-and-services">U.S. currently imports from abroad</a> – and that remanufacturing is still less than 2 percent of total manufacturing in the U.S. – there’s room to create hundreds of thousands more jobs. </p>
<h2>How Trump could help</h2>
<p>While there are many ways the U.S. government could marshal its tremendous resources behind this effort, there are two in particular I think would pay dividends. </p>
<p>Both revolve around a core problem in remanufacturing: Most things we currently make <a href="https://www.rit.edu/gis/remanroadmap/docs/Technology%20roadmap%20for%20remanufacturing%20in%20the%20circular%20economy.pdf">can’t be remanufactured</a>. That’s partly because of social barriers — customers may confuse remanufactured with used, which is a very different thing — and partly because they’re not made to be remanufactured.</p>
<p>Plastics in particular pose a significant problem to moving toward a circular economy. Globally, <a href="http://www.doi.org/10.1126/sciadv.1700782">we only recycle or reuse</a> about 9 percent of the plastic produced each year, with 79 percent going to landfills and 12 percent being burned. </p>
<p>Trump could support two ways to help solve this problem. Basically, with a carrot and a stick. The carrot involves setting a standard of design to ensure all products are made with future use in mind, as well as using his influence to encourage Americans to buy goods remanufactured in the U.S.</p>
<p>The stick is tax policy. Specifically, the government could tax products that can’t be converted into raw materials after they are used, as well as those that are made with less than a certain percentage of reused components – a minimum that would be set to gradually increase. Money raised through this tax could be used to support research into remanufacturing, community efforts to reach higher recycling and reuse targets, or other purposes.</p>
<h2>Remanufacturing for the win</h2>
<p>Some countries are already reducing their imports by going circular, putting the United States at risk of falling behind.</p>
<p>China, for one, <a href="https://doi.org/10.1111/jiec.12597">has been systematically expanding</a> its efforts in this area for over 20 years, while the <a href="https://doi.org/10.1111/jiec.12597">EU is beginning</a> to invest in a circular economy as well with a formal action plan, <a href="http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015DC0614">most recently revised in 2015</a>.</p>
<p>In an entirely circular economy, the U.S. would most likely still import stuff from abroad, such as steel from China. But that steel would wind up being <a href="https://www.greenbiz.com/article/materials-matchmaking-how-gm-drives-1-billion-annual-revenue">reused in American factories</a>, employing tax-paying American workers to manufacture new goods. </p>
<p>In other words, the more circular Americans make their economy, the fewer products they’ll wind up importing and the more things that could bear the “Made in the USA” label.</p><img src="https://counter.theconversation.com/content/100712/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Clyde Hull is a Professor of Management at the Saunders College of Business at RIT. He is also an associate faculty member of RIT’s Golisano Institute for Sustainabilty, which includes the Center for Remanufacturing and Resource Recovery. He is not involved in the Center’s operations.</span></em></p>Trump’s plan to slap $200 billion more in tariffs on Chinese goods is premised on yesterday’s waste-fueled economy. Tomorrow’s economy is ‘circular.’Clyde Eiríkur Hull, Professor of Management, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1023602018-09-03T17:44:57Z2018-09-03T17:44:57ZDebate: Reckoning the damage wrought by Trump’s economic ignorance<p>We are all aware that US President Donald Trump has unilaterally imposed a <a href="https://www.nytimes.com/2018/03/08/us/politics/trump-tariff-announcement.html">widening array of tariffs</a> on whole ranges of goods imported from China, the European Union and a range of other countries. Martin Wolf of the <em>Financial Times</em> calculates that these tariffs are being applied to <a href="https://www.ft.com/content/ba65ac98-8364-11e8-a29d-73e3d454535d">800 billion euros of traded goods</a> – that is, roughly 20% of US imports. They are not in any sense negligible. Not surprisingly, both China and the EU have replied with a range of punitive counter-tariffs on goods and services designed to cause maximum pain in American industries and states that are strong supporters of Trump. This tit-for-tat sequence is called a trade war and it is not just a threat, it is now a reality.</p>
<p>Because the economic and eventually political impact of such a trade war will in the medium term be immense, it demands interpretation and comment from the standpoint of professionally trained political economists.</p>
<h2>The theory of comparative cost advantage: a reminder</h2>
<p>It may be fashionable to decry experts and to ridicule economists – certainly there have been excesses in the past by both. However, there remain in both the natural sciences and in economics certain theories that provide a rock-solid basis for our understanding of the real world and that cannot just be wished away. In physics, for example, whether one uses Newton or Einstein, if you jump from the 20th floor of a building in your natural state into a busy city street below, you will end up dead. While I am the first to recognise the often ideologically slanted nature of much of the production of the economics profession, there are <em>some</em> theories that have the same universal applicability as the hard-physics example just cited. One is that of comparative cost advantage in relation to international trade. It is supremely relevant to the assessment of this trade war that we are witnessing.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/234067/original/file-20180829-195307-2v2xq9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/234067/original/file-20180829-195307-2v2xq9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=326&fit=crop&dpr=1 600w, https://images.theconversation.com/files/234067/original/file-20180829-195307-2v2xq9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=326&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/234067/original/file-20180829-195307-2v2xq9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=326&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/234067/original/file-20180829-195307-2v2xq9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=409&fit=crop&dpr=1 754w, https://images.theconversation.com/files/234067/original/file-20180829-195307-2v2xq9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=409&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/234067/original/file-20180829-195307-2v2xq9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=409&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 during a campaign appearance in Reno, Nevada, on January 10, 2016. A supporter wears one of Trump’s signature ‘Make America great again’ caps.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/darronb/23679921353/in/photolist-C5vMC6-ZmTk2d-pZyAYm-HfykVK-gkKGbe-CKuvGY-ZTQRjK-Rr8vvF-21bCACx-21nL4aR-21sK2uU-21v71cz-21v6Ywk-Zq171w-EgS4Ej-S8k71Z-Sh5ZXR-21xFNKg-CZBaPf-DpWii3-Dnq4Nu-21xFTi4-Dnquvf-SrjKJj-21sK8GJ-StLi2g-ZsxP49-21sK2Qy-21jnnGe-SBrz7C-RoxChN-RTHYgn-YPc2Nw-SBqJBb-Srj5jC-QS6F5u-C5oNbf-CSkXib-CUCoQP-CZB8zW-21uVFfM-D2Vkbn-C5xw9M-CzMBJj-C5wyFT-CSmM27-CZBsAm-C5pCKu-C5oJKs-S6fr49">Darron Birgenheier/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>This is perhaps the oldest core theory in economics, going right back to the great classical economists, <a href="https://www.penguin.com.au/books/the-worldly-philosophers-9780140290066">Adam Smith, David Ricardo and Frédéric Bastiat</a>. At its heart lies a simple, <em>mathematically necessary</em> truth. To illustrate this truth, consider two countries A and B that have (for whatever reason) differences in costs of production for certain goods. (If every country had exactly the same costs of production for every good and service there would be no point in trading internationally). </p>
<p>Let us say that the unit cost of producing a good X in country A is €100 and that unit cost of producing another good Y in A is also €100. The ratio of costs of production in country A is then clearly 1:1. Let us say that in country B, the unit cost of producing the very same good X is €120 and of producing good Y is €60. The ratio of costs of production in country B is then clearly 2:1. In such a situation where the ratio of comparative unit costs of production of X:Y in country A is less than the corresponding ratio in country B, A is then said to have a comparative cost advantage in good X and B in good Y (by simple inversion of the comparative-cost ratios).</p>
<p>Let us imagine that a situation of total protection (closure) prevails in these two economies. In that situation each country produces and supplies its entire domestic demand for each good X and Y from its own domestic firms and there is no international trade between them.</p>
<p>If, instead of protection, these countries decide to open free trade among themselves it will be evident that country A will have a <em>competitive</em> advantage in the now open common market in good X (€100<€120) while country B will have a <em>competitive</em> advantage in good Y (€60<€100). Hence under the pressure of competitive market forces country A will specialise in good X and country B in good Y.</p>
<p>Now comes the mathematical crunch of the theory. Let us examine what happens to total amalgamated production of the two countries taken together. As country A specialises in X while keeping its total resource usage (of labour, capital, land) the same, for every extra unit of X produced one unit of good Y will be sacrificed (since unit resource cost of each good is the same in A). But in country B as it specialises in good Y for each extra unit of Y produced in B it only needs to give up half a unit of good X (since the cost of production of y is €60 while that of X is €120 in B). <em>Hence over the two countries taken together and with exactly the same usage of scarce resources total amalgamated output will increase</em>. Through free trade, we can get a greater output of goods and services from exactly the same resources. What this clearly means is that both countries <em>can</em> for sure be materially better off as a result of trading. This potential for both countries to be materially better off is not contingent; it is a mathematical necessity.</p>
<p>This same truth can be expressed in diagrammatic form in terms of production possibility frontiers for pairs of goods as illustrated in the figures below: (in each case the heavy line represents the production possibilities of the United States and China with given resources before trade and C is the position they can reach in terms of production possibilities after trading:</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/234072/original/file-20180829-195298-sbyatu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/234072/original/file-20180829-195298-sbyatu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=350&fit=crop&dpr=1 600w, https://images.theconversation.com/files/234072/original/file-20180829-195298-sbyatu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=350&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/234072/original/file-20180829-195298-sbyatu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=350&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/234072/original/file-20180829-195298-sbyatu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=440&fit=crop&dpr=1 754w, https://images.theconversation.com/files/234072/original/file-20180829-195298-sbyatu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=440&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/234072/original/file-20180829-195298-sbyatu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=440&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Graphical presentation of how comparative advantage works.</span>
<span class="attribution"><a class="source" href="https://sites.google.com/site/saxapecon/home/thinking-like-an-economist">Thinking like an economist</a></span>
</figcaption>
</figure>
<p>Admittedly, what we have shown is just the <em>potential</em> for each country to gain from trade; this is a notion familiar to economists as potential <a href="https://en.wikipedia.org/wiki/Pareto_efficiency">Pareto improvement</a> and I intend to expand on it and on other economic purist quibbles in a future contribution. But let us be clear that while we have only demonstrated the <em>possibility</em> for each country taken individually to gain from trade it is at the same time necessarily true that taken together the two countries aggregate output from the same resources <em>must</em> rise; and hence <em>a fortiori</em> at least one of the countries if not both will gain from free trade.</p>
<p>It also follows that to retreat into protectionism from a free trading position as is now happening with the trade war(s) <em>must</em> involve (by the same mathematical logic in reverse) a reduction of the total output of the economies engaged in trade warring taken together (potential Pareto dis-improvement). One economy taken on its own <em>may</em> be able to make some gains from trade warring but in a retreat to protectionism overall there is an inevitable loss of output from exactly the same total resource set and it is therefore certain that some countries <em>must</em> lose out in the trade war.</p>
<h2>Ignorance in the seat of power</h2>
<p>The basic theory of comparative cost advantage in international trade as outlined forms an integral part of any typical first-year undergraduate economics curriculum. It is therefore no exaggeration to say that if Donald Trump or his leading economic advisors on these matters, Peter Navarro and Larry Kudlow, were to sit a typical end of first year undergraduate examination, they would fail (at least on the international trade question). They have initiated one of the most spectacular retreats from free trade and therefore of Pareto dis-improvement in the world economy witnessed since the 1930s.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/234069/original/file-20180829-195310-1s52xf2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/234069/original/file-20180829-195310-1s52xf2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/234069/original/file-20180829-195310-1s52xf2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/234069/original/file-20180829-195310-1s52xf2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/234069/original/file-20180829-195310-1s52xf2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/234069/original/file-20180829-195310-1s52xf2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/234069/original/file-20180829-195310-1s52xf2.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">On November 8, 2017, President Donald J. Trump and his wife Melania arrived in China for an official visit. Trump was all smiles, Chinese President Xi Jinping, accompanied his wife Peng Liyuan, was less ebullient.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/whitehouse/38254130542/in/photostream/">White House/Flickr</a></span>
</figcaption>
</figure>
<p>In a subsequent article I intend to dissect in detail the philosophical and ideological roots of this surprising economic ignorance. Put in a nutshell, in the trade war initiated by Trump and his team they are aiming to be the country that potentially gains from protectionism (through repatriation of US jobs, etc.). But as we have seen, if the United States is to gain from the trade war(s), it necessarily follows that the rest of the world must lose. Mathematically this just cannot be the win-win so beloved of Trump’s deal-making. In this context, the <a href="https://www.youtube.com/watch?v=dIaoZqMrbCo">“America first” slogan</a> takes on an aggressively sinister meaning in relation to the rest of humanity.</p>
<p>If the United States is to gain from trade wars, the rest of the world <em>must</em> lose. It is of course also possible that <em>all</em> will lose, including the US, and given the degree to which the supply chain of so many US industries remain global, this is also a very real possibility.</p><img src="https://counter.theconversation.com/content/102360/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick O'Sullivan ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>The economic theory of comparative cost advantage is more akin to natural law – it can’t be wished away. And during the ongoing trade war ignited by Donald Trump, it has never been more relevant.Patrick O'Sullivan, Senior Professor, People, Organizations and Society, Grenoble École de Management (GEM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1007952018-07-31T10:41:45Z2018-07-31T10:41:45ZAmerican farmers want trade partners not handouts – an agricultural economist explains<figure><img src="https://images.theconversation.com/files/229869/original/file-20180730-106517-rpoxh6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Farmer Michael Petefish walks through one of his soybean fields in southern Minnesota.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/China-Tariffs-Farmers-Hope-for-Truce/2fe66a14c3824e049a2d536c4750d0e7/25/0">AP Photo/Jim Mone</a></span></figcaption></figure><p>The Trump administration <a href="https://www.nytimes.com/2018/07/24/us/politics/farmers-aid-trade-war.html">plans to give</a> American farmers and ranchers hurt by the current trade war US$12 billion in emergency relief to mitigate the impact of tariffs on their exports. </p>
<p>While this may lessen the blow of an <a href="https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/highlights-from-the-farm-income-forecast/">already struggling agricultural economy</a> in the short run, it is only a Band-Aid. As an <a href="https://scholar.google.com/citations?user=rToS2UYAAAAJ&hl=en&oi=ao">agricultural economist</a>, I know that no one really wins in a trade war. As someone who grew up on a cotton and alfalfa farm in rural Arizona, I know firsthand that producers want access to markets – not government handouts. </p>
<p>If the <a href="https://theconversation.com/us/topics/trade-wars-50746">trade conflict</a> with China continues much longer, it will likely leave lasting scars on the entire agricultural sector as well as the overall U.S. economy. </p>
<h2>A tit-for-tat trade war</h2>
<p>How did we get here? </p>
<p>In January, the Trump administration <a href="https://www.washingtonpost.com/news/wonk/wp/2018/01/22/trump-imposes-tariffs-on-solar-panels-and-washing-machines-in-first-major-trade-action/?utm_term=.911baac43055">placed tariffs</a> on Chinese solar panels and washing machines to protect U.S. manufacturers. It <a href="https://piie.com/blogs/trade-investment-policy-watch/trump-trade-war-china-date-guide">followed</a> that in March with tariffs on all imports of steel and aluminum – citing national security concerns. Though many countries were subsequently exempted from the U.S. import tariffs on steel and aluminum, China <a href="https://www.nytimes.com/2018/03/22/us/politics/trump-will-hit-china-with-trade-measures-as-white-house-exempts-allies-from-tariffs.html">was the primary target</a>. </p>
