US has nothing to gain from trade war
By Ding Yifan |
China Watch |
Updated: 2018-05-22 16:27
The Trump administration threatened to impose unilateral trade sanctions against China at the end of March. The tone of these sanctions has since increased. It shifted from trade sanctions to technical sanctions, with the US government placing a ban on American companies selling any technical product to China's ZTE for seven years.
Can the United States win anything from its trade war with China? Even if the Trump administration wants this trade war to escalate, the US will not see any benefit. On the contrary, sanctions against China could seriously harm the US economy.
We are living in a globalized economy. The relationship between China and the US is an interdependent one. If the US wants to impose sanctions on China, it will hurt not only Chinese companies but also American companies. If the Chinese economy is damaged, the US economy may suffer even greater damage.
Many think tanks in the US understand this reasoning and, after US President Donald Trump threatened unilateral trade sanctions against China, they began to do their research. This research pointed out that the Trump administration's approach is undoubtedly suicidal, because if Trump wants to increase tariffs on Chinese exports to the US, the costs for American companies will rise rapidly and general prices will rise sharply, completely offsetting any benefits of his administration's tax cuts. Other studies indicate that if China retaliates, more than 2,000 counties in the US will be seriously damaged because they are heavily dependent on the Chinese market.
The trade war will cause great damage to American companies, which in turn will affect the trust of investors in American corporate stocks. It will lead to a dive in the stock price of many US companies, which will cause a panic in the US capital market and may turn into an economic recession.
Unfortunately, the Trump administration does not seem to listen to advice on various matters, as most of remaining members of the Trump administration are more or less radical figures. The more rational and less extreme figures previously in the administration either resigned or were expelled by Trump. The rest of the characters surrounding the US president all feel that the US is omnipotent. Therefore, it can ignore its friends, disregard allies, ignore partners, and can do whatever it wants.
Indeed, some of these people were also involved in the trade war between the US and Japan in the 1980s. They crushed Japan through a trade war, causing macroeconomic chaos, which eventually saw Japan fall into trouble. These people still want to use the methods of the old days to deal with China and eliminate the "hidden dangers" of China’s rise.
However, these radical militants in the Trump administration have overlooked two major differences between China and Japan: First, in a globalized economy, the US can no longer harm China without harming itself; second, the size of the Chinese market is greater than that of the US, and China’s industrial system is more complete than that of the US. With this in mind, it would be ridiculous to mess up China with a trade war.
Take for example the ban on the sale of chips to ZTE. On the surface, this will land ZTE in trouble, as it will probably default on some commercial contracts because it will be unable to provide products to clients in due time. However, the US companies that supply ZTE are also in trouble. As ZTE is a major buyer of chips, supplying ZTE represents more than one-third of the production of some American companies. The inability to supply ZTE will cause a significant drop in production for these companies, thus serious losses in revenue.
The news has already triggered a fall in the price of corporate stocks, which will render the future development of the American companies affected more difficult. The US government seems ready to adopt a similar approach to Huawei, which will land more American companies in trouble. These practices of the Trump administration will fundamentally shake the credibility of American companies in the international market, because Chinese and other manufacturers will avoid any opportunity to do business with American companies.
China's demand for chips is huge, accounting for more than half of the global market. If American companies lose the Chinese market, they will suffer the most. Moreover, Chinese domestic companies will try to make up for the gaps left by US companies, and Chinese semiconductor companies will be given greater opportunities to develop. In the future, they will squeeze the share of American companies in the international market, putting greater pressure on US companies.
Globalization was originally a mutually beneficiary game through cooperation, but the Trump administration does not understand this truth. If the US government continues along this path, it will destroy the US economy, let alone "make America great again".
Ding Yifan is deputy director and senior fellow at the Institute of World Development, under the Development Research Center of the State Council. The views do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
The Trump administration threatened to impose unilateral trade sanctions against China at the end of March. The tone of these sanctions has since increased. It shifted from trade sanctions to technical sanctions, with the US government placing a ban on American companies selling any technical product to China's ZTE for seven years.
Can the United States win anything from its trade war with China? Even if the Trump administration wants this trade war to escalate, the US will not see any benefit. On the contrary, sanctions against China could seriously harm the US economy.
We are living in a globalized economy. The relationship between China and the US is an interdependent one. If the US wants to impose sanctions on China, it will hurt not only Chinese companies but also American companies. If the Chinese economy is damaged, the US economy may suffer even greater damage.
Many think tanks in the US understand this reasoning and, after US President Donald Trump threatened unilateral trade sanctions against China, they began to do their research. This research pointed out that the Trump administration's approach is undoubtedly suicidal, because if Trump wants to increase tariffs on Chinese exports to the US, the costs for American companies will rise rapidly and general prices will rise sharply, completely offsetting any benefits of his administration's tax cuts. Other studies indicate that if China retaliates, more than 2,000 counties in the US will be seriously damaged because they are heavily dependent on the Chinese market.
The trade war will cause great damage to American companies, which in turn will affect the trust of investors in American corporate stocks. It will lead to a dive in the stock price of many US companies, which will cause a panic in the US capital market and may turn into an economic recession.
Unfortunately, the Trump administration does not seem to listen to advice on various matters, as most of remaining members of the Trump administration are more or less radical figures. The more rational and less extreme figures previously in the administration either resigned or were expelled by Trump. The rest of the characters surrounding the US president all feel that the US is omnipotent. Therefore, it can ignore its friends, disregard allies, ignore partners, and can do whatever it wants.
Indeed, some of these people were also involved in the trade war between the US and Japan in the 1980s. They crushed Japan through a trade war, causing macroeconomic chaos, which eventually saw Japan fall into trouble. These people still want to use the methods of the old days to deal with China and eliminate the "hidden dangers" of China’s rise.
However, these radical militants in the Trump administration have overlooked two major differences between China and Japan: First, in a globalized economy, the US can no longer harm China without harming itself; second, the size of the Chinese market is greater than that of the US, and China’s industrial system is more complete than that of the US. With this in mind, it would be ridiculous to mess up China with a trade war.
Take for example the ban on the sale of chips to ZTE. On the surface, this will land ZTE in trouble, as it will probably default on some commercial contracts because it will be unable to provide products to clients in due time. However, the US companies that supply ZTE are also in trouble. As ZTE is a major buyer of chips, supplying ZTE represents more than one-third of the production of some American companies. The inability to supply ZTE will cause a significant drop in production for these companies, thus serious losses in revenue.
The news has already triggered a fall in the price of corporate stocks, which will render the future development of the American companies affected more difficult. The US government seems ready to adopt a similar approach to Huawei, which will land more American companies in trouble. These practices of the Trump administration will fundamentally shake the credibility of American companies in the international market, because Chinese and other manufacturers will avoid any opportunity to do business with American companies.
China's demand for chips is huge, accounting for more than half of the global market. If American companies lose the Chinese market, they will suffer the most. Moreover, Chinese domestic companies will try to make up for the gaps left by US companies, and Chinese semiconductor companies will be given greater opportunities to develop. In the future, they will squeeze the share of American companies in the international market, putting greater pressure on US companies.
Globalization was originally a mutually beneficiary game through cooperation, but the Trump administration does not understand this truth. If the US government continues along this path, it will destroy the US economy, let alone "make America great again".
Ding Yifan is deputy director and senior fellow at the Institute of World Development, under the Development Research Center of the State Council. The views do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
