- 2018-10-17
Has the Sino-US trade war broke out?
After Trump's election, how likely is it to provoke a Sino-US trade war? The opinions of domestic and foreign investors are quite different. At present, most Chinese interpreters are optimistic and believe that Trump will not provoke a trade war against China for the following reasons:
First, although Trump criticized the manipulation of the RMB exchange rate and threatened to increase China’s import tariffs by 45% at the beginning of the election campaign, it is generally expected that this was only an expression of the voters during the election, and it may not necessarily be acted upon after the election. The presidential campaign also has the above scenes;
Second, the renminbi is currently under devaluation pressure rather than appreciation pressure. The US accuses the basis of renminbi exchange rate manipulation that is not recognized by economic theory, and the reason for imposing import tariffs is insufficient;
The third is to provoke a trade war against China, which will inevitably lead to China’s counterattack, and it is also extremely detrimental to the United States. After all, Sino-US economic and trade relations are very close. After weighing the pros and cons, the United States will not act lightly, just talk about it.
The author agrees with the rationality of the above logic. However, after communicating with American investors, they found that most people were not so optimistic. Instead, they warned that the Sino-US trade war is not impossible, and Trump's impact is unpredictable. the reason is:
First, although economically may not support the trade war with China, after Trump won the election, out of political considerations, the possibility of unilaterally declaring RMB exchange rate manipulation and toughening tariffs also exists.
It can be observed that before and after Trump's victory, the status of the party inside and outside the party has formed a sharp contrast, and political leadership has been greatly improved. Many of the strong critics of Trump in the previous campaign have also turned their attitudes. There are even reports that Romney, who had bluntly said that Trump is a liar, also intends to serve as Secretary of State. When I was dining at 21CLUB in New York, I happened to encounter Trump after the election. Compared with the unwelcome before the election, the place where Trump went was strictly guarded, the talks were tight, and his political control was greatly improved.
In addition, judging from the many newly appointed cabinet members with hawkish and conservative characteristics, the implementation of the campaign slogan does not seem to be just talk. It can be seen that Mike Pompeo, Michael Flynn, Jeff Sessions, Steve Bannon and other hawkish representatives have all been entrusted with important tasks. Recently, there have been reports that Michael Pillsbury, the core hawk who promotes the "China Threat Theory," has been appointed as the next White House China Affairs Advisor, which is a pressure on China.
Second, the president also has a lot of authority in the implementation of anti-trade policies. The Trump team won the support of voters by virtue of the "America Is Strong Again" and "America First" policies, and this concept will be reflected in future policy agendas. Because it has always claimed that the Sino-US trade relationship has harmed the economic interests of the United States, a trade deficit of more than 360 billion US dollars with China has caused the United States to lose a lot of employment opportunities and even threatened to withdraw from the WTO. It is expected that after taking office, Trump's anti-China trade policy will be reflected.
From an operational perspective, the president has great authority. As Justin Wolfers of the Peterson Institute for International Economics in the United States mentioned in the article "Why Trump can easily launch a trade war", the President of the United States has a lot of freedom in trade: such as the easiest to cash The campaign promise is to renegotiate or simply withdraw from the North American Free Trade Agreement, because in principle, the President of the United States only needs to notify the relevant countries six months in advance to do so; and in many laws, the president may find a basis for launching a trade war, such as According to the "Trade Law", the president can increase tariffs by 15% for 150 days on the grounds of dealing with the balance of payments deficit; according to the "International Emergency Economic Powers Act", the president can use it to restrict trade with other countries and so on.
Third, the frequent occurrence of black swans is not isolated, which means that the turning point of the globalization process has appeared, and many adaptive countermeasures should be prepared in advance.
The black swan incidents need to be paid attention to in succession, which may mean that the globalization process is approaching an inflection point. In fact, many changes have already occurred. For example, in terms of manufacturing, some American companies have recently moved their overseas production lines back to the United States. Ford has also transferred the Fusion sedan that was originally only produced in Mexico and the 2.0-liter EcoBoost engine produced in the Spanish plant back to the United States for production; After Trump won the election, Ford issued a statement stating that it “agrees with what Mr. Trump said that the unity of the country is very important and looks forward to working together to support economic growth and job growth.”
In terms of taxation, since the current US corporate income tax of 35% is relatively high globally, a large number of companies have moved abroad or kept their profits overseas. The tax reform bill that the Trump administration is expected to implement may introduce preferential tax rates, which will promote the return of profits of overseas companies to the United States, and even attract U.S. companies to deploy domestically.
In addition, not only the United States, but the Brexit of the United Kingdom, the extreme parties in other EU countries are supported by anti-globalization slogans, indicating that such a trend is likely to restart globally, and major European economies such as Germany, France, Italy, and the Netherlands will have general elections in the future. And so on are full of uncertainty, and we need to pay attention to the overall anti-globalization tendency.
From this perspective, Trump should be vigilant in launching a trade war against China after he officially took office, even if it may not increase the tariffs of 45% as mentioned at the beginning of the election, and increase the tariffs of 15% on some products exported to the United States from China, or increase them significantly. Anti-dumping investigations are also possible, and it is necessary to predict the potential impact of this policy in advance.
From China's perspective, considering that the United States is China's most important trading partner, it will inevitably be subject to a great negative impact. Statistics show that as of 2015, China's merchandise exports to the United States reached 410.1 billion U.S. dollars, accounting for 18% of China's total exports and 3.8% of total GDP.
In terms of categories, products exported to the United States are not only reflected in labor-intensive industries, such as toys, furniture, and textiles produced in China, which account for one-third of the exports to the United States, but also in capital-intensive products such as electrical machinery. Equipment and machinery, mechanical appliance products.
Of course, trade wars are never one-way. If the United States unilaterally adopts a trade war against China, it is expected to be subject to corresponding policy responses from China. For example, from the perspective of US exports to China, the proportion of aircraft, electrical equipment and machinery, and mechanical appliances is relatively high, and China is the largest holder of US Treasury bonds, and China also has a certain amount of room for maneuver. But in any case, as the two largest economies in the world, the two countries are closely connected in terms of economic, trade and investment. The trade war may spread to a wider range and ultimately be detrimental to both sides.