<p>China <a href="https://www.cnbc.com/2018/04/01/china-announces-new-tariffs-on-us-meat-and-fruit-amid-trade-war-fears.html">responded</a> by imposing tariffs on U.S. exports worth $3 billion in April as countermeasures to U.S. tariffs. Another <a href="https://www.cmtradelaw.com/2018/04/section-301-update-ustr-releases-proposed-tariffs-on-chinese-products-china-publishes-retaliatory-list/">round of U.S. duties</a> on Chinese products prompted additional retaliation from China in July on $34 billion worth of U.S. goods, furthering a <a href="https://piie.com/system/files/documents/trump-trade-war-timeline.pdf">tit-for-tat trade conflict</a> with <a href="https://ig.ft.com/us-china-tariffs">no end in sight</a>. </p>
<p>China is the <a href="https://apps.fas.usda.gov/gats/ExpressQuery1.aspx">second-largest export market for U.S. agriculture</a> behind Canada, which means it’s no surprise that such goods made up the <a href="https://gain.fas.usda.gov/Recent%20GAIN%20Publications/China%20Imposes%20Additional%20Tariffs%20on%20Selected%20U.S.-Origin%20Products_Beijing_China%20-%20Peoples%20Republic%20of_4-2-2018.pdf">vast majority</a> of the more than 600 products that have been <a href="https://www.uschina.org/sites/default/files/list_of_chinese_retaliatory_tariffs_on_the_united_states_-_june_15_2018.pdf">targeted</a> by China with tariffs of 15 percent to 25 percent in two rounds of retaliation. Among them are cotton, wheat, dairy, wine, fruits, nuts, soybeans and pork – to name just a few.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229914/original/file-20180731-102485-reiwii.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">National Pork Board 2016 America’s Pig Farmer of the Year Brad Greenway and his wife, Peggy Greenway, feed pigs in one of their wean-to-finish pig barns on their farm in Mitchell, South Dakota.</span>
<span class="attribution"><span class="source">AP Images for National Pork Board/Jay Pickthorn</span></span>
</figcaption>
</figure>
<h2>Caught in the crossfire</h2>
<p>Since China’s tariffs only recently took effect and more retaliation could happen, it’s still too early to fully understand the potential damage. But U.S. farmers and ranchers are bracing for the worst. </p>
<p>For example, China is the <a href="https://atlas.media.mit.edu/en/profile/hs92/1201/">world’s largest consumer of soybeans</a>, gobbling up about 65 percent of all trade of the commodity. The Chinese bought more than $12 billion in American soybeans in 2017, or 57 percent of all U.S. exports of the crop.</p>
<p>Thanks to the 25 percent tariff on U.S. soybeans, Chinese importers <a href="https://www.reuters.com/article/us-usa-soybeans-china/u-s-soybean-exports-scrapped-as-china-shifts-to-brazilian-beans-idUSKCN1IJ2SG">have been canceling</a> contracts with American farmers for later in the year and buying more from Brazil – which <a href="https://www.reuters.com/article/us-brazil-soy-usa/brazil-to-pass-u-s-as-worlds-largest-soy-producer-in-2018-idUSKBN1IC2IW">is expected</a> to soon be the world’s top soybean producer.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=880&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=880&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=880&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1106&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1106&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229873/original/file-20180730-106517-1gxbe6r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1106&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A soybean plant blossoms on a farm in Renfrew, Pennsylvania.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Soybean-Plants-Blossom/9dc717b95ede43e09a03d9a33ab40e65/13/0">AP Photo/Keith Srakocic</a></span>
</figcaption>
</figure>
<p>A <a href="http://www.choicesmagazine.org/choices-magazine/theme-articles/us-china-trade-dispute-and-potential-impacts-to-agriculture/impacts-of-possible-chinese-25-tariff-on-us-soybeans-and-other-agricultural-commodities">recent study</a> suggests that if the tariffs stay in place, U.S. exports of soybeans could fall 24 percent to 34 percent, while production could decline 11 percent to 15 percent. </p>
<p>The extent of the impact depends on whether U.S. soybean farmers are able to find new markets for their crops. In addition, because China consumes so many soybeans – which it primarily uses for livestock feed – it probably can’t cut out U.S. producers entirely. Chinese importers will simply have to pay more for U.S.-sourced soybeans to meet domestic demand. </p>
<p>The pork industry, which <a href="https://gain.fas.usda.gov/Recent%20GAIN%20Publications/China%20Imposes%20Additional%20Tariffs%20on%20Selected%20U.S.-Origin%20Products_Beijing_China%20-%20Peoples%20Republic%20of_4-2-2018.pdf">was already subject</a> to tariffs before the trade war began, has been especially hard hit. After successive rounds of tariffs, U.S. pork is now subject to Chinese duties of as high as 70 percent. </p>
<p>Pork sales to China <a href="https://apps.fas.usda.gov/gats/default.aspx">account for 10 percent of total U.S. exports</a> of that product category. Since China already produces about 97 percent of the pork it consumes, it should be relatively easy for the Chinese to simply substitute domestic and other foreign production for the U.S. imports. </p>
<p>While many U.S. pork producers may be able to find new markets for their goods, that probably won’t be the case for offal, which are pig parts such as organs and entrails. Chinese consumers <a href="https://www.eater.com/2015/6/16/8786827/where-to-find-offal-organ-meat-international-cuisine">consider offal a delicacy</a>, while it is just used an input for pet food in the U.S. The tariffs <a href="https://www.reuters.com/article/us-usa-trade-china-pork/trade-war-puts-the-hoof-into-u-s-pig-part-exports-to-china-idUSKBN1K71EA">have already eroded</a> U.S. exports of pig parts to China.</p>
<p>Some of my own research focuses on <a href="https://doi.org/10.1111/1467-8489.12029">Chinese demand for Western wine</a> and how retaliatory tariffs <a href="http://www.choicesmagazine.org/choices-magazine/theme-articles/us-china-trade-dispute-and-potential-impacts-to-agriculture/chinese-trade-retaliation-may-diminish-us-wine-export-potential">could hurt</a> the U.S. wine industry, which sees China as a very important growth market at a time when others are stagnating. My collaborator and I estimate that the new 15 percent tariff on American wine could cause a 10 percent drop in imports to China. </p>
<p>If the trade war escalates, the harm could get even worse. For example, China <a href="https://apps.fas.usda.gov/gats/default.aspx">is the biggest buyer</a> of U.S. exports of animal hides – which haven’t yet been hit by retaliatory tariffs but could be in another round. And the impact is being felt across the U.S., with <a href="https://www.brookings.edu/blog/the-avenue/2018/04/09/how-chinas-tariffs-could-affect-u-s-workers-and-industries/">at least some workers</a> in pretty much every state affected by agricultural and other tariffs. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=369&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=369&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=369&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=464&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=464&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229871/original/file-20180730-106517-1kvpwvf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=464&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Cotton farmers are also worried about losing access to the Chinese market.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Cotton-Mississippi/07672337150e4b4eac73bdbfbb5de464/8/0">AP Photo/Rogelio V. Solis</a></span>
</figcaption>
</figure>
<h2>Trade conflict’s long-term impact</h2>
<p>The consequences of a prolonged trade war could be severe for U.S. agricultural producers. </p>
<p>As the tariffs make the cost of U.S. crops and meat go up for Chinese customers, <a href="http://www.choicesmagazine.org/choices-magazine/theme-articles/us-china-trade-dispute-and-potential-impacts-to-agriculture/impacts-of-possible-chinese-25-tariff-on-us-soybeans-and-other-agricultural-commodities">they’ll begin to import</a> products that are relatively cheaper from other countries such as Brazil.</p>
<p>China might also drive up their own domestic production of certain products – such as pork – thus depriving American farmers of the export market. Or in the case of wine, U.S. producers were already at a disadvantage to their French and Australian rivals. A prolonged trade dispute could limit American winemakers’ exports to a promising market. </p>
<p>If American agricultural producers can’t increase exports to other countries to make up for lost sales to China, farm incomes would most certainly fall. And even if they do manage to find new markets, perhaps with the help of the new government aid package, it’ll be hard to make up for the <a href="https://www.theguardian.com/world/2012/apr/04/china-biggest-grocery-market-world">world’s largest market</a> for food imports.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=336&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=336&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=336&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=423&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=423&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229872/original/file-20180730-106502-1bu02ra.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=423&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Brazil is the world’s second-largest soy producer after the U.S., which may soon change.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Latin-America-Economy-Finance/1a5605d06bd94d86ba0c3bffff55f564/5/0">AP Photo/Andre Penner</a></span>
</figcaption>
</figure>
<h2>Will the aid help?</h2>
<p>As for the Trump administration’s promised aid package, the U.S. Department of Agriculture said on July 24 that it would divide $12 billion <a href="https://www.usda.gov/media/press-releases/2018/07/24/usda-assists-farmers-impacted-unjustified-retaliation">among three programs</a> that will: </p>
<ul>
<li><p>provide payments to producers of soybeans, sorghum, corn, wheat, cotton, dairy and hogs</p></li>
<li><p>purchase surplus commodities such as fruits, nuts, rice, legumes, beef, pork and milk for distribution to food banks and other nutrition programs</p></li>
<li><p>develop new export markets for farm products. </p></li>
</ul>
<p>While key details about the aid package still need to be worked out, fundamentally it is an attempt by the administration to soften the blow of how other countries are responding to its protectionist trade policies. It may provide some short-term relief for U.S. farmers and ranchers at a time when net farm incomes are at a <a href="https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/farm-sector-income-forecast/">12-year low</a>. The effort is futile, however, if the trade conflict is not resolved soon because of the lasting damage to trade relationships. </p>
<p>Furthermore, the aid package may violate U.S. commitments to the World Trade Organization, adding to the <a href="https://www.wto.org/english/news_e/news18_e/good_23mar18_e.htm">list</a> of <a href="https://www.wto.org/english/news_e/news18_e/good_28mar18_e.htm">concerns</a> of <a href="https://www.wto.org/english/news_e/news18_e/good_03jul18_e.htm">potential</a> <a href="https://www.wto.org/english/news_e/news18_e/ds548_550rfc_06jun18_e.htm">violations</a> of the <a href="https://theconversation.com/rules-based-trade-made-the-world-rich-trumps-policies-may-make-it-poorer-97896">rules-based trading system</a> the U.S. has agreed to adhere to. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=395&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=395&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=395&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=497&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=497&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229870/original/file-20180730-106521-7aeg2w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=497&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Farmers testify before the House Subcommittee on Trade about the effect of foreign tariffs on American agriculture.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Congress-Trade/395fb792801b41b4a55c5b0ebb821ad4/30/0">AP Photo/J. Scott Applewhite</a></span>
</figcaption>
</figure>
<h2>Damage to a market</h2>
<p>In the last decade, China has become an incredibly important market for American agriculture. U.S. producers would like to not only maintain, but grow China as a market, given its large consumer base and rising incomes, which afford increasing per capita consumption and demand for U.S. agricultural products. </p>
<p>In my experience as an economist rooted in agriculture, U.S. farmers and ranchers prefer to be able to sell their goods to consumers around the world rather than receive government aid because of a trade war in which they’ve been caught in the crossfire. They want their government to help them find more consumers, not turn them away.</p><img src="https://counter.theconversation.com/content/100795/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amanda M. Countryman has received funding from the United States Department of Agriculture.
</span></em></p>The Trump administration’s promise of $12 billion in aid to offset losses from retaliatory tariffs will not make up for the long-term consequences of a prolonged trade war.Amanda M. Countryman, Associate Professor of Agricultural Economics, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/998122018-07-23T10:22:57Z2018-07-23T10:22:57ZA brief history of ketchup<figure><img src="https://images.theconversation.com/files/228700/original/file-20180722-142438-k7576v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Heinz is why ketchup seemed to become distinctly American.</span> <span class="attribution"><span class="source">Reuters/Mike Blake</span></span></figcaption></figure><p>Trade wars have an interesting way of revealing cultural stereotypes. </p>
<p>Countries often propose tariffs not on the most valuable items in their trading relationships – since that would be painful to them as well – but rather products iconic of national character. A good example of this came in the European Union’s retaliation against U.S. steel tariffs. Among the US$3.3 billion in goods it <a href="http://trade.ec.europa.eu/doclib/docs/2018/march/tradoc_156648.pdf">slapped a tariff</a> on in May were Harley-Davidson motorcycles, Kentucky bourbon and Levi’s jeans. </p>
<p>Now, American ketchup is being targeted, both by the EU and Canada. The United States’ northern neighbor <a href="https://qz.com/1318475/the-full-list-of-229-us-products-targeted-by-canadas-retaliatory-tariffs/">imposed</a> a 10 percent tariff on the product in July, while the <a href="https://www.ft.com/content/e3f9b700-809b-11e8-bc55-50daf11b720d">EU has suggested</a> it would be a part of the next round of retaliatory tariffs, which could go into effect <a href="https://www.bloomberg.com/news/articles/2018-07-19/eu-is-said-to-prepare-car-tariff-retaliation-before-trump-talks">within weeks</a>. </p>
<p>The EU’s threat is mostly symbolic because it is already a significant producer of ketchup – including by American brands like H.J. Heinz – and imports very little of the tomato condiment from the U.S. Canada, however, as recently as 2016 <a href="https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/usa/show/210320/2016/">imported</a> more than half of all the ketchup American companies send abroad. </p>
<p>In either case, at least part of the reasoning behind using it as a weapon in the growing trade war seems to be that ketchup, also spelled catsup, is one of those products that sounds distinctly American, poured generously on burgers and fries at baseball parks and Fourth of July barbecues across the U.S. </p>
<p>But in fact, the irony is that this ubiquitous condiment is anything but American in its origins or in those nationalities that love it the most. As a <a href="https://theconversation.com/profiles/ken-albala-204565">historian of food</a>, I see it as a truly a global product, its origins shaped by centuries of trade. And different cultures have adopted a wide variety of surprising uses for the condiment we know as ketchup today.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/228666/original/file-20180720-142432-8diifi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/228666/original/file-20180720-142432-8diifi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/228666/original/file-20180720-142432-8diifi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/228666/original/file-20180720-142432-8diifi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/228666/original/file-20180720-142432-8diifi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/228666/original/file-20180720-142432-8diifi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/228666/original/file-20180720-142432-8diifi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Some people even put ketchup on their pizza.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Pizza_s_ke%C4%8Dupem.jpg">Wikimedia Commons/Dezidor</a></span>
</figcaption>
</figure>
<h2>The origins of ‘ke-chiap’</h2>
<p>Although ketchup is <a href="https://www.merriam-webster.com/dictionary/ketchup">defined</a> by Merriam-Webster as a “seasoned pureed condiment usually made from tomatoes,” in the past it has been concocted from a wide variety of ingredients. </p>
<p>China – another country with which the U.S. is in the middle of a serious trade spat – <a href="http://andrewfsmith.com/books/pure-ketchup">was likely the original source</a> of the condiment with something that sounded like “ke-chiap.” It likely originated as a fish-based sauce <a href="https://www.history.com/news/ketchup-a-saucy-history">many centuries ago</a>, a condiment akin to the many fermented sauces one finds throughout southeast Asia. It was primarily used as a seasoning for cooking. </p>
<p>From there it made its way to the Malay Peninsula and to Singapore, where British colonists first encountered what locals called “kecap” in the 18th century. Like soy sauce, it was deemed exotic and perked up what was a comparatively bland British cuisine, such as roasts and fried foods.</p>
<p>English cookbooks of the era reveal how it was soon transformed into a condiment made with other bases such as mushrooms or pickled walnuts, rather than only fish. <a href="https://books.google.com/books/about/The_compleat_housewife_or_Accomplished_g.html?id=XvMHAAAAQAAJ">E. Smith’s “Compleat Housewife”</a> includes an anchovy-based “katchup” with wine and spices, more akin to Worcestershire sauce than what we think of as ketchup. </p>
<p>A more significant transformation took place in the early 19th century in the U.S. when it was made with tomatoes, sweetened, soured with vinegar and spiced with cloves, allspice, nutmeg and ginger – pretty much the modern-day recipe. </p>
<p>The first published recipe for tomato ketchup was written in 1812 by Philadelphia scientist and horticulturalist James Mease in his “Archives of Useful Knowledge, vol. 2.”</p>
<h2>Heinz makes it ‘American’</h2>
<p>Heinz, the American company perhaps most associated with ketchup, <a href="https://blogs.scientificamerican.com/anthropology-in-practice/seeing-is-believing-the-story-behind-henry-heinzs-condiment-empire/">didn’t get into the game</a> until 1876, seven years after Henry John Heinz set up the company to sell horseradish using his mother’s recipe. After his initial company went bankrupt, he launched a new one and began bottling tomato “ketchup,” spelled that way to distinguish it from other catsup brands.</p>
