Trade War with China

On May 10, the U.S. began to impose a 25-percent tariff on 200 billion U.S. dollars' worth of Chinese goods. The 11th round of China-U.S. high-level trade negotiations, which concluded in Washington on the same day, was marked by China's consistent and firm position: tariff hikes cannot solve the problem, and cooperation is the only right choice for China and the United States, but cooperation shall be principled and China will never give in on major issues of principle.

Tariff hikes hurt both China, U.S.

"The tariff increase will affect companies in both countries, but it will do more harm to American companies than Chinese ones," said Gao Lingyun, a research fellow at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences.

Gao said that the U.S. demand for Chinese goods will not change because of the tariff increase and U.S. importers will eventually pass additional tariffs to the consumers and retailers.

"Some data analysis shows that if the U.S. insists on imposing higher tariffs on all Chinese goods exported to the United States, it will significantly push up the domestic prices in the United States and cause inflation. While trying to hurt China, the U.S. undoubtedly inflicts damage on itself," Gao said.

The tariff increase was also strongly opposed in the United States. Recently, a number of U.S. trade associations have issued statements opposing tariff hikes against China. Among them, a lobbying campaign called "Tariffs Hurt the Heartland" estimated that raising the tariffs to 25 percent would destroy nearly one million U.S. jobs and cause a financial market turmoil.

Chen Wenling, chief economist of the China Center for International Economic Exchanges, estimated that when the U.S. imposes tariffs on 50 billion U.S. dollars and 200 billion U.S. dollars' worth of Chinese goods, more than 70 percent of the listed goods are intermediate and investment goods. With such a high proportion of intermediate and investment goods involved, any additional tariffs will eventually be borne by American businesses, consumers and farmers.

In Chen's view, the trade war sparked by the United States is self-defeating. The U.S. wants to solve the trade deficit. However, its trade deficit with China, EU and other economies is rising rather than falling. The restructuring of the global industrial chain has not been moving faster to the United States. On the contrary, U.S. auto companies such as Tesla and Ford are moving to China.

"Some U.S. companies make a very large proportion of their profits from China. Once they leave the Chinese market, they may find it difficult to survive," said Liang Ming, director of the Institute of International Trade at the Chinese Academy of International Trade and Economic Cooperation. With big data to measure the impact of the additional tariffs on 200 billion U.S. dollars' worth of Chinese goods, Liang found that the U.S. still needs to import most goods from China, while China is not very reliant on U.S. exports with the availability of other markets that could be taken as substitutes.

Experts agree that the spreading global spillover effects of the trade war pose severe challenges to the world order, rules, trade system and supply chain, and even have a negative impact on the peaceful development of the world.

"We stressed that we should not resort to tariffs, but seek a balance between our demands. This is not only China's demand, but also a rational choice made by countries in response to unreasonable trade requirements," said Dong Yan, director of the International Trade Office of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences. Dong said that cooperation is always the right way to solve China-U.S. economic and trade problems, as cooperation leads to mutual benefits and conflicts hurt.

Stick to bottom line, adapt to new norm of fighting while talking

Faced with the U.S. accusing China of "reneging" on promises, which allegedly led to the failure of negotiations, experts said that such accusation was untenable and irresponsible before the two sides reached a final agreement. It was the U.S. that kept pressing and pushing for more favorable terms that led to the setback in the negotiations.

"The U.S. demand touches upon China's core interests and major concerns. This is the bottom line that we must not give in," said Wei Jianguo, vice chairman of the China Center for International Economic Exchanges. Wei also said that a successful agreement must ensure that both sides are satisfied for the most part and both sides should make some compromises. If only one party is satisfied and the other party's concerns are not addressed or taken care of, such an agreement, even if reached, will not last long or may even be torn apart.

It took more than a year for China and the United States to hold 11 rounds of trade negotiations. This, in the view of experts, is a good indication that trade talks are a long game. We must maintain a clear mind and be fully prepared for the psychological and work levels.

Chen Wenling said that from the perspective of trade negotiations, China has always adhered to its principles and position.

