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Zhao Minghao: Trump administration should not overestimate its chances of winning the trade war

2018-09-03

Source:CGTN    Published: 2018-8-31


Recently, the Office of the United States Trade Representative held a hearing on imposing high tariffs on 200 billion US dollars worth of Chinese products. About 360 representatives of various US enterprises and commercial organizations attended. The Trump administration's economic and trade offensive against China has been widely questioned, making American companies and people victims of the trade conflict.


At the hearing, which lasted for six days, an overwhelming majority of delegates noted that if the Trump administration insisted on escalating the trade war with China, not only would it significantly increase the cost of US companies, but also add burden to ordinary domestic consumers.


The 200 billion US dollars worth of Chinese imports to the United States involve more than 6,000 categories of goods, most of which are daily consumer goods such as furniture, lighting products, tires and plastics.


Obviously, the China-US economic and trade dispute that has been intensifying in the past few months has had many negative impacts, and the Trump administration's original attempt at reducing the US foreign trade deficit seems to be in vain.


In early August, data released by the US Department of Commerce showed that the US trade deficit widened by 7.3 percent month-on-month in June, with increased deficits with China, the European Union, Canada and Mexico. The US trade deficit in the first half of 2018 reached 291.2 billion US dollars, an increase of 7.2 percent over the same period last year.


Recently, the American Chamber of Commerce, the Internet Association and other lobbying groups have been expressing dissatisfaction with the White House and the Office of Trade Representative. US companies that rely on the Chinese market are increasingly worried.


The total value of goods and services sold by US enterprises to China in 2017 reached 280 billion US dollars, with well-known brands such as Apple and Starbucks attributing more than 20 percent of their total revenue to China.


Apple CEO Tim Cook expressed concern that China's countermeasures would seriously affect his company's performance. He openly said that the United States and China were so interdependent that they had to ultimately reach a deal on trade issues.


In addition, many US congressmen felt pressure because the interests of their constituencies and voters were hurt. In order to placate farmers, whiskey producers and other groups who suffered as a result of the trade tensions, US Senate Republican leader McConnell went back to his hometown in Kentucky and expressed hope for an early end to the trade war.


In fact, the trade war has failed to turn out as the Trump administration originally planned. Officials of the Federal Reserve are also worried that the trade disputes would lead to higher prices of raw materials and spare parts, weaken the purchasing power of US households and seriously affect private-sector confidence, investment spending and employment.


On August 20, the National Association for Business Economics released a research report saying that more than 90 percent of the 251 economists interviewed believed that tariffs and tariff threats had severely hurt the economy.


Despite the dissatisfaction and criticism from all sides, the National Economic Council Director Kudlow and others argue that the strong economic performance has given the United States an advantage and now is the best time to engage in a trade fight with China.


Trade Representative Lighthizer, director of the White House National Trade Council Navarro and other hardline figures insist on continuing to exert pressure on China, including imposing high tariffs on 200 billion US dollars worth of Chinese products and not ruling out the possibility of taxing all products imported from China in the future.


Scott Kennedy, an expert on China at the US Center for Strategic and International Studies, believes that hawks within the Trump administration have a bigger ambition, which is to move supply chains from Asia to the United States and to separate the two big economies for a long period of time.


Although the Trump administration appears aggressive, it is actually under great pressure. Many people of insight believe that the US misjudged its chances of winning the trade war. Wendy Cutler, a former US deputy trade representative, said the country risked overestimating its bargaining power.


Despite the impact of the trade war on China, the International Monetary Fund and other institutions believe that China, with an estimated GDP growth rate of 6.6 percent this year, will still be one of the fastest growing countries in the world.


Since the beginning of 2018, China has received and put into use 76.1 billion US dollars of foreign investment, an uptick compared to the same period of last year. Moreover, China’s foreign exchange reserves have increased to 3.12 trillion US dollars.


The United States' high GDP growth rate in the second quarter is mainly due to tax cuts. If the Trump administration remains foolhardy in pushing forward the "trade war," the economic pressure will build on its economy.


In the second half of this year, US economic growth may slow down and its advantage of a high growth rate will gradually disappear.


There is no doubt that there will be no winner in the "trade war." The Trump administration needs to listen carefully to the opinions of US enterprises, experts and relevant agencies and show sincerity in negotiating with China to resolve the trade dispute and prevent the "trade war" from further eroding the foundation of US-China relations.


Zhao Minghao is a visiting fellow of Chongyang Institute for Financial Studies at Renmin University of China.

Key Words: US   Trump   trade   Zhao Minghao  

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