<p>From here, ketchup took on a uniquely American character and began its career as not only a universal condiment but a mass-produced brand-name article of trade that could last indefinitely on the shelf, be shipped around the world and used in ways never imagined by its creators. </p>
<p>Like so many other products, it became emblematic of American culture: quick, easy, convenient and too sweet but also adaptable to any gastronomic context – and a bit addictive. Ketchup became the quick fix that seemed to make any dish perk up instantly, from meatballs to scrambled eggs.</p>
<p>In a sense, it also became a “mother sauce,” meaning that one can concoct other sauces with ketchup as the base. Barbecue sauce usually uses ketchup, as does cocktail sauce for shrimp, with the addition of horseradish. Think also of <a href="https://www.epicurious.com/recipes/food/views/russian-dressing-51182860">Russian dressing</a> or <a href="https://www.allrecipes.com/recipe/18542/thousand-island-dressing-ii/">Thousand Island</a>. Or consider various recipes that are often ketchup laden, like <a href="https://www.thewholesomedish.com/the-best-classic-meatloaf/">meatloaf</a> and <a href="https://www.seriouseats.com/recipes/2014/03/thai-sweet-chili-ketchup.html">chili</a>.</p>
<h2>How the world consumes ketchup</h2>
<p>While ketchup is indeed an American staple – <a href="https://www.npr.org/sections/codeswitch/2013/12/02/248195661/ketchup-the-all-american-condiment-that-comes-from-asia">97 percent of households</a> have a bottle on hand – it’s very popular around the world, where the condiment is used in a lot of surprising ways. </p>
<p>Although practically sacrilegious in Italy, ketchup <a href="https://www.foodbeast.com/news/think-about-ketchup-on-a-pizza/">is often squirted on pizza</a> in places as far flung as Trinidad, Lebanon and <a href="http://articles.chicagotribune.com/1991-07-02/news/9103160121_1_pan-pizza-poland-limited-menu">Poland</a>. Similarly, ketchup is even used as a substitute for tomato sauce in pasta dishes in countries such as in Japan, which created a catsup-based dish called <a href="https://www.thespruceeats.com/spaghetti-napolitan-japanese-ketchup-pasta-2031629">spaghetti Napolitan</a>.</p>
<p>In the Philippines there’s a <a href="http://www.foodrepublic.com/2015/09/02/banana-ketchup-the-philippines-answer-to-a-lack-of-tomatoes/">popular banana ketchup</a> that was invented when tomatoes ran short during World War II but otherwise looks and tastes like tomato ketchup. In Germany the local favorite is a <a href="http://currywurstmuseum.com/en">curry powder-spiked ketchup</a> that goes on sausages sold by street vendors everywhere. </p>
<p>Without doubt the most intriguing recipe comes from Canada, where people enjoy <a href="http://www.kraftcanada.com/recipes/great-canadian-heinz-ketchup-cake-193998">ketchup cake</a>, a sweet red frosted layer cake that is much better than it sounds. </p>
<p>The modern variety of ketchup even returned home to China to become the base of many Chinese or perhaps more properly Chinese-American dishes like <a href="https://www.seriouseats.com/recipes/2012/01/sweet-and-sour-sauce.html">sweet and sour chicken</a>. Ketchup is sometimes a stand in for tamarind in <a href="https://www.bbc.com/food/recipes/padthai_67953">pad thai</a>. </p>
<p>But the best recipe comes from my father who once told me that during the Great Depression people without money would ask for a cup of hot water to which they would add some free ketchup and have a meal of tomato soup.</p>
<h2>Ketchup lovers today</h2>
<p>Today, the U.S. is the biggest exporter of ketchup and other tomato sauces by country. In 2016, it exported $379 million worth, or 21 percent of all trade in the product category. While only 1.9 percent of that – $7.3 million – <a href="https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/usa/show/210320/2016/">went to Europe</a>, a whopping 60 percent – $228 million – was exported to Canada.</p>
<p>Heinz is among the <a href="https://www.mordorintelligence.com/industry-reports/ketchup-market">biggest producers</a>, with a market share of 80 percent in Europe – via <a href="https://www.kraftheinzcompany.eu/news/the-largest-ketchup-factory-in-europe/">factories</a> in the U.K., Netherlands and elsewhere – and 60 percent in the U.S.</p>
<p>Put together, however, Europe actually <a href="https://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/all/show/210320/2016/">exports</a> the most ketchup, with 60 percent of the global trade – including countries not in the EU. </p>
<p>What does all this mean for the tariffs? Since the EU produces plenty of ketchup within the bloc, its proposed tariff will probably have very little impact. For Canada, however, the effects could be more complicated since it’s unclear whether it can supply enough ketchup domestically or from other countries to meet high demand.</p>
<p>Whether Canadians will find an alternative for Heinz remains to be seen. But what is clear is that while the signature bottle proudly bearing the number 57 may be quintessentially American, its roots are global and its progeny likewise.</p><img src="https://counter.theconversation.com/content/99812/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ken Albala 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>Canada recently slapped a tariff on US exports of the tomato-based condiment, and the EU plans to do the same, perhaps on the notion that it’s distinctly American. In fact, ketchup’s origins are global, as are its fans.Ken Albala, Professor of History, University of the PacificLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/999062018-07-16T10:39:53Z2018-07-16T10:39:53ZTrade war could chill China’s growing investment in US economy<figure><img src="https://images.theconversation.com/files/227706/original/file-20180715-27042-fhkag9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The U.S. is the biggest destination for Chinese foreign investment.</span> <span class="attribution"><span class="source">Jason Lee/Pool Photo via AP</span></span></figcaption></figure><p>The U.S. and China are currently engaged in an <a href="https://www.brookings.edu/blog/unpacked/2018/07/12/unpacked-the-us-china-trade-war/">ever-escalating trade war</a> with no end in sight. While the focus of the dispute has centered on tariffs, the consequences <a href="https://www.independent.co.uk/news/business/analysis-and-features/trade-war-explained-tariffs-donald-trump-us-china-imports-exports-a8434626.html">are expected to spill</a> well beyond imports and exports to other aspects of the countries’ complex relationship. </p>
<p>One such area is what economists call foreign direct investment, in which companies invest in businesses in another country. The United States’ ability to draw investments from around the world has been a <a href="http://www.areadevelopment.com/LocationUSA/2017-US-inward-investment-guide/importance-of-FDI-to-US-economy.shtml">significant driver</a> of its economic growth. Indeed, the U.S. was the <a href="https://ofii.org/sites/default/files/FDIUS%202017.pdf">top destination</a> for foreign investment in 2016, as it usually is. </p>
<p>China’s investments in the U.S., however, remain relatively paltry, despite the country’s growing clout on the world stage. And while most have been small and low-profile, a few bigger deals have made headlines and even been blocked over “national security” concerns. </p>
<p><a href="https://scholar.google.com/citations?user=eubX-aYAAAAJ&hl=en&oi=ao">I research</a> the international political economy of China’s rise. Even though most Chinese investment in the U.S. has little to do with national security, I believe the current tense environment will put a chill on Chinese-American deals – with severe long-term consequences. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/227686/original/file-20180715-27027-7xzovp.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">Tesla CEO Elon Musk greets new owners of his company’s Model S sedans in Beijing in 2014. China’s Tencent took a 5 percent stake in Tesla in 2017.</span>
<span class="attribution"><span class="source">AP Photo/Ng Han Guan</span></span>
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</figure>
<h2>A snapshot of China FDI in the US</h2>
<p>The reality is that the vast majority of the <a href="https://www.aei.org/wp-content/uploads/2018/01/Chinese-Investment-Jan-2018.pdf">232 investments</a> made by Chinese companies in the United States since 2005 have little to do with national security. </p>
<p>A typical example is <a href="https://www.theguardian.com/technology/2004/dec/08/business.china">Beijing-based Lenovo’s acquisition</a> of IBM’s personal computer business in 2004 for US$1.75 billion, which raised little fanfare or objection. Or consumer electronics company <a href="https://www.scmp.com/business/companies/article/2116486/chinas-haier-has-plan-help-continue-turnaround-ge-appliances">Haier’s purchase</a> of General Electric’s home appliance unit in 2016 for $5.6 billion, again without a fuss. </p>
<p>In more recent years, Chinese companies have taken stakes in some well-known Silicon Valley companies. For example, last year, Chinese tech and media investment firm Tencent <a href="https://www.reuters.com/article/us-snap-tencent-stake/chinas-tencent-takes-12-percent-stake-in-snap-as-shares-plunge-idUSKBN1D81G3">acquired</a> a 12 percent stake in the owner of the messaging app Snapchat and <a href="https://www.bloomberg.com/news/articles/2017-03-28/tencent-buys-1-8-billion-tesla-stake-ahead-of-musk-s-model-3">5 percent</a> of Elon Musk’s Tesla. Also in 2017, China’s sovereign wealth fund invested $100 million in room-sharing service Airbnb. </p>
<p>Overall, China remains a minor U.S. investor – and the data suggest the president’s <a href="https://abcnews.go.com/Politics/10-times-trump-attacked-china-trade-relations-us/story?id=46572567">rhetoric on the campaign trail</a> may have already had a disruptive impact. Last year, China <a href="https://www.aei.org/wp-content/uploads/2018/01/Chinese-Investment-Jan-2018.pdf">invested</a> $24 billion in the U.S., down from $54 billion in 2016, excluding deals under $100 million in size. </p>
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<p>While that’s a sharp rise from just $5 billion a decade ago, it’s barely a drop in the bucket for the U.S. economy. <a href="https://ofii.org/sites/default/files/FDIUS%202017.pdf">China’s cumulative investments</a> in 2016 made up less than 2 percent of all $3.7 trillion invested in the U.S., ranking it 11th, a fraction of the U.K.’s $598 billion and Canada’s $454 billion, the top sources of funding.</p>
<p>California and New York alone <a href="https://www.bloomberg.com/news/articles/2017-04-25/chinese-investment-creates-and-protects-u-s-jobs-rhodium-says">received</a> the lion’s share of China’s $171 billion in investments from 2005 to 2017, or 51 percent. All but 14 states have received at least one investment in the period. </p>
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<p>By sector, the biggest chunk has gone into property investments – such as prime real estate in New York along Park Avenue – which tallied $26 billion, or 15 percent, in the period. Financial firms such as BlackRock took in the next largest share of 14 percent, while 13 percent went to technology businesses like IBM and Motorola. </p>
<h2>National security and politics</h2>
<p>Two of the reasons Chinese investment in the U.S. isn’t higher are national security and politics. A number of high-profile deals have rung alarm bells among U.S. officials and politicians and ended up getting killed as a result. </p>
<p>For example, in 2003, Hong Kong conglomerate Hutchison Whampoa <a href="https://www.wsj.com/articles/SB105168669140493600">withdrew</a> from a joint bid for fiber-optic carrier Global Crossing after the <a href="https://fas.org/sgp/crs/natsec/RL33388.pdf">Committee on Foreign Investment</a> opened an investigation of the deal as some defense officials grew concerned the company’s chairman was too close to Chinese government officials. </p>
<p>Two years later, China oil producer CNOOC <a href="https://www.wsj.com/articles/SB112295744495102393">dropped its effort</a> to buy U.S. rival Unocal for $18.5 billion. In this case, it was lawmakers in Congress who managed to scuttle the deal. CNOOC <a href="https://www.wsj.com/articles/SB112298888643902543">blamed</a> a “political environment.”</p>
<p>The Committee on Foreign Investment, <a href="https://fas.org/sgp/crs/natsec/RL33388.pdf">established</a> by President Gerald Ford in 1975, has the power to veto investments if they might damage U.S. national security. Proposed Chinese investments get reviewed more often than those from any other country. Though the launch of an investigation is often enough to stop a deal – as was the case with Hutchison – the committee has only vetoed five deals, four of which involved China. </p>
<p>One came in 2012, when <a href="https://www.nytimes.com/2012/09/29/us/politics/chinese-company-ordered-to-give-up-stake-in-wind-farms-near-navy-base.html">President Barack Obama cited the committee’s recommendation</a> as he ordered Ralls Corp., a U.S. company owned by Chinese nationals, to divest its interests in wind turbines being built close to a Navy military site in Oregon. It was the first time the power was used since 1990, when President George Bush blocked the sale of an American aircraft manufacturing company to a Chinese agency. </p>
<p>And last year, President Donald Trump <a href="https://www.reuters.com/article/us-lattice-m-a-canyonbridge-trump/trump-bars-chinese-backed-firm-from-buying-u-s-chipmaker-lattice-idUSKCN1BO2ME">prevented</a> Chinese investment firm Canyon Bridge Capital Partners from acquiring U.S. chipmaker Lattice Semiconductor. </p>
<p>And the president <a href="https://www.nytimes.com/2018/06/27/us/politics/cfius-expansion-trump.html">supports a bipartisan bill</a> in Congress that would grant the Committee on Foreign Investments even more power. </p>
<h2>FDI as foreign policy</h2>
<p>While China may not make up a significant portion of the U.S. total, its spending there makes up the <a href="https://www.aei.org/wp-content/uploads/2018/01/China-Tracker-Jan2018.pdf">largest share</a> of Chinese outbound FDI by country. </p>
<p>From 2005 to these days, China invested $171 billion of its $1.87 trillion in total foreign investment in the U.S. </p>
<p><a href="https://www.cambridge.org/core/journals/business-and-politics/article/dissuasive-effect-of-us-political-influence-on-chinese-fdi-during-the-going-global-policy-era/34345FFDB008BD612F7469857CBCA10C">My own research</a> into China’s investments shows that state-owned companies are very sensitive to the government’s foreign policy goals. An agency known as the <a href="https://www.bloomberg.com/news/videos/2018-04-12/sasac-s-xiao-on-soe-reform-china-soe-investment-in-u-s-video">State-owned Assets Supervision and Administration Commission</a> of the State Council coordinates all foreign investments by major Chinese businesses. </p>
<p>Any drop in investments to the U.S. will probably be compensated by more spending in other destinations, especially those countries that are part of the <a href="https://theconversation.com/us/topics/one-belt-one-road-33049">One Belt, One Road</a> initiative such as Australia, Singapore and Vietnam. </p>
<h2>Going forward</h2>
<p>And in fact, the current trade dispute between the U.S. and China will most likely lead to less Chinese investment as deals will encounter increased scrutiny and resistance. </p>
<p>The president has said he <a href="https://www.express.co.uk/news/world/986966/trump-news-trade-war-us-china-tariffs">launched</a> the trade war because Chinese companies <a href="https://www.wsj.com/articles/china-started-the-trade-war-not-trump-1521797401">have a track record</a> of “stealing” Western technology and not respecting intellectual property. Hence, the administration will likely block investments that look along these lines or threaten national security.</p>
<p>But politics will also play a role as members of Congress and others <a href="https://www.bbc.com/news/av/world-us-canada-42405458/trump-china-and-russia-rivals-in-new-era-of-competition">regard China</a> warily as a growing rival that must be confronted. One risk is that <a href="http://www.pewglobal.org/2013/07/18/chapter-3-attitudes-toward-china/">anti-China sentiment</a> in the U.S. increases and makes it harder for the country to use “soft power” via cultural and economic means to achieve its ends – which is preferable to hard power at the end of a bayonet. </p>
<p>It’s unfortunate because <a href="https://dash.harvard.edu/bitstream/handle/1/3450062/helpman_tradewars.pdf?sequence=4">years on international political economy research</a> suggest trade wars and discouraging investment <a href="http://www3.nccu.edu.tw/%7Elorenzo/Ikenberry%20Rise%20of%20China.pdf">are exactly the wrong ways</a> for the U.S. to deal with China’s rise. The U.S. can find other strategies to challenge any unfair trading or business practices without jeopardizing good economic relations, which <a href="https://www.cambridge.org/core/books/renegotiating-the-world-order/B0878F74F44B1F08F3C7535019FBAEE3">have always been</a> the best way to prevent clashes and even war among great powers. </p>
<p>Beyond that, deeper business ties lead to better relations and stronger economies. Economic interdependence raises the costs of direct confrontation, leading to a more peaceful international system.</p>
<p>What concerns me from the current trade war is that it could make geopolitical clashes between China and U.S. stronger and more frequent in the long run.</p><img src="https://counter.theconversation.com/content/99906/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Francisco Urdinez 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>Chinese investment in the US has never been high, but the ongoing trade war could dampen it further, with significant long-term repercussions.Francisco Urdinez, Professor of International Political Economy, Universidad Católica de ChileLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/992582018-07-06T16:42:47Z2018-07-06T16:42:47ZWe estimate China only makes $8.46 from an iPhone – and that’s why Trump’s trade war is futile<p>The Trump administration’s tariffs on China have so far targeted mostly <a href="http://www.businessinsider.com/trump-china-tariff-full-list-of-goods-products-2018-6">industrial goods</a> like aircraft engines and gas compressors. But the administration has also threatened to slap tariffs on <a href="https://www.vox.com/world/2018/6/19/17478526/trump-china-trade-war-tariff-taxes-xi-jinping">US$200 billion in other goods</a> if the dispute continues.</p>
<p>No list of all the goods that might be subject to tariffs has been released, but it would have to include consumer electronics, such as smartphones, which is the <a href="https://www.census.gov/foreign-trade/statistics/product/enduse/imports/c5700.html">largest single product category</a> in China’s exports to the U.S.</p>
<p>One well-known product that might be affected is Apple’s iPhone, which is assembled in China. When an iPhone arrives in the U.S., it is recorded as an import at its <a href="http://www.wipo.int/edocs/pubdocs/en/wipo_pub_econstat_wp_41.pdf">factory cost of about $240</a>, which is added to the massive U.S.-China bilateral trade deficit. </p>