"It will become a norm to have a mixture of principled talks and harsh rhetoric between the two sides in the future. China cannot be ambiguous in safeguarding the country's core interests and major concerns and safeguarding the dignity of our countries," said Chen.

Dong Yan believes that Sino-U.S. trade frictions highlight their long-term, complex and arduous nature.

It's imperative for China and the United States to continue to build mutual trust, strengthen coordination in bilateral and multilateral fields, and expand common interests.

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China-U.S. trade spats escalated on Monday as Washington released a list of the 300 billion U.S. dollars worth of Chinese products that could face up to 25 percent tariffs. The move was immediately retaliated by China's new tariffs on 60 billion U.S. dollars in American goods.

While U.S. President Donald Trump repeatedly boasted on social media that China will pay for the new tariffs, the reality is the opposite. Statistics show that it is American businesses and customers that are bearing the majority costs of Trump's capricious trade war.

To begin with, the increased tariffs mean more taxes that American companies and individuals will have to pay for the imported Chinese goods. While some economists argue that Chinese exporters may lower their prices in an attempt to be more competitive in the U.S. market, Goldman Sachs' latest analysis shows that "no decline in the prices (exclusive of tariffs) of imported goods from China that faced tariffs."

The rising prices, without suspense, have fallen on ordinary American families. In an academic study published in March, economists from the Federal Reserve Bank of New York, Princeton University and Columbia University concluded that "the full incidence of the tariff falls on domestic consumers, with a reduction in U.S. real income of 1.4 billion U.S. dollars per month by the end of 2018." The duties imposed on a wide array of imports cost American businesses three billion U.S. dollars a month in additional tax costs, the paper calculated.

The conclusion is echoed by the World Bank's chief economist Pinelopi Goldberg. American farmers and blue-collar workers who supported Trump in the 2016 general election are ironically the biggest victims of the president's trade war, according to Goldberg.

Statistics from the Trade Partnership Worldwide consultancy lead to the same conclusion – ordinary Americans are paying the most of the costs of Trump's tariffs. The annual spending of average American family of four will see a rise of 767 U.S. dollars on household goods if a 25 percent tariff is imposed on 250 billion U.S. dollars in Chinese goods, reducing American employment by 934,000. The figure will be 2,294 U.S. dollars if the same-level tariff is imposed on the remaining imports from China, killing 2.1 million jobs in a year.

The U.S.' heavy dependence on Chinese products has made the situation even worse. Among more than 6,000 tariffed items on the previous 200 billion U.S. dollars list are 1,150 items on which the U.S. is over 50 percent dependent on Chinese imports, according to Chinese Academy of International Trade and Economic Cooperation.

In the first four months of 2019, China's exports to the U.S. dipped by 4.8 percent. U.S. exports to China, in comparison, plunged 26.8 percent during the same period. This means while Chinese customers can easily find alternatives to American goods, American customers are heavily relying on Chinese products.

Trump's advice that American customers can buy alternatives in domestic market or from non-tariffed countries is thus unrealistic in the era of global integration. China is gradually becoming a source of global innovation and its cost-effective products cannot be easily replaced in the U.S. market.

Moreover, Beijing has seen prosperous trading relations with the EU and the ASEAN in the past decades. The country's trade volumes with the Belt and Road countries rose by 9.1 percent in the first four months of 2019, while the figure with the United States is seeing a downward trend.

Undeniably, China will also suffer. But the Chinese economy is resilient enough to go through the trade war. Even if American customers were forced to abandon Chinese imports, there are only 124 tariffed items for which China is more than 50 percent dependent on the U.S. market for export. "Made in China" products have been the most sought-after across the globe.

China's diversified trading partners mean the country can easily find alternative buyers in face of Trump's tariffs. Before voicing support for Trump's 2020 election campaign, American citizens should think twice – who on earth is paying for their president's tariffs?

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China and the United States should carry out their trade talks on the basis of equality instead of blaming and pressuring on the other side during the process of negotiation, Chinese State Councilor and Foreign Minister Wang Yi said here on Monday.

