US China Trade War

Donald Trump sometimes tries to pretend that he is not really a crazy protectionist, but simply an advocate of what he calls "fair trade." This would imply that if the trade was not manipulated by deceiving foreigners, it would gladly withdraw its battery of new import taxes.

So, if China stopped its intellectual property piracy, its forced transfers of technology, its restrictions on US access to its own market, its monetary manipulation, we could have the commercial peace of our days. If Europe ended its discrimination against imports of American vehicles, we could all get along very well. And so, the same applies to Mexico, Canada and all the other countries that have felt the wrath of Trump for the trade. But as Mitt Romney once said, "such promises are as useless as the titles of Trump University."

It should be clear enough now that Trump's "fair trade" rhetoric is a study of diplomatic and commercial bad faith.

Currently, the 10% tariffs collected by the White House on an additional $ 200 billion of Chinese imports (handbags, rice, and textiles, as well as several thousand other products) provide the total value of the trade. hit by Trump at $ 250 billion. That is the value of about half of US imports from China.
It would be brave to bet against the US tariffs that would eventually reach the other half, as Trump explicitly threatened. Those who predicted that the "adults" in the White House would limit the president and avoid the outbreak of a trade war do not seem particularly cautious today.
The United States affirms that China does not take into account its commercial concerns. However, in the White House, some say they privately delay the imposition of the 25% tariff on imports, hitherto threatened, to give US companies more time to transfer their production from China to the States. UNITED. It seems that the real strategy is less to make world trade fairer, according to Trump, than to induce industrial reaffirmation on American soil.

In fact, there is a reasonable basis to sanction China for its disregard for multilateral trade rules, such as overproduction, dumping abroad and excessive restrictions imposed by the nation on market access. However, a policy of reversing the globalization of supply chains does not really take into account the fundamental economic lessons of Adam Smith on the benefits of the division of labor and David Ricardo on the merits of a nation that recognizes its comparative advantage.

The main loser of Trump's trade agreement will, of course, be the American consumer. The hypothetical benefits of more jobs in the manufacturing sector will be more than offset by higher prices in shopping centers.

The Trump administration has exempted consumer electronics, such as smartphones, after putting pressure on companies such as Apple, which assembles its iPhones in China before importing them to the United States.
Bike helmets and baby high chairs have also been exempted, suggesting that someone in the White House, if not the president himself, is likely to increase domestic prices by domestic rates, which may not have been useful before. legislative elections in the United States.

But whoever does not have enough intuition. For the idea, one can limit the internal economic impact of tariffs by creating exemptions for some popular or sensitive products is extremely naïve to the extreme. In this era of extensive and complex cross-border manufacturing supply chains, there are some difficult, if not impossible, connections to perceive.

As Apple's chief Tim Cook points out, there are iPhone components made in the US that are exported to China for assembly. What happens if China imposes tariffs on those who meet Trump's tariffs? This may increase retail prices of the iPhone in the United States, even if Trump does not impose direct rates. Deliberately obstructing the arteries of commerce and economic damage will inevitably appear somewhere, perhaps where they are not expected.

What will be the impact on the rest of the world, on growth? China is already taking retaliatory action and will probably be lining up on US dollar-for-dollar rates, at least to the extent possible, given its bilateral trade surplus. Europe has repaid the taxes on steel imports by charging royalties on Harley Davidson motorcycles and Florida orange juice.

The Bank of England has estimated that a global trade war, in which each would raise tariffs by about 10 percentage points over the others, would slow global GDP growth by about 2.5% in three years It is a serious economic loss in the context of a global economy of $ 90 billion. It would maintain British GDP growth of 2% and the equivalent in the United States. UU About five percent.
But these estimates, while reasonable, are also potentially deceptive. Maury Obstfeld, the chief economist of the International Monetary Fund, warned recently: torn. "

This break in power is not a result that can be reliably modeled on the basis of historical economic relations. It would put us in a completely new and dangerous world. Trump says that commercial wars are "easy to win". You are wrong. But multilateral trading systems could be easy to break for a belligerent president. And it may be terribly difficult for us to put them together.