<p>IPhone imports look like a big loss to the U.S., at least to the president, who <a href="https://www.nytimes.com/2018/06/19/business/china-trade-war-peter-navarro.html">argues</a> that “China has been taking out $500 billion a year out of our country and rebuilding China.” One estimate suggests that imports of the iPhone 7 and 7 Plus <a href="https://qz.com/1234437/the-iphone-alone-accounts-for-16-billion-of-the-us-trade-deficit-with-china/">contributed $15.7 billion</a> to last year’s trade deficit with China.</p>
<p>But, as our <a href="https://scholar.google.com/scholar?hl=en&as_sdt=0%2C5&q=Dedrick+Kraemer+Linden&btnG=">research</a> on the breakdown of an iPhone’s costs show, this number does not reflect the reality of how much value China actually gets from its iPhone exports – or from many of the brand-name electronics goods it ships to the U.S. and elsewhere. Thanks to the globe-spanning supply chains that run through China, trade deficits in the modern economy are not always what they seem. </p>
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<h2>Who really makes the iPhone?</h2>
<p>Let’s examine an iPhone 7 a little more closely to see how much value China is actually getting. </p>
<p>Start with the most valuable components that make up an iPhone: the touch screen display, memory chips, microprocessors and so on. They come from a mix of U.S., Japanese, Korean and Taiwanese companies, such as Intel, Sony, Samsung and Foxconn. Almost none of them are manufactured in China. Apple buys the components and has them shipped to China; then they leave China inside an iPhone.</p>
<p>So what about all of those famous factories in China with millions of workers making iPhones? The companies that own those factories, including Foxconn, are all based in Taiwan. Of the factory-cost estimate of $237.45 from IHS Markit at the time the iPhone 7 was released in late 2016, we calculate that all that’s earned in China is about $8.46, or 3.6 percent of the total. That includes a battery supplied by a Chinese company and the labor used for assembly. </p>
<p>The other $228.99 goes elsewhere. The U.S. and Japan each take a roughly $68 cut, Taiwan gets about $48, and a little under $17 goes to South Korea. And we estimate that about $283 of gross profit from the retail price – about $649 for a 32GB model when the phone debuted – goes straight to Apple’s coffers.</p>
<p>In short, China gets a lot of (low-paid) jobs, while the profits flow to other countries.</p>
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<h2>The trade balance in perspective</h2>
<p>A better way of thinking about the U.S.-China trade deficit associated with one iPhone would be to only count the value added in China, $8.50, rather than the $240 that shows up as a Chinese import to the U.S. </p>
<p>Scholars have found <a href="https://econpapers.repec.org/article/eeeinecon/v_3a86_3ay_3a2012_3ai_3a2_3ap_3a224-236.htm">similar results for the broader U.S.-China trade balance</a>, although the disparity is less extreme than in the iPhone example. Of the 2017 trade deficit of $375 billion, probably one-third actually involves inputs that came from elsewhere – including the U.S.</p>
<p>The use of China as a giant assembly floor has been good for the U.S. economy, <a href="https://www.nytimes.com/2007/04/17/business/worldbusiness/17iht-glob18.1.5316471.html">if not for U.S. factory workers</a>. By taking advantage of a vast, highly efficient global supply chain, Apple can bring new products to market at prices comparable to its competitors, most notably the Korean giant Samsung. </p>
<p>Consumers benefit from innovative products, and thousands of companies and individuals have built businesses around creating apps to sell in the App Store. Apple uses its profits to pay its armies of hardware and software engineers, marketers, executives, lawyers and Apple Store employees. And most of these jobs are in the U.S.</p>
<p>If the next round of tariffs makes the iPhone more expensive, demand will fall. Meanwhile Samsung, <a href="http://www.businesskorea.co.kr/news/articleView.html?idxno=8785">which makes over half its phones in Korea and Vietnam</a>, with a lower share of U.S. parts, will not be affected as much by a tariff on goods from China and will be able to gain market share from Apple, shifting profits and high wage jobs from the U.S. to South Korea.</p>
<p>Put another way, research has shown globalization hurt some Americans while it <a href="https://piie.com/publications/chapters_preview/3802/2iie3802.pdf">made life better for many others</a>. Putting globalization in reverse with tariffs will also create winners and losers – and there could be far more of the latter. </p>
<h2>Why not make the iPhone in America?</h2>
<p>When we discuss these topics with policymakers and the media, we’re often asked, “Why can’t Apple just make iPhones in the U.S.?” </p>
<p>The main problem is that the manufacturing side of the global electronics industry was <a href="http://pcic.merage.uci.edu/papers/2007/GlobalizationOfInnovation.pdf">moved to Asia in the 1980s and 1990s</a>. Companies like Apple have to deal with this reality. </p>
<p>As the numbers we’ve cited make clear, there’s not much value to be gained for the U.S. economy or its workers from simply assembling iPhones here from parts made in Asia. </p>
<p>While it’s possible to do so, it would take at least a few years to set it up, cost more per unit than production in Asia, and require a lot of carrots and sticks from policymakers to get the many companies involved to do so – for example, like the <a href="https://www.washingtonpost.com/news/wonk/wp/2017/09/18/scott-walker-signs-3-billion-foxconn-deal-in-wisconsin/?noredirect=on&utm_term=.d1c92b8b14d0">potential $3 billion in subsidies</a> Wisconsin gave to Foxconn to build an LCD factory there.</p>
<h2>A flawed response to the challenge from China</h2>
<p>There is, of course, plenty for the U.S. to complain about when it comes to China’s high-tech industry and policies, whether it’s the lack of intellectual property protection or <a href="http://www.scmp.com/comment/insight-opinion/article/2123957/china-vs-google-facebook-and-other-us-internet-giants-lesson">non-tariff barriers</a> that keep major tech companies such as Google and Facebook out of the huge Chinese market. There is room for much tougher and more sophisticated bargaining to address these issues.</p>
<p>But where trade is concerned, policies should reflect that manufacturing is now a global network. The World Trade Organization has already developed <a href="https://www.wto.org/english/res_e/statis_e/miwi_e/countryprofiles_e.htm">an alternate set of trade numbers</a> that shows each country’s trade in value added terms, but the administration seems to have missed the memo.</p>
<p>Trump’s trade war is based on a simplistic understanding of the trade balance. Expanding tariffs to more and more goods will weigh on U.S. consumers, workers and businesses. And there’s no guarantee that the final outcome will be good when the dispute ends.</p>
<p>This is a war that should never have been started.</p><img src="https://counter.theconversation.com/content/99258/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jason Dedrick has received funding from the Alfred P. Sloan for research that is relevant to this article. </span></em></p><p class="fine-print"><em><span>Greg Linden received funding from the Alfred P. Sloan Foundation for research related to this article. </span></em></p><p class="fine-print"><em><span>Kenneth L. Kraemer received funding from the Alfred P. Sloan Foundation for research related to this article. </span></em></p>The president launched a trade war largely on the premise of a massive trade deficit with China. A closer look at the iPhone shows why he’s wrong.Jason Dedrick, Professor of Information Studies, Syracuse UniversityGreg Linden, Research Associate, University of California, BerkeleyKenneth L. Kraemer, Research Professor of Business, University of California, IrvineLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/978962018-06-10T13:28:50Z2018-06-10T13:28:50ZRules-based trade made the world rich. Trump’s policies may make it poorer<figure><img src="https://images.theconversation.com/files/222462/original/file-20180610-191943-14f0w0e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Trump against the world?</span> <span class="attribution"><span class="source">Jesco Denzel/German Federal Government via AP</span></span></figcaption></figure><p>Nations sell goods and services to each other because this exchange is generally mutually beneficial.</p>
<p>It’s easy to understand that Iceland should not be growing its own oranges, given its climate. Instead, Iceland should buy oranges from <a href="http://www.idealspain.com/pages/information/oranges-spain.html">Spain</a>, which can grow them more cheaply, and sell Spaniards fish, which <a href="https://www.icelandaircargo.com/products-and-services/fresh-fish-and-seafood/">are abundant</a> in its waters. </p>
<p>That’s why the explosion in <a href="https://theconversation.com/us/topics/free-trade-1698">free trade</a> since the first bilateral deal was penned between Britain and France in the mid-1800s has <a href="https://www.cesifo-group.de/DocDL/forum-4-14-intro3.pdf">generated unprecedented</a> wealth and prosperity for the vast majority of the world’s population. Hundreds of trade agreements later, the U.S. and several other countries established an international rules-based trading system after World War II.</p>
<p>But now the U.S., which has played an integral role in bolstering this system, is actively trying to subvert it. At the <a href="https://theconversation.com/us/topics/g7-17736">recent G-7 summit</a> in Quebec, for example, the Trump administration <a href="https://www.nytimes.com/2018/06/08/world/americas/trump-g7-trade-russia.html">objected</a> to even referring to a “rules-based international order” in the <a href="https://www.reuters.com/article/us-g7-summit-communique-text/the-charlevoix-g7-summit-communique-idUSKCN1J5107">official communique</a> – and the president ultimately <a href="https://www.nytimes.com/2018/06/09/world/americas/donald-trump-g7-nafta.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=span-ab-top-region&region=top-news&WT.nav=top-news">refused to sign it</a>. </p>
<p><a href="https://scholar.google.com/citations?user=x5dB33oAAAAJ&hl=en&oi=ao">My research</a> in <a href="https://www.crcpress.com/The-Economics-of-International-Trade-and-the-Environment/Batabyal-Beladi/p/book/9781566705301">international economics</a> tells me that trade policy – because it is inherently forward-looking and global – requires three interrelated attributes to be successful: It needs to reduce uncertainty, ease long-term decision-making, and be legal and credible. </p>
<p>President Donald Trump’s <a href="https://theconversation.com/g7-summit-trump-could-be-using-advanced-game-theory-negotiating-techniques-or-hes-hopelessly-adrift-97836">recent trade policy</a> fails all three tests. </p>
<h2>Birth of modern free trade</h2>
<p>Britain and France signed the first post-Industrial Revolution trade agreement, dubbed the Cobden-Chevalier treaty, on Jan. 23, 1860. </p>
<p>In it, both countries <a href="http://www.nber.org/papers/w22070.pdf">agreed</a> to either reduce or eliminate import barriers and grant the other most favored nation status, which means any trade concessions offered to another nation would automatically apply to them as well. </p>
<p>Within just 15 years, various countries inked <a href="https://trove.nla.gov.au/work/1482271">56 more bilateral treaties</a>. Thus began the first wave of globalization, which lasted from 1870 until 1914, the beginning of two destructive world wars. </p>
<p>From those ruins emerged a rules-based international trading system, known as the <a href="https://www.wto.org/english/thewto_e/minist_e/min96_e/chrono.htm">General Agreement on Tariffs and Trade</a>, or GATT, which came into force in 1948. <a href="https://www.thebalance.com/gatt-purpose-history-pros-cons-3305578">Its goal</a> was to eliminate the kind of harmful trade protectionism that had <a href="https://www.dartmouth.edu/%7Edirwin/Eichengreen-IrwinJEH.pdf">sharply reduced</a> global trade during the Great Depression with the aim of quickly restoring the global economy’s health after so much devastation.</p>
<p>Almost a half century of negotiations to improve the agreement culminated in the creation of the World Trade Organization in 1995. The lynchpin of the modern rules-based international trading system, the WTO now <a href="https://www.wto.org/english/thewto_e/thewto_e.htm">includes 164 nations</a> that together <a href="http://www.nber.org/papers/w22070.pdf">conduct more than 96 percent</a> of the world’s trade.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/222463/original/file-20180610-191954-65m8yv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/222463/original/file-20180610-191954-65m8yv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=384&fit=crop&dpr=1 600w, https://images.theconversation.com/files/222463/original/file-20180610-191954-65m8yv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=384&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/222463/original/file-20180610-191954-65m8yv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=384&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/222463/original/file-20180610-191954-65m8yv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=483&fit=crop&dpr=1 754w, https://images.theconversation.com/files/222463/original/file-20180610-191954-65m8yv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=483&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/222463/original/file-20180610-191954-65m8yv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=483&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Until very recently, the U.S. was a leader in free trade, such as in 1996, when G-7 leaders including former President Bill Clinton met a little more than year after establishing the World Trade Organization.</span>
<span class="attribution"><span class="source">AP Photo/Jerome Delay</span></span>
</figcaption>
</figure>
<h2>Three key attributes</h2>
<p>This system has worked so well for so long because the WTO and its biggest champions, such as the U.S., made three interrelated attributes integral to their trade policies. That is, its members: </p>
<ol>
<li><p>reduced uncertainty by creating predictable trade policies </p></li>
<li><p>created an environment that facilitates decision-making – particularly in the long term – by consumers and producers and </p></li>
<li><p>placed credible and legal directives that are clearly understood by allies and by those who are not. </p></li>
</ol>
<p>Even though the U.S. played a salient role in the creation of both the GATT and the WTO, Trump’s trade policy has not followed these guidelines. To me he seems more interested in wreaking havoc with the current global trading system than with ensuring its continued viability. And he’s frequently – and <a href="https://www.chathamhouse.org/expert/comment/trump-s-tariffs-presage-world-no-rules">very recently</a> – intimated that he might even withdraw the U.S. from the WTO.</p>
<p>Trump seems to think that by issuing tariff threats, being unpredictable, and viewing foreign countries – even allies – as rival businesses he can extract concessions from trading partners. Instead, such tactics <a href="https://www.bloomberg.com/news/articles/2018-05-31/trump-s-art-of-unpredictability-starts-to-backfire-overseas">are proving</a> to be counterproductive.</p>
<h2>Sowing uncertainty</h2>
<p>Perhaps more than anything else, Trump’s policies have created a lot of uncertainty among U.S. trade partners. </p>
<p>His steel and aluminum tariffs are a case in point. In March, the administration announced across-the-board tariffs on imports of the metals of up to 25 percent to punish nations – particularly China – for subsidizing their own industries and dumping their production on U.S. shores. </p>
<p>After key allies including Canada, the European Union and Mexico complained, the administration granted some countries temporary exemptions to the tariffs. But just a few months later, on May 31, it <a href="https://www.nytimes.com/2018/05/31/us/politics/trump-aluminum-steel-tariffs.html">reversed course</a> and began to impose the tariffs on those countries as well, leaving heads spinning. Only a week later, at the <a href="https://theconversation.com/what-each-of-the-g7-countries-wants-and-what-they-need-97828">G-7</a>, Trump <a href="https://www.nytimes.com/2018/06/09/world/americas/donald-trump-g7-nafta.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news">was threatening</a> to cut off all trade with his counterparts one minute, suggesting that everyone eliminate all tariffs the next.</p>
<p>Another <a href="https://www.vox.com/policy-and-politics/2018/5/15/17355202/trump-zte-indonesia-lido-city">recent example</a> of fostering uncertainty is the curious case of the Chinese phone manufacturer ZTE. In March 2017, Trump’s Commerce Department <a href="https://www.pcmag.com/news/352232/zte-will-pay-record-fine-for-sales-to-iran-north-korea">fined ZTE</a> US$1.19 billion for violating U.S. sanctions law by selling technology containing U.S. components to Iran and North Korea. This past April, the agency said ZTE was still violating U.S. law and barred American companies – most importantly chip-maker Qualcomm – from selling anything to ZTE, which led to an <a href="https://arstechnica.com/tech-policy/2018/05/the-trump-administration-just-forced-smartphone-maker-zte-to-shut-down/">announcement</a> that it was shutting down less than a month later. </p>
<p>Within days, however, Trump appeared to have an abrupt change of heart and <a href="https://twitter.com/realDonaldTrump/status/995680316458262533">tweeted</a> that he and Chinese President Xi Jinping were working getting ZTE “back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!”</p>
<p>Flip-flops like these make it hard for trade partners to predict what the U.S. government is going to do, breeding enormous uncertainty.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/222465/original/file-20180610-191954-1f3oe2a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/222465/original/file-20180610-191954-1f3oe2a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/222465/original/file-20180610-191954-1f3oe2a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/222465/original/file-20180610-191954-1f3oe2a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/222465/original/file-20180610-191954-1f3oe2a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/222465/original/file-20180610-191954-1f3oe2a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/222465/original/file-20180610-191954-1f3oe2a.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">Trump turned heads when he said he wanted to save Chinese tech giant ZTE, shortly after his administration helped bring it to its knees.</span>
<span class="attribution"><span class="source">AP Photo/Ng Han Guan</span></span>
</figcaption>
</figure>
<h2>Decision-making</h2>
<p>Consider the situation faced by an American businessman who produces high-level industrial equipment that is exported to many countries around the world. </p>