He made the remarks at a press conference following a meeting with his Russian counterpart Sergei Lavrov.

When asked about the prospects for China-U.S. trade talks, Wang said Beijing and Washington have made significant and substantial progress with their joint efforts, but certain difficulties remain to be carefully handled and resolved.

Under such circumstances, unilateral accusation is meaningless while shifting responsibility is unacceptable, he said, warning that exerting maximum pressure will only trigger legitimate countermeasures.

China's move is meant to not only protect its due rights and interests, but also safeguard the basic rules of multilateral trade mechanism, Wang added.

Wang underlined that the negotiation is not a one-way lane but should be carried out on the basis of equality, saying it is impossible to expect one side to readily accept the other's request.

China will always safeguard its sovereignty, Chinese people's interests and national dignity when negotiating with any country, he said.

The outlook for trade links between China and the United States -- the world's two largest economies -- not only matters to their own development, but also bears on the prospect of the world economy.

Therefore, as long as the negotiation is in line with China's reform and opening up policy, its pursuit of high-quality development, and the common and long-term interests of the two peoples, the negotiators of both sides will have the ability and wisdom to properly address their reasonable demand and reach a mutually beneficial agreement, he said.

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While many have been focusing on US farm produce since China announced new tariffs, less attention has been paid to energy exports. China is a big potential market for US energy, but the ongoing trade war is very likely to make China rethink its energy security and reduce its dependence on US energy exports.

Many wonder how China will respond if the US carries out tariff hikes on an additional $300 billion in Chinese products. But it's not important how large, in terms of value, China's counterattack will be on US exports. What is important is how much pain the US economy will be forced to endure. We believe US products with an export advantage will be under attack in a bid to widen the US trade deficit.

US President Donald Trump has touted increased energy exports as a key element in his strategy to reduce the US trade deficit. He announced six initiatives in 2017 - including reviving nuclear energy - as part of his administration's efforts to usher in a "golden age" of US "energy dominance." The boom in US energy production is prompting the country to upgrade its energy export plan and look for new buyers.

US exporters have no reason to ignore China, the world's biggest energy user. Total energy consumed in China in 2018 reached 4.64 billion tons of standard coal, 7.7 times higher than in 1978.

Growth in energy consumption prompts China to increase imports to maintain a balance in supply and demand, but does China have to import from the US?

The answer is no. Thanks to trade war fears and Washington's political uncertainty, the US is perhaps now the last choice for China in terms of energy trading.

China is highly dependent upon energy imports. In 2018, the country's dependence on imported crude oil reached 71 percent and that of natural gas reached 43 percent.

Energy security is always a matter of national security. As China's dependence on foreign oil and gas rises, efforts to secure access to multiple sources of imports are necessary. It will be very dangerous to be overly dependent on US energy. We cannot allow the US to control the lifeblood of the Chinese economy.

An escalation of the trade war offers a chance for China to regulate energy imports from the US through tariff tools. Beijing has announced Monday it would raise tariffs on liquefied natural gas imports from the US. If Washington places an additional $300 billion worth of Chinese goods under 25 percent tariffs, it will be reasonable for China to retaliate and increase tariffs on imports of more US energy products.

The ongoing trade war with the US makes Chinese people more aware of policy uncertainty in the US. If Washington wants to expand its energy exports to China, the US must end the trade war and rebuild mutual trust between the two major economies.

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• Beijing has been working on the exemptions for six months
• Roll-out signals trade war has gone further than China expected

When officials in Beijing started consulting lawyers six months ago about protecting Chinese industries from potential tariffs on imports from the United States, they were not certain they would have to act on the advice.

According to a source familiar with the consultations, senior officials within the government “really thought the tariffs would go away”.

But then on Monday with China’s announcement of extra tariffs on US$60 billion in US imports there was a sign that a line had been crossed – for the first time the government offered a tariff exclusion process.

“It is a sign that things are probably going to be going on a little bit longer from the top down than they thought,” the source said.

