Published On: Tue, Jun 11th, 2019

Clarifications, consequences of US/China trade war

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US President and China President

By Charles Onunaiju

U.S president, Mr. Donald Trump who triggered the current trade rumpus across the world but with particular vitriolic and tariff darts targeted at China, claims repeatedly that the United States have always and under its several past administration been mere “piggy banks” from where many nations have grown fat through “unfair” trade. The leader of the world lone superpower paints such a picture of an over beaten victim of globalization and its most important driver, free trade that one really wonders where America’s affluent society really comes from and who has always been the chief priest of globalization and the defender of free trade.
But because of the issues at hand which is worldwide disruptions of trade and its consequences on the global value chains especially for developing countries, re-positioning themselves as the new frontier for low-end productions,we examine the key issues which President Trump has so far oversimplified either for the purpose to stave off, the pressure of his mounting domestic woes or ignorance stemming from his impatience and famed lack of attention to details. Whichever way, the President of the United States is not entitled to push the world to economic chaos by jeopardizing a world trading system that was meticulously crafted but still a work in progress.
His immediate and handy rhetoric of exponential trade deficits, with almost every nation but particularly with China is totally misread out of context both in its origins and current trajectories. Following the three Shanghai Communiques in 1979, the foundation of China-U.S contemporary diplomatic relations, in which Washington vowed and committed to one China policy ,with Taiwan as part of the inviolable sovereign entity of the People’s Republic of China, the United States ran surplus in its trade with China from the 1980s to the early 1990s and it was only in 1992 that China began to run a surplus, which has continued to grow. However, in today’s world of deepening globalization bilateral trade and economic relations are way beyond the trade in goods only. While China has unquestionably maintained surplus in balance of trade in goods with United States for reasons that would be explained later, the U.S however, ran a surplus of 54.% U.S billion dollars in trade in services with China in 2017, indicating a U.S competitive strength in this field. The United States is actually the biggest source of China’s deficit in service and statistics show that US service exports to China grew 340% from 13.14 billion USD in 2007 to 57.1 billion USD in 2017 while its service exports to other countries and regions in the same period grew by 180%.
Two-way trade in goods between China and the US has grown exponentially and according to Chinese statistics, trade in goods between the two sides in 2017 amounted 583.7 billion USD, a 233 – fold in increase from 1979 when the two countries established diplomatic relations. Currently, the U.S is China’s biggest export market and 6thbiggest source of imports. In 2017, the U.S took 19% of China’s exports and was the source of 8% of China’s import. China is the chief import market for U.S goods such as airplanes, agricultural produce, automobiles and integrated circuits. China represents the number one export market for US airplanes and soya beans and the number two export market for U.S automobiles, IC products and cotton. According to available statistics, in 2017, China took 57% of U.S soya beans exports, 25% of Boeing aircraft, 20% of automobiles, 14% of ICs and 17% of cotton.
China-U.S bilateral trade has strong complementarity. The United States actually stands at the mid and high-end in global value chains and it exports capital goods and intermediary goods to China. With China at the Mid-and low-end in global value chain, China mostly exports consumer goods and finished products to the U.S and in several areas, the two countries have maintained comparative advantage that have contributed immensely to their respective national aggregates and boasted the world economy. According to the Chinese ministry of foreign trade and commerce, by the end of 2017, there were approximately 68, 000 U.S-funded enterprises in China with over 83 billion USD in investment stock.
Within the same period, the investment stock of Chinese enterprises investing in the U.S, amounted to 67 billion USD, rising from mere 65 million USD in 2003.
Additionally, China has made significant financial investment in the U.S. According to the U.S Treasury Department, China held 1.18 trillion USD of U.S treasury bills by the end of May, 2018.
With remarkable economic development over the past 40 years of reform and opening up, China since 2017 became the world’s largest trader in goods, with 41 trillion USD of total merchandise imports and exports, becoming the second largest trader in services with 695.68 billion USD worth of total services imports and exports and became the second largest recipient of foreign direct investment. To this end, the U.S firms have played vital roles in China’s contemporary economy, just as China has offered the U.S access to a wide range of business opportunities such as cross-border investment and entry into the world largest market. Despite obvious complimentarity in the U.S-China economic cooperation, the current U.S President Mr. Donald Trump has over-hyped selectively only a component of U.S trade deficits in goods with China, without highlighting the objective economic factors at the root of it. Historically, the U.S started running deficits in its foreign trade from 1971 and by 2017, it was running a trade deficits in its trade with 102 countries. The imbalance in mostly US trade relation is implicit in its characteristic structure of a low saving rate and high consumption. From the point of national accounts, the balance of a country’s current account is chiefly determined by the relationship between saving and investment. The U.S economy is characterized by low saving and high consumption. Savings have been lower than investment for many years. In the 1st quarter of 2018, U.S net national saving state was as low as 1.8%. To balance its domestic economy, the U.S has to attract a large amount of foreign saving through trade deficits. Therefore, U.S trade deficits with China and other countries in the world is essentially driven by its internal structure and an unavoidably sustained economic phenomenon. In particular with China, U.S deficits can also be partly explained as consequence of U.S export control over tech products to China. Mortally haunted by cold war mentality, the U.S imposes strict export controls to China of so called sensitive technologies, thereby limiting its potential of exports, causing it to lose export opportunities and thereby widening its trade deficit with China.
On the whole, the trade war launched by the current U.S President against China and most of other countries including some of its close allies including European Union, Canada, Japan and even Mexico are chiefly disruptive of the global economy through willful political intervention than any methodological re-assessment of international trade and economic cooperation.
Recently, the President of Bureau the Change operators in Nigeria claimed in widely circulated media report that the trade war between the United States of America and China is good for Nigeria. Without any rebuttal or rejoinder by the government or even other stakeholders including professional economists and others in the economy, such claims could be misconceived as true.
However, as an emerging industrial hub with massive investment in infrastructure renewals, any stringent tariff reciprocal wars by key global economic actors would dampen the global market, narrow the prospects of integration in the industrial and trade value chain, constrain the flow of investment on account volatile global market. And fundamentally, an economic upsurge build on the periodic flare-up of temperament of key economic global actors cannot be sustainable just as the bubble of periodic commodity boom is blown away by the subsequent burst, triggering a melt-down that is usually hard to climb out.
Therefore, the U.S trade war with China and others is an ill-wind that does not blow good to anyone.

Onunaiju, is director, Center for China Studies, Utako, Abuja

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