<p>His company’s equipment is made using aluminum and steel and, as a result of Trump’s new tariffs, this businessman <a href="https://www.nytimes.com/2018/05/31/upshot/-us-tariffs-real-economic-risk-is-unpredictability.html">will have difficulty predicting</a> what the cost of the metals will be in the future. This will have clear implications for the pricing of his products. In addition, if the U.S. gets into a trade war, this businessman will also not know whether some or all foreign buyers might look elsewhere for similar but cheaper alternatives.</p>
<p>Such thinking affects not just individual business people but <a href="https://www.dallasnews.com/opinion/editorials/2018/06/06/trumps-trade-policies-make-harder-companies-invest-creates-jobs-americans">also companies</a>. </p>
<p>Far from hypothetical, <a href="https://www.dallasnews.com/opinion/editorials/2018/06/06/trumps-trade-policies-make-harder-companies-invest-creates-jobs-americans">companies</a> are already warning about this. Ford and Toyota North America <a href="http://www.businessinsider.com/trump-steel-aluminum-tariffs-means-expensive-cars-trucks-2018-3/">have both complained</a> about the negative impacts of Trump’s metals tariffs on costs and on the ability to make sound investment decisions.</p>
<h2>Act credibly and legally</h2>
<p>Trump’s steel and aluminum tariffs have also raised questions about their legality and credibility. </p>
<p>German Chancellor Angela Merkel and French President Emmanuel Macron <a href="https://www.washingtonpost.com/world/eu-plots-counterstrike-to-american-tariffs/2018/06/01/aa07dfa8-6521-11e8-81ca-bb14593acaa6_story.html?utm_term=.9b95cf0cb455">have both asserted</a> that these tariffs are illegal. As such, the European Union <a href="https://www.theguardian.com/business/2018/jun/01/eu-starts-retaliation-against-donald-trumps-steel-and-aluminium-tariffs">has filed a suit</a> against the U.S. at the WTO. It’s unclear whether the American national security justification will sway the WTO judges.</p>
<p>Prime Minister Justin Trudeau, who <a href="https://www.nytimes.com/2018/06/09/world/americas/donald-trump-g7-nafta.html">was the target</a> of a post-G-7 Trump tweetstorm, <a href="https://www.nytimes.com/2018/05/31/us/politics/trump-aluminum-steel-tariffs.html">has wondered</a> how Canada could possibly be a national security threat to the U.S. Even Defense Secretary James Mattis <a href="https://www.forbes.com/sites/johnbrinkley/2018/03/12/trumps-national-security-tariffs-have-nothing-to-do-with-national-security/#285badc0706c">is reported</a> to have pointed out the implausibility of the national security argument for the tariffs.</p>
<p>This gloomy state of affairs shows that even some of our long-standing friends believe that the Trump administration’s recent actions are illegal and, more generally, that these same allies cannot make head nor tail of the administration’s trade initiatives.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/222466/original/file-20180610-191965-153znc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/222466/original/file-20180610-191965-153znc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/222466/original/file-20180610-191965-153znc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/222466/original/file-20180610-191965-153znc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/222466/original/file-20180610-191965-153znc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/222466/original/file-20180610-191965-153znc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/222466/original/file-20180610-191965-153znc.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">Trump’s policies are irking two of the U.S.’s most important allies, France’s Emmanuel Macron and Canada’s Justin Trudeau.</span>
<span class="attribution"><span class="source">AP Photo/Evan Vucci</span></span>
</figcaption>
</figure>
<h2>A key lesson</h2>
<p>The U.S. is the world’s richest and <a href="https://www.usnews.com/news/best-countries/power-rankings">most powerful nation</a>, in part <a href="https://www.economist.com/briefing/2016/11/12/the-piecemaker">because of its embrace</a> of a rules-based international order that includes the present treaty-based global trading system.</p>
<p>Rather than build on that success, President Trump’s trade actions thus far have <a href="https://www.nytimes.com/2018/03/01/us/politics/trump-chaos-oval-office.html">created chaos</a>, which has not led to any noteworthy success either in terms of extracting concessions from trade partners or creating the “great” agreements he touts in his book “<a href="https://www.thestreet.com/story/13289498/1/10-things-you-learn-reading-donald-trump-s-best-seller-the-art-of-the-deal.html">The Art of the Deal</a>.” </p>
<p>In negotiating deals, trade or otherwise, Trump <a href="https://www.bostonglobe.com/opinion/2018/03/12/trump-breaking-all-rules-and-that-could-great-for-america/xlotc2ETtBEBCLA5Zxpp8O/story.html">seems to like to break</a> all the rules. He needs to learn: That’s not what made America great.</p><img src="https://counter.theconversation.com/content/97896/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amitrajeet A. Batabyal has received research funding from the Giannini Foundation for Agricultural Economics, the United States Department of Agriculture, and the Charles Koch Foundation.</span></em></p>International trade policy requires three traits to be successful and lead to mutual prosperity. Trump’s is missing all three, as he showed at the G-7 summit.Amitrajeet A. Batabyal, Arthur J. Gosnell Professor of Economics, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/968882018-05-20T18:49:14Z2018-05-20T18:49:14ZWhy China can’t meet Trump’s $200 billion trade demand<p>President Donald Trump <a href="https://www.wsj.com/articles/china-drops-probe-into-u-s-sorghum-shipments-1526629000">has demanded</a> China cut the U.S. trade deficit by <a href="https://www.cnbc.com/2018/05/18/us-china-trade-chinas-offer-is-more-politics-than-economics.html">US$200 billion</a> by 2020 or face a host of punishing tariffs. After recent talks with the U.S., China <a href="https://www.wsj.com/articles/china-drops-probe-into-u-s-sorghum-shipments-1526629000">agreed</a> to reduce it but wouldn’t commit to a target. </p>
<p>Regardless, my research in international economics tells me that meeting Trump’s demand is implausible. </p>
<p>Economists use the term <a href="https://study.com/academy/lesson/what-is-a-current-account-definition-examples.html">current account</a> to refer to the difference between a nation’s exports and its imports in a given time period. If the U.S. exports more than it imports, then its account is in surplus. If imports exceed exports, there’s a deficit.</p>
<p>With China, the U.S. imports a <a href="https://www.census.gov/foreign-trade/balance/c5700.html">whopping $375 billion more</a> than it exports. </p>
<p>How could it whittle that down to $175 billion? There are three ways. </p>
<p>First, China could buy more U.S. goods and services. Second, Americans could buy less Chinese stuff. Finally, both actions could happen simultaneously. </p>
<p>The kinds of Chinese goods that Americans buy tend to be relatively inexpensive consumer goods, so even a dramatic decline is likely to have only a trivial impact on the deficit. And since China explicitly controls only one lever – its imports – it’ll have to buy a lot more American-made things to achieve this goal. </p>
<p>For this to happen, without upsetting other trade balances, the American economy would have to make a lot more than it currently produces, something that isn’t possible in so short a time frame. </p>
<p>That’s because when a nation’s economy is using its resources to produce goods efficiently, economists say that it has reached its <a href="https://www.investopedia.com/terms/p/productionpossibilityfrontier.asp">production possibility frontier</a> and cannot produce more goods. </p>
<p><a href="https://www.nytimes.com/2018/05/17/us/politics/china-trade-trump-concessions.html">Analysts believe</a> that the U.S. economy has either reached or is very close to its frontier, and hence, at least in the short run, there is no way for it to significantly increase the goods it exports to China. </p>
<p>If the Chinese reduced purchases from other nations and instead bought those goods from the U.S., it would have only a very modest impact on the deficit.</p>
<p>What if the U.S. instead of selling goods like airplanes and soybeans to Europe <a href="https://www.cnbc.com/2018/05/18/us-china-trade-chinas-offer-is-more-politics-than-economics.html">sent more of those products</a> to China? Well, that would reduce the U.S.-China trade deficit but widen it elsewhere.</p>
<p>Maybe Trump would be able to score a win by declaring that the U.S.‘ biggest bilateral trade deficit had come down. But <a href="https://www.nytimes.com/2018/03/05/us/politics/trade-deficit-tariffs-economists-trump.html">his ultimate goal</a> of more economic growth would still be unattainable because the U.S. would be selling no more stuff to the world than before. </p>
<p>The fundamental problem with the idea that China could reduce the trade deficit by $200 billion by buying more is that the U.S. economy simply cannot produce enough new goods for China to buy anytime soon. </p>
<p>Finally, apart from the economic implausibility of this idea, there is also the issue of Chinese credibility. China has <a href="https://www.nytimes.com/2018/05/01/opinion/america-china-trump-trade.html">often reneged on its promises</a>. </p>
<p>In short, it’s not going to happen.</p><img src="https://counter.theconversation.com/content/96888/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amitrajeet A. Batabyal has received research funding from the Giannini Foundation for Agricultural Economics, the United States Department of Agriculture, and the Charles Koch Foundation.</span></em></p>The Trump administration wants China to cut its trade deficit with the US by more than half. An economist explains why that’s not going to happen.Amitrajeet A. Batabyal, Arthur J. Gosnell Professor of Economics, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/957362018-05-04T10:49:12Z2018-05-04T10:49:12ZBoycott China and avoid a trade war<figure><img src="https://images.theconversation.com/files/217621/original/file-20180503-138586-1kwi1o7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China hopes to make more microprocessor chips in China, which makes it a great industry to lead a boycott.</span> <span class="attribution"><span class="source">AP Photo</span></span></figcaption></figure><p>The U.S. and China are locked in negotiations both sides say they hope will avert a painful trade war. </p>
<p>The Trump administration has threatened to impose a <a href="https://www.bloomberg.com/news/articles/2018-03-22/what-s-intellectual-property-and-does-china-steal-it-quicktake">series of tariffs</a> unless China agrees to limit <a href="http://time.com/5230353/donald-trump-china-tariffs-100-billion-chinese-goods/">what he calls</a> “its illicit trade practices.” The Chinese government, for its part, <a href="https://www.nytimes.com/2018/04/30/business/china-trump-trade-talks.html">appears unwilling</a> to accede to his demands and <a href="https://www.theguardian.com/business/2018/apr/06/china-us-tariffs-trump-country-midterms">has offered some retaliatory trade sanctions</a> of its own. </p>
<p>The ostensible reason President Donald Trump is willing to risk a trade war is because <a href="https://www.cfr.org/interactives/campaign2016/donald-trump/on-china">he argues</a> – justifiably – that U.S. companies have been taken advantage of by their Chinese counterparts for decades, required to hand over lucrative intellectual property in exchange for access to China’s growing middle class. </p>
<p>Tariffs, however, aren’t the answer to that problem, as <a href="https://scholar.google.com/citations?user=x5dB33oAAAAJ&hl=en&oi=ao">my research</a> in <a href="https://www.crcpress.com/The-Economics-of-International-Trade-and-the-Environment/Batabyal-Beladi/p/book/9781566705301">international economics</a> and the <a href="https://www.taylorfrancis.com/books/9781351784696">design of international environmental agreements</a> shows. Rather, if Trump really wants to achieve his stated aims, he should put American businesses on the front lines of his strategy and call for a boycott of China. </p>
<h2>Doing business in China</h2>
<p>If that sounds preposterous, consider the origins of this escalating conflict. </p>
<p>Its seeds can be traced back to the opening up of the Chinese economy as a result of reforms introduced by <a href="https://www.reuters.com/article/us-china-reforms-chronology-sb/timeline-china-milestones-since-1978-idUKTRE4B711V20081208">Deng Xiaoping in 1978</a> and the zeal of American – and more generally Western – companies in taking <a href="https://theconversation.com/how-western-companies-can-succeed-in-china-65291">full advantage</a> of new business opportunities in this gigantic market.</p>
<p>However, in many instances in the past four decades, the presence of mandatory technology transfer policies and foreign ownership restrictions have meant that market access has been granted only to Western firms <a href="https://www.bloomberg.com/news/articles/2018-03-22/what-s-intellectual-property-and-does-china-steal-it-quicktake">willing to play ball</a>. In addition, there is now considerable evidence that Chinese businesses, often with the participation of government officials, <a href="https://www.nytimes.com/2017/08/15/opinion/china-us-intellectual-property-trump.html">have been conducting cyberattacks</a> on American companies to steal their intellectual property. </p>
<p>The Trump administration <a href="http://ipcommission.org/report/IP_Commission_Report_Update_2017.pdf">estimated</a> that this theft of American intellectual property costs US$225 billion to $600 billion annually.</p>
<p>And since companies are already on the front lines of this fight, with the most to lose, it makes sense that they’re the ones to lead the counter attack. </p>
<h2>A boycott by firms</h2>
<p>So how would a boycott work? Importantly, the U.S. couldn’t do it alone. </p>
<p>American companies, like everyone else, want to make money in the <a href="https://www.marketmechina.com/china-can-penetrate-billion-strong-market">one billion person</a> market that is China and hence it would not make sense for them to unilaterally withdraw. By doing so, they would be giving up valuable market share to their rivals. For example, if a top U.S. luxury car seller such as <a href="http://www.autonews.com/article/20180105/RETAIL01/180109836/cadillac-behind-china-nears-sales-peak">Cadillac</a> were to unilaterally boycott the Chinese market, then it would be giving up valuable market share to other rivals. </p>
<p>The key point is that many of those rivals are in Europe and <a href="http://www.thetruthaboutcars.com/2012/07/german-paper-china-steals-volkswagen-patents">have also been used and abused</a> by Chinese companies and hence have a similar interest in finding a way to prevent them from stealing any more of their intellectual property. </p>
<p>If all Western luxury car makers jointly boycotted China, then this would be equivalent to acting as if a Chinese market didn’t exist. Clearly, profits would take a hit in the short run, but the long-term objective of ensuring that Western companies do business on a level playing field would be met.</p>
<h2>Cars and chips</h2>
<p>Also, a boycott wouldn’t have to involve more than a few industries to be effective. Specifically, the focus would need to be on industries that China, through its <a href="https://www.cfr.org/blog/why-does-everyone-hate-made-china-2025">Made in China 2025 scheme</a>, would like to dominate. Two strong examples are cars and computer chips. </p>
<p>China has been trying to develop a domestic automobile industry since the early 1980s, an effort <a href="https://www.jstor.org/stable/43107062?seq=1#page_scan_tab_contents">that has largely failed</a>. But now, under the Made in China initiative, it is seeking to become a leader in electric vehicles. </p>
<p>However, it needs Western automakers to continue to <a href="https://arstechnica.com/cars/2017/11/ford-is-going-to-launch-a-new-brand-of-electric-cars-just-for-china">operate in China</a> and conduct research on battery technology and on electric vehicles in order to <a href="https://www.bloomberg.com/news/features/2018-02-01/the-breakneck-rise-of-china-s-colossus-of-electric-car-batteries">achieve this goal</a>.</p>
<p>Thus if Western car companies and particularly those actively conducting research in battery technology jointly agreed to stop competing in China, that would send a strong message to Beijing. Either China could try to go it alone with no Western collaboration or it’ll have to realize that systematically strong-arming companies will not help it attain its goals. </p>
<p>A second example of an industry in which a Western boycott would be effective is microprocessor chips. This is because China <a href="https://www.reuters.com/article/us-usa-trade-china-chips-exclusive/exclusive-china-looks-to-speed-up-chip-plans-as-u-s-trade-tensions-boil-sources-idUSKBN1HQ1QP">is still significantly dependent</a> on imports despite operating a few notable supercomputers that use solely home-made chips. <a href="https://www.wsj.com/articles/chinas-next-target-u-s-microchip-hegemony-1501168303">Almost 90 percent of chips</a> used in China are either imported or produced domestically by foreign companies, so a boycott would force the government to sit up and take notice. </p>
<p>For a boycott of this sort to work, it is important that American officials not attempt to go it alone, making it seem like a purely China versus U.S. spat. Successful boycotts follow a “strength in numbers” logic.</p>
<p>And this is where the Trump administration enters the fray. It could use its diplomatic muscle to enlist the governments of like-minded allies – particularly the European Union – to get their companies in key industries to join the American-led boycott. This could be part of a wider effort to credibly and collaboratively communicate to China that it needs to play fairly. As New York Times columnist Thomas Friedman <a href="https://www.nytimes.com/2018/05/01/opinion/america-china-trump-trade.html">recently noted</a>, the “last thing Beijing wants is a U.S.-E.U. united front demanding it play fair.” </p>
<p>Not only would this selective boycott make it harder for the Chinese government to achieve its <a href="http://english.gov.cn/2016special/madeinchina2025/">Made in China 2025 dreams</a>, it would also anger consumers, who are <a href="https://www.marketingtochina.com/5-reasons-chinese-like-buy-imported-brands/">increasingly hungry</a> for Western goods – something the leadership <a href="http://www.scmp.com/news/china/policies-politics/article/1878363/give-chinese-greater-access-foreign-consumer-goods">is well aware of</a>. </p>
<p>And in contrast to tariffs, such a campaign would likely have no adverse impact on American consumers. </p>
<p>One important caveat: This course of action, like imposing tariffs, would probably do little to reduce the threat of intellectual property theft by Chinese hackers.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/217601/original/file-20180503-153878-nvu6ku.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/217601/original/file-20180503-153878-nvu6ku.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/217601/original/file-20180503-153878-nvu6ku.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/217601/original/file-20180503-153878-nvu6ku.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/217601/original/file-20180503-153878-nvu6ku.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/217601/original/file-20180503-153878-nvu6ku.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/217601/original/file-20180503-153878-nvu6ku.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 Chinese government is hoping to make more high-tech products in China by 2025.</span>