The process is largely based on a similar programme in the US and allows tariff-affected firms in China to apply for an exclusion.

The Chinese exclusions are a lifeline to key industries that Beijing wants to protect from the turmoil of the trade war. Given that importers must pay the extra duties themselves, offering exemptions to those that cannot afford the tariffs makes economic sense, according to analysts.

Jon Cowley, a senior international trade lawyer at Baker McKenzie in Hong Kong, said China was throwing its economy a “life jacket” while still trying to match the United States on tariffs.

“They want to be careful not to damage the economy or important economic players that lack viable substitutes for these products. It is a sensible policy, but happens to be one that is difficult to implement and requires a lot of work,” Cowley said.

Trade watchers said that while China and the US were emboldened by data suggesting that both economies were in better shape than could be expected a year into the trade war, neither side was comfortable with how far the conflict had spiralled out of control over the past few days.

On Friday, the US raised tariffs from 10 per cent to 25 per cent on US$200 billion of Chinese goods, prompting China on Monday to impose additional tariffs on US$60 billion of US products. The US then said on Tuesday that it had started the months-long process to levy tariffs of up to 25 per cent on almost all of China’s remaining exports to America, estimated at about US$300 billion.

Before that flurry of tariff activity, US President Donald Trump had said that talks with China were continuing “in a very congenial manner”.

There is still time for a deal to be struck in the two-month window between Tuesday’s announced duties and the roll-out of the tariffs but observers say that so far the US has followed through on every threat it has made.

“It is scary in a sense because in the past, every time they tee it up, they actually went live. I don’t think either side thought that they will have gone this far,” said Sally Peng, Asia-Pacific practice leader at Sandler, Travis & Rosenberg, a law firm specialising in trade and customs.

Peng said that while the US and Chinese tariff increases did not come as a surprise, the exclusion note did. She said she fielded calls all day on Tuesday from clients wondering if they would qualify for an exclusion.

“Only Chinese companies can apply, and [the Chinese government] encouraged a lot of trading associations to apply too, because the government is familiar with working with them,” she said, suggesting that Beijing has already identified the industries it wants to support.

Officials on both sides have about six weeks to reach an agreement if they want to do so in time for a possible meeting between Trump and Chinese President Xi Jinping at the G20 Summit in Osaka in late June. Trump has signalled that this will happen but China has not yet confirmed Xi’s participation.

In the meantime, the prospect of the global economy being derailed by a fiercer, more protracted dispute between the US and China has rattled investors and led to a sharp sell-off in global equities markets in the past week.

Chinese foreign ministry spokesman Geng Shuang said on Tuesday that the two countries had agreed to continue pursuing relevant discussions.

“As for how they are pursued, I think that hinges upon further consultations between the two sides,” Geng said.

But China would not be bullied, he added. “We hope that the US side does not misjudge the situation and not underestimate China’s determination and will to safeguard its interests.”

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Xsizor said:

The 260% of private debt . The government would sooner or later have to restructure policies and identify / rectify the issues. Shadow banking has to be brought under control. All this means the economy will face shortages on cash available to invest in new growth. Thus the gdp growth will suffer a bit. Add in the trade war and there could be a 2.5% or 3% drop.

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Xsizor said:

So...let me get this straight. China's economy will continue to expand at around 6% till the 2030s ? The curbing of the shadow lending sector is not going to negatively affect chinese economy (on the short term) ? That's... not exactly what i made myself to believe. I thought the Chinese economy, as it climbs the per capita income ladder, will see gradual gdp growth pace deterioration.

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localizer said:

*Note this was from last year, I guess it was at Yuan's low point.

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China Is Paying for Most of Trump's Trade War, Research Says

do you guys agree with the math?

Here's the paper:

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Gatekeeper said:

2nd 260% maybe high but not unmanagebly so. In fact, in our younger days, most people in the UK snd US takes up mortgages of 300 to 400% of their GROSS income, and still we managed to repay the loan , and maintain our standard of life.

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