<span class="attribution"><span class="source">AP Photo/Ng Han Guan</span></span>
</figcaption>
</figure>
<h2>Would a boycott work?</h2>
<p>When we think of a boycott, we usually imagine consumers avoiding a particular product. Such boycotts have had <a href="http://www.ipr.northwestern.edu/about/news/2017/king-corporate-boycotts.html">varying levels of success</a>. </p>
<p>A corporate boycott of a nation is much less common. To the best of my knowledge, a corporate boycott of a nation along the lines suggested here has not been attempted before. Historically, <a href="https://en.wikipedia.org/wiki/List_of_boycotts">boycotts</a> against a nation have typically been designed to persuade consumers to not purchase products from a nation, such as the <a href="https://www.sahistory.org.za/archive/when-boycott-began-bite">anti-apartheid movement</a> or the more controversial <a href="https://bdsmovement.net/what-is-bds">boycott of Israel</a>. </p>
<p>What I am proposing is a country boycott by companies located in multiple nations and hence it is not possible to directly gauge the likelihood of success based on past actions</p>
<p>That being said, vigorous diplomacy by like-minded nations sharing a common objective has yielded positive outcomes in as diverse and difficult cases as the <a href="https://www.state.gov/e/oes/eqt/chemicalpollution/83007.htm">1987 Montreal protocol</a> to reduce ozone-depleting substances and the <a href="http://www.bbc.com/news/world-middle-east-33521655">2015 Iran nuclear deal</a>. Similarly, the Organization of Petroleum Exporting Countries cartel has demonstrated how businesses across nations can take joint action to achieve a common objective, with <a href="http://energyfuse.org/opecs-history-of-oil-market-management-its-complicated/">mixed success</a>.</p>
<p>Might China retaliate? Perhaps, but the costs would be high if the U.S. were to successfully organize a boycott involving companies in several dozen countries. More likely, it would find accommodation a much more palatable option in the face of a united front. </p>
<p>The recent tariffs aside, Western businesses and nations need to stop treating China with kid gloves, which I believe they have been doing for years. A boycott would be a good start – and wouldn’t risk a trade war.</p><img src="https://counter.theconversation.com/content/95736/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amitrajeet A. Batabyal has received funding from the United States Department of Agriculture, the Giannini Foundation for Agricultural Economics and the Charles Koch Foundation.</span></em></p>If companies in key industries collectively shunned the Chinese market, that would force China’s leaders to take notice, with less risk of blowback.Amitrajeet A. Batabyal, Arthur J. Gosnell Professor of Economics, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/946042018-04-17T10:44:41Z2018-04-17T10:44:41ZHow China’s winemakers succeeded (without stealing)<figure><img src="https://images.theconversation.com/files/214829/original/file-20180413-566-14t5na1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">More Chinese wines are finding their way into the liquor aisle. </span> <span class="attribution"><span class="source">AP Photo/Elizabeth Dalziel</span></span></figcaption></figure><p>Joint ventures between Western and Chinese companies are <a href="https://www.economist.com/news/finance-and-economics/21740410-heart-disagreement-chinas-industrial-policy-americas-gripes">in the news</a> over accusations – <a href="https://www.nytimes.com/2018/03/22/business/china-trump-trade-intellectual-property.html">including those of President Donald Trump</a> – that China uses them to <a href="https://www.nytimes.com/2018/03/22/business/china-trump-trade-intellectual-property.html">steal</a> intellectual property from foreign competitors in industries like cars and technology. </p>
<p>Less well known, however, are the joint ventures between French and Chinese winemakers, which offer a notable counterpoint to this narrative of international rivalry – or foreign exploitation, depending on your perspective. </p>
<p>Unlike for cars and electronics, there are no secret technologies in the making of wine. The <a href="https://wine.lovetoknow.com/wiki/Who_Invented_Wine">millennia-old fermented drink</a> is primarily a product of the land where the grapes are grown. What differentiates the best from the rest is not proprietary technology but experience in combining agriculture, science and art.</p>
<p>During research visits to China’s major <a href="https://www.decanterchina.com/en/regions/china/">wine regions</a> – from beach resorts in Shandong and Ningxia’s rocky and arid landscapes to the lush mountains of Yunnan – we encountered a blend of local and foreign winemakers, farmers, wine scientists and local government officials, all committed to establishing local wines on the world stage. </p>
<p>Winemaking succeeds on the back of such international collaboration. And in our experience, it’s helping Chinese wine producers overcome their biggest obstacles to success. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/214823/original/file-20180413-570-1qxtq5o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/214823/original/file-20180413-570-1qxtq5o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=377&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214823/original/file-20180413-570-1qxtq5o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=377&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214823/original/file-20180413-570-1qxtq5o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=377&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214823/original/file-20180413-570-1qxtq5o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=474&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214823/original/file-20180413-570-1qxtq5o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=474&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214823/original/file-20180413-570-1qxtq5o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=474&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Entrance of the 2014 International Wine Exposition in Yanqing, where hundreds of foreign and local wineries came to make their pitch.</span>
<span class="attribution"><span class="source">Cynthia Howson and Pierre Ly</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>No secret technology to steal</h2>
<p>China is currently the <a href="http://www.oiv.int/public/medias/5479/oiv-en-bilan-2017.pdf">sixth-largest wine producer</a>, bottling 11.4 million hectoliters in 2016, just behind Australia’s 13 million. China is fifth in terms of consumption. </p>
<p><iframe id="0UFPC" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/0UFPC/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>A few years ago, as <a href="https://theconversation.com/chinese-vintners-are-winning-renown-as-wine-industry-soars-34474">we explained</a> in The Conversation, China’s wine industry was focused on overcoming the rising cost of labor, dealing with difficult climates and improving grape quality.</p>
<p>Now, the biggest obstacles Chinese vintners have to overcome are the country’s image problem and growing competition from foreign wine. And that’s where the foreign ventures have proven so valuable.</p>
<p>China has long had a reputation for <a href="https://www.forbes.com/sites/pamelaambler/2017/07/27/china-is-facing-an-epidemic-of-counterfeit-and-contraband-wine/#7f6af3f35843">counterfeiting and food safety scandals</a>. At the same time, the wine industry has become less protected from foreign competition after <a href="http://www.decanter.com/wine-news/exporting-wine-to-china-countries-384383/">bilateral trade deals</a> with countries such as Chile and Australia eliminated some tariffs. And although there are still such barriers in place with Europe (as well as the U.S.), Chinese wine lovers still <a href="http://www.decanter.com/wine-news/exporting-wine-to-china-countries-384383/">drink a ton of French wine</a>, despite the higher prices.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/214821/original/file-20180413-570-vgr0ki.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/214821/original/file-20180413-570-vgr0ki.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=371&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214821/original/file-20180413-570-vgr0ki.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=371&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214821/original/file-20180413-570-vgr0ki.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=371&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214821/original/file-20180413-570-vgr0ki.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=467&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214821/original/file-20180413-570-vgr0ki.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=467&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214821/original/file-20180413-570-vgr0ki.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=467&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The authors visit Guanlan Vineyard with owner Yanzhi Zhang, a Beijing wine importer and Bordeaux-trained winemaker who is building two wineries in Ningxia.</span>
<span class="attribution"><span class="source">Cynthia Howson and Pierre Ly</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>That has meant Chinese makers of premium wines have had to raise their game to compete with skilled foreign competitors. And perhaps ironically, some of those foreign rivals have been only too happy to share knowledge and skills. </p>
<p>Unlike for cars, making good wine doesn’t require proprietary technology. Any serious student can learn the techniques, whether they are traditional or cutting edge, by reading, <a href="https://www.youtube.com/watch?v=a3kQWGBy7PQ">going to school</a> or finding a mentor. Becoming a good winemaker requires experimenting with a range of tried and true methods, both in the vineyard and the cellar. There is no secret recipe, only hard work and problem solving.</p>
<p>Such collaborative partnerships have been essential to helping China wine producers overcome the image problem and better compete.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/214822/original/file-20180413-587-1f97o1i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/214822/original/file-20180413-587-1f97o1i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=350&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214822/original/file-20180413-587-1f97o1i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=350&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214822/original/file-20180413-587-1f97o1i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=350&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214822/original/file-20180413-587-1f97o1i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=440&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214822/original/file-20180413-587-1f97o1i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=440&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214822/original/file-20180413-587-1f97o1i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=440&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Chandon China’s winery sits in the shadow of Helan Mountain in Ningxia.</span>
<span class="attribution"><span class="source">Cynthia Howson and Pierre Ly</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Enter the French</h2>
<p>It might surprise readers that French Cognac producer Remy Martin was one of the first Western companies to form a joint venture in China, in this case with the city of Tianjin in 1980 <a href="https://www.nytimes.com/1983/11/11/business/dynasty-without-tradition.html">to set up a winery</a>. </p>
<p>The French brought winemaking skills and, in exchange, got a foot in the door into a promising market for imported Cognac. The result, Dynasty Winery, is now <a href="http://www.agr.gc.ca/resources/prod/Internet-Internet/MISB-DGSIM/ATS-SEA/PDF/6799-eng.pdf">one of the largest</a> Chinese wine producers.</p>
<p>Remy and other Western companies brought not only skills but also their brand name. Chinese wine enthusiasts – vulnerable to the same stereotypes Westerners have – might question how good a wine from an unknown domestic company might be. But if is made by a famous French wine group, whose wines they enjoy, they might give it a chance.</p>
<p>While Dynasty is a mass market brand, other more recent French-Chinese partnerships have focused on developing premium wines. One involved LVMH and a state-owned enterprise in Ningxia, a poor province often hailed as China’s <a href="https://www.jancisrobinson.com/articles/chinas-most-promising-wine-province">most promising</a> wine region. In 2013, the French luxury conglomerate launched <a href="https://www.lvmh.com/houses/wines-spirits/chandon-china/">Chandon China</a>, the latest offspring in the global <a href="https://www.ft.com/content/4d28842e-8829-11e3-8afa-00144feab7de">Chandon family</a> of sparkling wine. </p>
<p>Unlike in other sectors, such as clothing or electronics, Western winemakers are not in China to take advantage of low costs. Chinese wine is <a href="http://www.scmp.com/magazines/post-magazine/article/1879773/legacy-peak-helps-lead-charge-chinese-wineries">expensive to make</a>, due to the rising cost of <a href="http://money.cnn.com/2016/03/17/news/economy/china-cheap-labor-productivity/index.html">labor</a>, and, in some regions, the need to bury the vines to protect them from cold winters and dig them out every spring. </p>
<p>Moreover, you can’t outsource the production of wine to another country. Champagne can only be made in the Champagne region of France. Napa Valley wine can only be made in the Napa Valley. If a wine is made in China, it becomes Chinese wine. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/214595/original/file-20180412-540-1sjq0ll.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/214595/original/file-20180412-540-1sjq0ll.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214595/original/file-20180412-540-1sjq0ll.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214595/original/file-20180412-540-1sjq0ll.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214595/original/file-20180412-540-1sjq0ll.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214595/original/file-20180412-540-1sjq0ll.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214595/original/file-20180412-540-1sjq0ll.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Wines from Treaty Port Vineyards, which occupies this Scottish-style castle in Moulangou village, Shandong, are available in the U.K. from The Real Wine Company.</span>
<span class="attribution"><span class="source">Cynthia Howson and Pierre Ly</span></span>
</figcaption>
</figure>
<h2>Soaring wine quality</h2>
<p>The result, for Chinese winemakers, has been soaring quality. </p>
<p>Not long ago, really good Chinese wines were <a href="http://www.grapewallofchina.com/2014/07/30/triple-a-formula-for-china-wine-appetizing-affordable-available/">very hard to find</a>. Mass market wine brands, like Changyu, Great Wall or Dynasty, were ubiquitous in supermarkets and convenience stores around the country. But most award-winning boutique wineries you read about in the media were <a href="http://www.grapewallofchina.com/2014/07/30/triple-a-formula-for-china-wine-appetizing-affordable-available/">too small</a> or lacked marketing skills and deals with distributors that could put their wines in front of consumers.</p>
<p>Today the best boutique Chinese wines are far more available in major cities because the major distributors have begun to <a href="http://www.grapewallofchina.com/2015/07/14/summergate-kanaan-sign-distribution-deal/">include</a> more Chinese producers in their porfolios of primarily imported wines. This has made the best Chinese wines available in local shops frequented by wine enthusiasts, like <a href="https://www.pudaowines.com/eng/buy-wines-spirits/?special_4=1">Pudao Wines</a> in Beijing and Shanghai, and on a few restaurant wine lists. </p>
<p>At a hotel restaurant in Guangzhou’s main airport in 2016, for example, we were able to order an glass of Pretty Pony, an <a href="http://awards.decanter.com/dawa/2016/Wine/288659?name=Kanaan%20winery-Pretty%20Pony-2014">award winning</a> Ningxia red by Kanaan winery – something we couldn’t have done just a year earlier.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/214826/original/file-20180413-46652-lgu5zt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/214826/original/file-20180413-46652-lgu5zt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=977&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214826/original/file-20180413-46652-lgu5zt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=977&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214826/original/file-20180413-46652-lgu5zt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=977&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214826/original/file-20180413-46652-lgu5zt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1227&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214826/original/file-20180413-46652-lgu5zt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1227&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214826/original/file-20180413-46652-lgu5zt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1227&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">One of the authors orders a glass of Kanaan’s Pretty Pony red during a layover at Guangzhou airport.</span>
<span class="attribution"><span class="source">Cynthia Howson and Pierre Ly</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Next stop: exports</h2>
<p>So how easy is it to pick up a bottle of Pretty Pony at your local supermarket if you don’t live in China? </p>
<p>Although exports of Chinese wine are still quite low, at just <a href="http://data.un.org/Data.aspx?q=wine&d=ComTrade&f=_l1Code%3A23%3BcmdCode%3A220410">US$1.2 million</a> in 2016 compared with $15 million for Argentina and $3.2 billion for France, a growing number of supermarkets and wine shops in Europe and the U.S. are stocking some of the best Chinese wines, from <a href="http://www.totalwine.com/wine/red-wine/cabernet-sauvignon/ao-yun-cabernet-china/p/162576750?s=1401&igrules=true">Seattle</a> and <a href="https://www.danmurphys.com.au/dm/search/dm_search_results_gallery.jsp?search=Kanaan&link=PDP-RangeLink">Melbourne</a> to <a href="https://www.tesco.com/groceries/en-GB/products/295163107">London</a> and <a href="https://soysuper.com/marca/changyu#products">Madrid</a>. </p>
<p>While it’s unlikely Chinese winemakers will be threatening their French peers anytime soon, they are now decidedly on the world’s wine map.</p><img src="https://counter.theconversation.com/content/94604/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 organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As the US celebrates Wine Day, China’s young winemakers are a reminder of the power and value of cameraderie and cooperation in this age-old industry.Cynthia Howson, Lecturer, University of WashingtonPierre Ly, Associate Professor, University of Puget SoundLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/946072018-04-11T10:50:12Z2018-04-11T10:50:12ZShould California winemakers be worried about China’s tariffs?<figure><img src="https://images.theconversation.com/files/214179/original/file-20180410-543-1eenfm9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some Napa and Sonoma Valley wineries are worried about the China tariffs. </span> <span class="attribution"><span class="source">AP Photo/Eric Risberg</span></span></figcaption></figure><p>California’s vintners and grape growers are among the latest potential victims in the escalating trade spat between the U.S. and China. </p>
<p>Responding to U.S. plans to impose import duties on goods from China, the Chinese Ministry of Commerce <a href="https://www.nytimes.com/2018/04/01/world/asia/china-tariffs-united-states.html">reciprocated</a> by introducing new tariffs on 128 U.S. products, including an additional 15 percent import tariff on wine. </p>
<p>Wine producers in California are concerned about the immediate and longer-term implications of this new tariff, on top of those already in place. <a href="http://www.lodinews.com/news/article_cb943f44-395d-11e8-9d3b-5b199814232a.html">Reports have already begun to circulate</a> about orders being canceled, redirected or renegotiated as a result. </p>
<p>How worried should U.S. winemakers be? </p>
<h2>The US wine industry</h2>
<p>The U.S. is a major player in the global wine industry both in terms of consumption and production. </p>
<p>Americans <a href="https://www.cambridge.org/core/books/wine-globalization/united-states/F91DB4F30BC37145AC9B92F37C2AA5D7">consumed 3.59 billion liters of wine</a> in 2016, or about 11.1 liters per person. About a third of that was imported. </p>
<p>In terms of production, the U.S. <a href="http://www.wineinstitute.org/files/World_Wine_Production_by_Country_2015.pdf">ranks fourth</a> after Italy, France and Spain – <a href="https://www.wineinstitute.org/resources/statistics/article83">making more than 3 billion liters</a> in 2016. California produced about 85 percent of that, <a href="https://doi.org/10.1017/jwe.2015.29">while the rest</a> comes from a variety of states, including Washington, Oregon and New York. </p>
<p>While the vast majority of U.S. wine is consumed domestically, about 10 percent is shipped overseas. In 2017, the U.S. <a href="https://www.cambridge.org/core/books/wine-globalization/united-states/F91DB4F30BC37145AC9B92F37C2AA5D7">exported 380 million liters</a> of wine worth US$1.46 billion. Canada was the top destination, importing 28 percent of the total, followed by the U.K. with 15 percent, Hong Kong at 8 percent and Japan with 6 percent. </p>
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<h2>China’s small share</h2>
<p>China, for its part, imports quite a bit of wine. Very little, however, comes from the U.S.</p>
<p>China imported some $2.37 billion worth of wine in 2016, most of which came from the European Union. Only <a href="https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/usa/show/2204/2016/">$76 million</a>, or 2.2 percent, was American.</p>
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<p>That puts China sixth among top destinations for U.S. wine exports, with a share of about 5 percent. </p>
<p>These <a href="https://www.adelaide.edu.au/wine-econ/pubs/working_papers/WP0517.pdf">figures underestimate</a> the true value somewhat because perhaps half of Hong Kong’s imports are then shipped or smuggled to China. Even allowing for these adjustments, Chinese consumption of U.S. wine makes up less than 1 percent of the total value of American production. </p>
<p>It’s clear that at the moment China is not all that important to most California wine producers. Why then are U.S. wine producers anxious about new tariffs disrupting trade to this relatively minor market? </p>
<p>It’s all about the future. Although per capita consumption of wine in China remains very low, China is the world’s fastest-growing wine market and is expected to soon become the second largest, after the U.S. </p>
<p>From 2000 to 2016, <a href="https://www.adelaide.edu.au/wine-econ/pubs/working_papers/WP0517.pdf">Chinese wine consumption soared</a> from 219 million liters in 2000 to 1.24 billion liters in 2016. <a href="https://www.adelaide.edu.au/wine-econ/pubs/working_papers/WP0517.pdf">Some observers estimate</a> growth was even higher. Much of that consumption was imported – especially in the premium wine segment. </p>
<p><a href="https://www.cambridge.org/core/books/wine-globalization/asia-and-other-emerging-regions/85F1403DA98F8B4BB57F837734D91589">Economists who have studied these markets</a> project further significant growth in China’s demand for wine, including premium wine imports. </p>
<p>This would make getting pushed out of China especially troubling at a time when global per-capita wine consumption has been declining, especially in Europe. </p>
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<h2>Already at a disadvantage</h2>
<p>Even without the new tax, U.S. exporters were facing a tilted playing field that would have constrained the potential for increasing California’s market share. </p>
<p>Without the new tariffs, China already collected a tariff of 14 percent on most U.S. wine – though it can reach as high as 20 percent in some categories. In contrast, <a href="https://www.adelaide.edu.au/wine-econ/pubs/working_papers/WP0517.pdf">wine from some countries</a>, such as Chile, Georgia, New Zealand and, starting next year, Australia, enter China duty-free. </p>
<p>With the new tariff in effect, most American wines will incur duties of 29 percent. </p>
<p>Hong Kong, however, does offer a back door to U.S. wine. The China-governed island phased out its own steep tariffs on wine imports a decade ago. This has created an incentive for smuggling. </p>
<h2>A market lost?</h2>
<p>So what does all this mean? </p>
<p>Given the small share of total U.S. wine currently going to China, the new tariff would not likely have a material effect on the American wine industry, whether in terms of domestic prices or producer bottom lines. Still, it will be disruptive for particular businesses especially in the near term. </p>
<p>The real concern for American wine producers is that high tariffs applied today may make U.S. wine too expensive and cause them to miss out as hundreds of millions of Chinese middle-income consumers increase their wine consumption over the next decade.</p>
<p>More broadly, if the trade spat escalates to a trade war, serious damage will be done to all of U.S. agriculture, including grape and wine producers. Even more troubling, if the loss of trade causes broader damage to the U.S. economy, it could even affect demand for California wine in its most important market: the United States.</p><img src="https://counter.theconversation.com/content/94607/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julian M. Alston receives grant funding from USDA, CDFA, and other government agencies, and occasionally from industry, to support his work on wine economics. </span></em></p><p class="fine-print"><em><span>Daniel A. Sumner receives grant funding through the University of California
from U.S. Department of Agriculture the California Department of Food and
Agriculture, other government agencies and occasionally from industry sources,
to support his work on economics of wine and other agricultural products.</span></em></p><p class="fine-print"><em><span>Olena Sambucci receives funding from USDA, CDFA, and other government agencies, and occasionally from industry, to support her work on wine economics.</span></em></p>While the proposed tariffs would have little effect on US wine sales in the short term, their long-term impact could be much more problematic.Julian M. Alston, Director of the Robert Mondavi Institute Center for Wine Economics, University of California, DavisDaniel Sumner, Frank H. Buck, Jr, Distinguished Professor of Agricultural and Resource Economics, University of California, DavisOlena Sambucci, Postdoctoral Scholar in Agricultural and Resource Economics, University of California, DavisLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/944762018-04-05T10:46:29Z2018-04-05T10:46:29ZWhy China’s soybean tariffs matter<figure><img src="https://images.theconversation.com/files/213298/original/file-20180404-189798-f7e7ym.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A farmer harvest his soybean field in Loami, Ill. </span> <span class="attribution"><span class="source">AP Photo/Seth Perlman</span></span></figcaption></figure><p>China’s <a href="https://www.politico.com/story/2018/07/06/china-retaliation-us-tariffs-672127">25 percent retaliatory tariffs</a> on imports of U.S. soybeans may come as something of a surprise to most Americans. But 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>And now that risk of a trade war is reality, and American soybean farmers may be among the biggest losers.</p>
<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>In 2016, the <a href="http://farmpolicynews.illinois.edu/2018/03/wall-street-journal-china-prepares-tariffs-targeting-agricultural-exports/">U.S. accounted for US$22.8 billion</a> worth of global soybean exports, the most of any country. Its nearest competitor is Brazil, which exported $21 billion. </p>
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<p>Meanwhile, China accounts for the lion’s share of global soybean imports at $34 billion, or two-thirds of the total. </p>
<p><a href="https://piie.com/blogs/trade-investment-policy-watch/more-soybeans-trumps-section-301-tariffs-and-chinas-response">American exports made up about a third of that</a>, or $12.4 billion, making soybeans the United States’ second-most valuable export to China after varieties of airplanes.</p>
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<p>The <a href="https://ussec.org/wp-content/uploads/2018/02/2017-Annual-Report-final-low-res.pdf">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 percent</a> from 1986 to 2012 and is projected to increase another 30 percent 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>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 here in Ohio, where soybeans are the number one agricultural export at $1.4 billion. China is the state’s largest export market. </p>
<p>And Ohio is just the sixth-largest exporter of soybeans, after Illinois, Iowa, Minnesota, Indiana and Nebraska, all of which will suffer from the tariffs. </p>
<p>Not only do farmers stand to lose out by giving up market share to Brazilian farmers, but soybean prices will probably fall as well, hurting incomes and creating 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 the brink of a trade war.</p><img src="https://counter.theconversation.com/content/94476/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Sheldon receives funding from USDA and the NSF. </span></em></p>There’s a good reason China took aim at US soybean exports when it announced its latest list of retaliatory tariffs.Ian Sheldon, Chair in Agricultural Marketing, Trade and Policy, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/938992018-03-29T10:30:17Z2018-03-29T10:30:17Z4 charts show why Trump’s tariffs will hurt everyone – not just China<p>On March 22, the Trump administration lobbed its <a href="https://theconversation.com/trumps-go-it-alone-approach-to-china-trade-ignores-wtos-better-way-to-win-93918">second volley</a> in a planned escalation of punitive trade measures against America’s trading partners.</p>
<p>The latest salvo targets China, the <a href="https://www.census.gov/foreign-trade/statistics/highlights/top/top1801cm.html">largest U.S. trading partner</a>, and covers a much wider range of products than the first set of tariffs, which <a href="https://www.reuters.com/article/us-usa-trade-steel/trump-temporarily-excludes-eu-six-other-allies-from-steel-tariffs-idUSKBN1GZ0ET">focused on steel and aluminum</a>.</p>
<p><a href="https://theconversation.com/trumps-60-billion-in-china-tariffs-will-create-more-problems-than-they-solve-93897">There are many reasons</a> why this is a bad idea.</p>
<p>The president, however, believes that China has unfairly exploited U.S. workers and businesses and must be punished. Rather than take the more prudent approach and work with <a href="https://www.bloomberg.com/news/articles/2017-03-15/these-are-the-six-biggest-wto-disputes-you-need-to-care-about">other countries</a> that have been affected by Chinese exports, Trump has instead chosen to strike a blow that will hit not just China but the global economy as well. </p>
<p>That’s because the complexity and interconnectedness of the global trading system make it nearly impossible to narrowly target specific countries, as the U.S.-China trade relationship demonstrates.</p>
<h2>Chinese exports to the US</h2>
<p>China exports US$386 billion worth of goods to the U.S. every year, most notably a variety of manufactured products that most Americans associate with the “Made in China” label. </p>
<p>These trade flows are dominated by computers and other electronics, which constitute 45 percent of all exports. Computers alone represent 11 percent. </p>
<figure>
<h3>Top Chinese exports to the U.S. in 2016</h3>
<iframe height="400" width="100%" src="https://atlas.media.mit.edu/en/visualize/embed/tree_map/hs92/export/chn/usa/show/2016/?controls=false" frameborder="1"></iframe>
<figcaption>Source: <a href="https://atlas.media.mit.edu/en/">The Observatory of Economic Complexity.</a></figcaption>
</figure>
<h2>‘Foreign’ inputs</h2>
<p>These complex electronics products are comprised of dozens of parts and components that are sourced from many countries, including the U.S. </p>
<p>To get a sense of how much is actually made in China and how much comes from elsewhere, economists calculate the share of “domestic content” in the goods versus “foreign content.”</p>
<p>It turns out that China’s exports of manufactured products <a href="https://www.researchgate.net/profile/Zhi_Wang11/publication/228679803_How_much_of_China's_exports_is_really_made_in_China_Assessing_domestic_and_foreign_added_value_in_gross_exports/links/0deec5213bd3bc57f6000000.pdf">consist nearly equally</a> of foreign and domestic content. But for high-technology products, such as electronics, around two-thirds are foreign. </p>
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<p>In other words, a computer that is “Made in China” is, in fact, mostly made elsewhere. </p>
<p>So who gets hurt when the U.S. imposes a tariff on Chinese computers? A lot of people – including Americans. </p>
<p>Many products that are made in China were conceived of and sold by American companies – the Apple iPhone being a prominent example. In these cases, American workers provide a range of high-value services as inputs into the final product, such as the design, marketing and management provided by Apple employees in Cupertino. More than that, American companies <a href="https://www.lifewire.com/where-is-the-iphone-made-1999503">make many of the iPhone’s components</a>, including the camera, glass screen, touchscreen controller and the Wi-Fi chip.</p>
<h2>A boon for US service workers</h2>
<p>The upside to all this is that the recent growth in global manufacturing output has been a boon for American service workers. In fact, U.S. services exports to China doubled from 2011 to 2015.</p>
<p>On the other hand, this provides a stark illustration of how a tariff on Chinese goods could quickly come back to hit U.S. workers. </p>
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<p>And it is not just the direct trade links that matter. Trade also has important indirect effects on the economy by bringing countries closer together in other ways. </p>
<p>A case in point is Chinese tourism to the U.S., which has risen rapidly in recent years. So much so, in fact, that “travel services” is now the largest U.S. export to China. </p>
<h2>Students: Another kind of export</h2>
<p>A final underappreciated benefit to the U.S. from growing cultural and economic ties has been soaring Chinese enrollment in American universities.</p>
<p>Enrollment quintupled to 351,000 in 2016 from a decade earlier, with the Chinese now representing about a third of all international students in the U.S., up from 12 percent. </p>
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<p>Again, this represents a type of U.S. export to China and can be directly linked to deepening economic integration. In this case, the benefits to the U.S. are both tangible – admissions fees – and intangible – more innovation and knowledge sharing.</p>
<p>In summary, the world is highly integrated, in ways we often don’t see. As a result, when trade policy is made without careful thought, a tariff on flat-screen TVs can lead to fewer visitors to the Grand Canyon or the loss of marketing jobs in Cleveland. And we are all poorer for it.</p><img src="https://counter.theconversation.com/content/93899/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Greg Wright 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>A closer look at the US-China trade relationship shows why Trump’s ‘targeted’ tariffs are likely to hurt American workers and businesses as well.Greg Wright, Assistant Professor of Economics, University of California, MercedLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/939182018-03-27T10:44:07Z2018-03-27T10:44:07ZTrump’s go-it-alone approach to China trade ignores WTO’s better way to win<figure><img src="https://images.theconversation.com/files/212041/original/file-20180326-188628-182xwb2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Trump may have launched first salvo in a trade war.</span> <span class="attribution"><span class="source">AP Photo/Ng Han Guan</span></span></figcaption></figure><p>President Donald Trump seems to be changing his tune on trade. </p>
<p>On March 8, he imposed <a href="https://theconversation.com/economic-history-shows-why-trumps-america-first-tariff-policy-is-so-dangerous-92715">across-the-board tariffs</a> on the importation of steel and aluminum, <a href="http://time.com/5192751/eu-donald-trump-steel-tariffs/">angering allies</a> and adversaries alike. Exactly two weeks later, the president launched a new salvo in what could turn into an all-out trade war, this time aimed exclusively at one country: China. </p>
<p>Why the abrupt change in strategy? And is it a good thing? </p>
<p>The answers to both questions aren’t straightforward, as <a href="http://shared.cas.gsu.edu/profile/charles-hankla-2-2/">my own experience</a> talking to American companies doing business in China can attest. </p>
<h2>A new approach</h2>
<p>The president’s originally indiscriminate steel and aluminum tariffs – of 25 percent and 10 percent respectively – <a href="https://www.vox.com/policy-and-politics/2018/3/2/17070816/trump-steel-aluminum-tariffs-businesses">received immediate pushback</a> from many quarters, including U.S. industries dependent on the metals and key trading partners such as Canada and the European Union. </p>
<p>This quickly led to <a href="https://www.nytimes.com/2018/03/22/business/us-eu-tariffs-steel-aluminum.html?action=click&contentCollection=Business%20Day&module=RelatedCoverage&region=Marginalia&pgtype=article">exemptions</a> for a host of <a href="http://money.cnn.com/2018/03/22/news/economy/steel-aluminum-tariff-exemptions/index.html">critical American allies</a>, from Canada and Europe to South Korea and Argentina, who also all happen to be among the primary <a href="https://www.trade.gov/steel/countries/pdfs/imports-us.pdf">sources</a> of U.S. metal imports. </p>
<p>Trump’s new approach, announced March 22, is to <a href="https://www.nytimes.com/2018/03/22/us/politics/trump-will-hit-china-with-trade-measures-as-white-house-exempts-allies-from-tariffs.html">single out</a> China with US$60 billion worth of tariffs on a much wider assortment of goods, with a list of specific items to be unveiled soon. This, coupled with the exemption policy, allows Trump to walk back his earlier, ill-advised policy while still acting tough on trade.</p>
<p>Most likely, the administration has come to realize that trade actions targeting China have much <a href="http://www.pewresearch.org/2010/11/09/americans-are-of-two-minds-on-trade/">more support</a> from Congress and the American public. </p>
<p>But is this form of trade protection an improvement? In theory, it could be. </p>
<p>There is no denying that China sometimes <a href="http://www.scmp.com/news/china/diplomacy-defence/article/2124075/us-eu-japan-slam-unfair-trade-practices-veiled-swipe">fails</a> to play by the <a href="https://www.cbsnews.com/news/china-unfair-trade-trump-xi-summit/">rules</a> in world trade and investment. This was driven home to me personally when I participated in a Georgia State Business School event in Atlanta some eight years ago. </p>
<p>The topic of the conference was trade and investment in China, and many of the participants were local business leaders. Most had an anecdote about experiencing intellectual property theft, rigged bidding processes and the like while operating in the country. </p>
<p>But anecdotes are not needed to make the case. The U.S. government estimates that the <a href="http://money.cnn.com/2018/03/23/technology/china-us-trump-tariffs-ip-theft/index.html">American economy loses over $200 billion</a> annually from Chinese intellectual property theft.</p>
<p>Trump’s plan to respond to this problem, however, involves the kind of unilateral retaliation - as opposed to <a href="https://www.amazon.com/Political-Economy-World-Trading-System/dp/0199553777/ref=sr_1_1?ie=UTF8&qid=1521917089&sr=8-1&keywords=political+economy+of+world+trading+system">reciprocal action</a> sanctioned by international trade law - that can lead to a trade war. In fact, there’s <a href="https://www.nytimes.com/2018/03/22/world/asia/china-trump-retaliatory-tariffs.html">some evidence</a> that a dispute is already in the works. </p>
<p>In trade wars, <a href="https://theconversation.com/trade-wars-are-good-3-past-conflicts-tell-a-very-different-story-92801">each side normally accuses the other</a> of starting the conflict. Ultimately, the level of commercial aggression spirals out of control as each partner responds to the latest protectionist measures of the other.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/212056/original/file-20180326-188628-4fzhby.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/212056/original/file-20180326-188628-4fzhby.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/212056/original/file-20180326-188628-4fzhby.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/212056/original/file-20180326-188628-4fzhby.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/212056/original/file-20180326-188628-4fzhby.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/212056/original/file-20180326-188628-4fzhby.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/212056/original/file-20180326-188628-4fzhby.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">This seems to be a sentiment the protesters share with Trump.</span>
<span class="attribution"><span class="source">AP Photo/Tatan Syuflana</span></span>
</figcaption>
</figure>
<h2>The WTO’s role</h2>
<p>The fear of uncontrolled trade wars like this led to the incorporation of a <a href="https://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm">dispute settlement process</a> when the World Trade Organization was created in 1995.</p>
<p>Under this process, when one country suspects another of violating its WTO commitments, it can lodge an action with the organization’s quasi-judicial body.</p>
<p>The WTO judges then hear arguments from both countries and determine if the complaint is justified. When they believe it is, and when the defending state refuses to change its policies, the WTO adjudicators can legalize the reciprocal imposition of tariffs up to a specified threshold.</p>
<p>The beauty of this procedure is that it produces a credible judgment about which country is at fault, which in turn creates <a href="https://press.princeton.edu/titles/1322.html">reputational costs</a> for the country found to be violating its agreements. This country, if it refuses to abide by the WTO ruling, will find itself isolated internationally.</p>
<p>And if the violator has the temerity to retaliate against the WTO-legitimized sanctions, it risks undercutting its position in the world trading order. On top of that, the WTO procedure limits the scale of any trade war by putting a cap on the legal punishments to be imposed.</p>
<p>The WTO dispute settlement process has been good for the United States. Since 1995, America has brought <a href="https://www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm">actions</a> against 117 other WTO members, and has been on the receiving end of 136 complaints. Research shows that the U.S. tends to have <a href="https://www.bloomberg.com/news/articles/2017-03-27/trump-isn-t-a-fan-of-the-wto-but-u-s-lawyers-often-win-there">better odds of winning</a> cases at the WTO than other countries. Just recently, the United States won cases against the <a href="https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/september/wto-appellate-body-rejects-eu">European Union</a>, <a href="https://ustr.gov/about-us/policy-offices/press-office/press-releases/2016/february/united-states-prevails-wto-dispute">India</a>, <a href="https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/november/us-wins-wto-dispute-indonesia%E2%80%99s">Indonesia</a> and <a href="http://thehill.com/policy/finance/357437-us-wins-trade-case-over-dolphin-safe-tuna-labeling">Mexico</a>.</p>
<p>It is true that Trump <a href="https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-standing-american-innovation/">has said he plans</a> to use the WTO process to contest China’s technology transfer policy. But his <a href="https://www.nytimes.com/2018/03/23/business/trump-world-trade-organization.html">unilateral</a> imposition of $60 billion of tariffs on China risks not only a damaging trade war but also undercuts any chances for the U.S. to build the type of international <a href="http://www.atimes.com/article/kudlow-calls-trade-coalition-willing-china/">coalition</a> necessary to force real changes. </p>
<p>A U.S.-China trade war, one undertaken outside the WTO process, will be seen by other countries as a fight between two powers that are equally in the wrong. Indeed, China is <a href="https://www.reuters.com/article/us-usa-china-trade-wto/china-urges-wto-members-put-u-s-tariff-beast-back-in-the-cage-idUSKBN1H2151">already moving</a> effectively to take the high ground in the dispute.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/212058/original/file-20180326-188610-1cy6jpk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/212058/original/file-20180326-188610-1cy6jpk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=430&fit=crop&dpr=1 600w, https://images.theconversation.com/files/212058/original/file-20180326-188610-1cy6jpk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=430&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/212058/original/file-20180326-188610-1cy6jpk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=430&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/212058/original/file-20180326-188610-1cy6jpk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=540&fit=crop&dpr=1 754w, https://images.theconversation.com/files/212058/original/file-20180326-188610-1cy6jpk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=540&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/212058/original/file-20180326-188610-1cy6jpk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=540&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The relationship has turned frosty since Presidents Xi and Trump met in July.</span>
<span class="attribution"><span class="source">Saul Loeb/Pool Photo via AP</span></span>
</figcaption>
</figure>
<h2>The real problem</h2>
<p>More to the point, Trump’s unilateral approach to China risks conflating the <a href="https://theconversation.com/why-china-is-a-leader-in-intellectual-property-and-what-the-us-has-to-do-with-it-93950">real problem of China’s intellectual property theft</a> with the broader, and more <a href="https://www.bloomberg.com/view/articles/2018-03-18/big-u-s-china-trade-deficit-is-smaller-than-it-appears">contested</a>, issue of the U.S.-China trade balance. </p>
<p>Some economists question whether the U.S. should be <a href="https://www.cfr.org/backgrounder/us-trade-deficit-how-much-does-it-matter">worried</a> about the trade balance at all, and there is also some question about the extent that unfair Chinese practices are contributing to the problem.</p>
<p>Whatever the case, tariffs <a href="https://theconversation.com/trumps-60-billion-in-china-tariffs-will-create-more-problems-than-they-solve-93897">are not going to fix</a> the <a href="https://www.weforum.org/agenda/2017/04/the-key-to-the-us-trade-deficit-lies-at-home-this-is-why">structural issues</a> contributing to the imbalance. For that, the U.S. will need to increase its competitiveness or reduce American consumption, a much taller order.</p>
<p>But, in the short run, there is another option. The U.S. could choose to retaliate against China’s unfair trade practices by first filing a complaint with the WTO and waiting for a ruling in its favor. This, along with American efforts to build an international coalition of countries affected by the same practices, would have a much greater chance of changing China’s behavior.</p>
<p>Recent <a href="https://www.bloomberg.com/news/articles/2018-03-23/eu-u-s-should-tackle-china-together-on-trade-merkel-ally">statements</a> from Europe suggest that such a coalition is possible. </p>
<p>Working within the WTO would safeguard America’s international reputation, avoid a damaging <a href="https://theconversation.com/six-signs-china-wants-to-avoid-a-trade-war-93820">trade war</a> and protect the legitimacy of global trade law. </p>
<p>The multilateral approach to this problem is clearly the right one.</p><img src="https://counter.theconversation.com/content/93918/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Charles Hankla 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>The $60 billion in tariffs targeting China not only risks sparking a trade war, they represent a rejection of the WTO’s much more effective way of dealing with unfair trade practices.Charles Hankla, Associate Professor of Political Science, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/938972018-03-23T21:44:00Z2018-03-23T21:44:00ZTrump’s $60 billion in China tariffs will create more problems than they solve<figure><img src="https://images.theconversation.com/files/211781/original/file-20180323-54872-ja8es9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Business such as California winemakers could be hurt by the new tariffs as a result of retaliation.</span> <span class="attribution"><span class="source">AP Photo/Mark Schiefelbein</span></span></figcaption></figure><p>After spending <a href="https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/august/ustr-announces-initiation-section">seven months investigating</a> whether China is engaged in unfair trade practices, the <a href="https://www.nytimes.com/2018/03/22/us/politics/trump-will-hit-china-with-trade-measures-as-white-house-exempts-allies-from-tariffs.html">Trump administration announced</a> March 22 that it will impose tariffs on as much as US$60 billion in Chinese imports. </p>
<p>The tariffs are meant to address two problems: intellectual property theft by China and a steep and persistent trade deficit. </p>
<p>As an <a href="https://scholar.google.com/citations?user=B744wv0AAAAJ&hl=en&oi=ao">economist and expert</a> in international trade, I don’t see how the proposed tariffs will resolve either one. In fact, it’s more likely that they will create two new problems by hurting both consumers and businesses. </p>
<h2>IP theft and trade deficits</h2>
<p>The administration formally justified its tariffs by invoking Section 301 of the <a href="https://legcounsel.house.gov/Comps/93-618.pdf">Trade Act of 1974</a>, which allows the president to impose tariffs on countries in violation of international trade deals. </p>
<p>In particular, the Trump administration accused China of engaging in intellectual property theft <a href="https://www.wto.org/english/tratop_e/trips_e/trips_e.htm">forbidden by World Trade Organization agreements</a>. </p>
<p>Intellectual property theft <a href="http://www.ipcommission.org/index.html">has been a major complaint</a> of American companies doing business in China for decades. Sometimes this theft occurs through illicit means, such as industrial espionage. It also occurs through legal channels, such as when U.S. companies are forced to form a joint venture with a Chinese business. In other cases, technology transfers are a precondition of doing business in China. </p>
<p>Altogether, the U.S. trade representative <a href="https://ustr.gov/sites/default/files/USTR%20301%20Fact%20Sheet.pdf">estimates that these policies cost U.S. businesses</a> around $50 billion a year.</p>
<p>The other problem that <a href="http://www.bbc.com/news/election-us-2016-36185012">has long irked</a> the president is the significant trade deficit. Since the U.S. normalized trade relations with China in 2000, the <a href="https://www.census.gov/foreign-trade/balance/c5700.html">deficit ballooned</a> from less than $84 billion to over $375 billion in 2017. </p>
<p>This “China shock” of cheap goods <a href="https://www.annualreviews.org/doi/pdf/10.1146/annurev-economics-080315-015041">has caused considerable disruption</a> in the U.S. economy. The labor market has been surprisingly slow to adjust, leading affected workers to earn far less money over a lifetime. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/211782/original/file-20180323-54878-1xuow8l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/211782/original/file-20180323-54878-1xuow8l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/211782/original/file-20180323-54878-1xuow8l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/211782/original/file-20180323-54878-1xuow8l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/211782/original/file-20180323-54878-1xuow8l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/211782/original/file-20180323-54878-1xuow8l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/211782/original/file-20180323-54878-1xuow8l.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">President Trump signs a presidential memorandum imposing tariffs and investment restrictions on China.</span>
<span class="attribution"><span class="source">AP Photo/Evan Vucci</span></span>
</figcaption>
</figure>
<h2>The wrong solutions</h2>
<p>It remains to be seen, however, whether the tariffs will alleviate either problem. </p>
<p>The administration’s calculation seems to be that China will back down on intellectual property theft if faced with less access to U.S. markets. </p>
<p>But China is less dependent on U.S. trade now than it was a decade ago, making its economy resilient to these sorts of punitive measures. The U.S. <a href="https://wits.worldbank.org/CountryProfile/en/Country/CHN/StartYear/2006/EndYear/2016/TradeFlow/Export/Partner/USA/Indicator/XPRT-PRTNR-SHR">accounted for</a> 18.4 percent of Chinese exports in 2016, down from 21 percent in 2006. </p>
<p>The U.S. likely would have better luck resolving this problem at the WTO, which China joined in 2001 and must abide by its rulings. The best part about a WTO ruling is that it would affect all of China’s exports, not just those to the U.S.</p>
<p>Similarly, the trade deficit is unlikely to be resolved through higher tariffs. The primary cause of the persistent trade deficit – <a href="https://www.wsj.com/articles/u-s-trade-gap-highest-in-nine-years-in-december-1517923918">$566 billion in 2017</a> – is an <a href="http://policonomics.com/net-capital-outflow/">imbalance between savings and investment</a> in the U.S. economy. </p>
<p>The U.S. personal savings rate <a href="https://www.bloomberg.com/news/articles/2018-01-26/why-the-savings-rate-is-a-reason-to-worry-about-2018-u-s-growth">has fallen steadily since the late 1970s</a>. At the same time, the government has run persistently large budget deficits, both of which have increased the level of borrowing in the U.S. economy. </p>
<p>As a result, foreign investment, particularly from China, has become increasingly critical to financing U.S. economic growth. This is great news in terms of helping Americans buy cheap Chinese goods and the government finance its budget deficit. But all that foreign cash going into the financial market isn’t being used to buy the stuff Americans are producing, like Harley Davidson motorcycles and Iowa corn. </p>
<p>This results in lower exports and a higher trade deficit. Tariffs will not change this reality.</p>
<h2>Two new problems</h2>
<p>While the full details of the tariffs have yet to be released, it’s clear they’ll cause at least two immediate problems. </p>
<p>One is that U.S. consumers will be hurt. The typical consumer <a href="https://www.stlouisfed.org/on-the-economy/2017/may/impact-chinese-imports-us-jobs">has about $260 in extra purchasing power</a> as a result of trade with China. Those benefits, which disproportionately go toward working-class Americans, will fall due to the U.S. tariffs, as American importers will pass some of their increased costs along to consumers.</p>
<p>Secondly, American companies that export to China will be exposed to retaliation in the form of tariffs on U.S.-made goods. Shortly after Trump’s announcement, China released its <a href="https://www.nytimes.com/2018/03/23/business/china-tariffs-response.html">own policy statement targeting $3 billion worth of U.S. exports</a>. </p>
<p>Particularly vulnerable to Chinese retaliation are the pork and soybean industries, which are concentrated in the Trump-friendly Midwest. This list could grow if a trade war with China escalates.</p>
<p>A broader concern is that, by acting unilaterally, the Trump administration is undermining the broader system that has facilitated the growth of international trade and adjudicated grievances between countries since World War II. </p>
<p>While far from perfect, organizations such as the WTO have limited the scope of trade wars <a href="https://www.history.com/news/trade-war-great-depression-trump-smoot-hawley">since the chaos of the 1930s</a>. Failing to uphold these institutions could have major consequences in the future.</p><img src="https://counter.theconversation.com/content/93897/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>William Hauk has previously received funding from the Center for International Business Education and Research, which in turn is funded by a grant from the U.S. Department of Education. </span></em></p>While the tariffs are unlikely to stem Chinese intellectual property theft or reverse the steep trade deficit, they are certain to hurt American companies and consumers.William Hauk, Associate Professor of Economics, University of South CarolinaLicensed as Creative Commons – attribution, no derivatives.