The Trump administration continued to follow through on campaign promises to drive a hard bargain on trade this week, upping the ante in a fight with Beijing. But the China tariff gamble, which continues to shave value off global equities markets, is a whole different ball game from other recent trade actions.
The threat of hefty steel and aluminum tariffs sped up trade negotiations with close allies, such as South Korea, which struck a deal to smooth over trade tensions and appease the US president with better terms for an existing bilateral trade agreement. There is increasing optimism that the same will happen with the North American Free Trade Agreement, after the White House granted Mexico and Canada conditional exemption from the metals tariffs.
But the proposed tariffs on Chinese products, unveiled on Tuesday, would be more dangerous to the global economy by an order of magnitude. By targeting US$50 billion, annually, in intellectual-property-intensive products, the proposed levies are trying to undermine a key element of Beijing’s efforts to restructure its economy.
Officials at the Office of the US Trade Representative were quoted as saying the proposal identified products that “benefit from Chinese industrial policies, including Made in China 2025.” According to research from investment bank Natixis, released on Wednesday, more than two-thirds of the items targeted by the tariffs are listed in the Made in China 2025 strategy, which outlines how China intends to move up the economic value chain by investing in strategic technologies. China’s plan to become a dominant player in industries such as semiconductor manufacturing and artificial intelligence goes to the heart of the vision leaders in Beijing have laid out.
That is why, economists Alicia Garcia Herrero and Gary Ng write in the Natixis report, Beijing is willing to strike hard, even at the risk of collateral damage at home.
“The second round of retaliation shows that China has switched to measures that could hurt itself or both sides. The reason probably is that too much is at stake, namely, China’s ability to compete with the US as it moves up the technological ladder,” the economists write.
In fact, the second round of retaliation, which analysts have said is targeted to hit industries located in states within which much of President Donald Trump’s support is based, will primarily hurt China, Garcia Herrero and Ng say. For products such as vehicles for transporting goods, turbine products, aircraft, polyesters, all included in China’s proposed retaliatory tariffs unveiled Wednesday, China accounts for a small share of US exports, but the US suppliers make up a big share of China’s imports. In the case of tariffs on soybeans and cereal products, both sides get hurt, though they target Trump’s political base.
That being said, the report notes that the levies proposed thus far have not reached a threshold of systemic harm to China’s economy. “Given the large source of domestic revenue, most Chinese sectors seems to be quite resilient against external headwinds, but a trade war is still harmful for China at a sectorial level.”
In addition, Chinese exports to the United States have fallen precipitously over the past several decades, as a share of total exports:
As the world’s two largest economies barrel toward each other, poised for a collision that could send shockwaves around the globe, it is unclear how either side will back down. The Trump administration has been quick to change course after bluster, taking a page from Trump: The Art of the Deal. How long will Trump be able to withstand the onslaught of headlines on stock market losses?
Beijing’s failure to reach any deal with the Trump administration thus far underscores just how important becoming a dominant player in high-tech industries is, as does its apparent willingness to hit hard with retaliatory measures that will be felt at home. With so much at stake, the analysis from Natixis shows, Beijing may be willing to risk short-term pain and test Trump’s resolve.
Once the stock market bubble bursts, there is no return.
Keep on the game with fire, Mr Trump.
The aggregate P/S of the S&P 500 is 2.5. The historical average is 1.5. Stocks are overvalued and need to correct.
Edward Ring
It just needs a trigger and Trump is happy to give it.
It is sad that the US can’t compete and has to use tariffs and threats to stop China from "moving up the ladder" into higher-value-added goods. Did China rise in part by buying or stealing foreign patents and expertise? I don’t know. Probably. The US was known for being lax with regard to foreign intellectual property when it was developing, in the 19th century. But at this point, China is producing more patents than anyone else, so it can agree to crack down on such things. I expect this to be part of a solution to the current trade actions, which seem to be helping no-one, so far.
Spot on.. China 2025 is the real target of concern for US.. not the printed trade surplus.. which includes American exports back to US.
The Corporate Capitalist West has learnt no lesson from the debacle of Sunni Islam, and will end up like them – de-industrialized, uneducated, unskilled, poor, violent.
Immediately after the death of free trader Mohammed, the Sunni Kaliphate in 632 AD imposed Tariffs (an Arabic word) on all goods of non-Muslim origin. The Sunni/Jewish cartel controlled East West trade for over a 1000 years until Christians expelled them both from spain, thus free to find new routes (and new lands as a bonus) showing middle finger to Kaliphate, ending their living off others’ gravy train. The rest is history.
Today, the dying West repeats Sunni anti-Koranic, anti-Mohammedan error, and will end up the same or worse, as China promotes trade with its new Belt and Road initiative uniting Europe, Asia, and Africa into a grand land based Free Trade zone where America and Australia are distant islands. In this game, the US can not win, Europe take note.
In January 2008 during half time of the Super Bowl I channel surfed and I ended up watching CNBC Asia where someone was interviewing a Professor from some Singapore University——I will never forget what he said—- He said the West 500 year reign was coming to a end BUT he was worried could the West handle the fall from grace. He said the West would go screaming and kicking into the night before they knew the game was lost.
The only way to beat China in this game is invest in the furture. This the US is not doing. It is being too complacent, full of self exhortation, fighting wars for allies and whiling away the time. Its a bit late but since has no limits or boundary.
The Trump regime’s tariffs will barely put a dent on the "Made In China 2025" (MIC2025) industries in the long term, & have near-zero impact on MIC2025 in the short to medium term.
In the great majority of MIC2025 market segments, China currently has little/no competitive advantage in the US market anyway (e.g. how many jet engines, semiconductors, or EVs does China export to the US today? If the answer isn’t ‘zero’, it’s ‘near zero’). In fact, in many of the MIC2025 market segments, foreign players currently dominate the Chinese market (semiconductors & commercial aviation being the obvious examples). So to provide a more extreme analogy: imposing a tariff on MIC2025 products is about as effective as "imposing a tariff on a Yemeni-made smart phone" – Yemen would have a whole lot of other barriers to overcome before such a policy would even matter.
In the rest of the MIC2025 market categories, the US market is also in its infancy, like everywhere else. The prime example here is AI. While it’s a hot new buzzword in tech, it’s hardly a big market right now, & this industry is still in its infancy in both the US & PRC. So imposing tariffs to protect a tiny market will have negligible immediate impact.
Bottomline – while the tariffs are inconvenient for sure, the success of the MIC2025 industries will depend mostly on China’s own market & policy choices, rather than anything the Americans can realistically do.
China should become 100 % independent from US imports. They should build more production lines at their commercial air craft factories. They should build more Pig farms. Strange China need to import pork! Buy the rest from countries along the Silk Road. China should also ask if the GMO farm products is safe? Russia makes organic farm products, might be safer than the US GMO food.
Withdraw the $1 trillion before the US default. Why finance US war machine!
Yes, he is gambling with other people’s money. China should identify areas where he has some skin in them and hit them hard. The agro area is one of them, but that’s an area that will only hurts him politically. China should target areas that will hurt him personally and financially.
What you have here is correct. However, the US game is not aiming at making a dent on the "Made In China 2025" (MIC2025) industries NOW, but trying to stifle and impede that growth of those industries, same thing as it did when it tried, suceeded, by excluding China from the Galileo NAV satellite program, banning China from participating from the ISS program, or any involvement with NASA, or banning the export of Intel and nVidia chips used in China’s supercomputers.
But as history has shown, these attempts were largely futile. They might have made things a little harder for China at the begining, but to the contrary, they also hardened China’s resolve to get them done on its own terms, as they have in all the cases I have mentioned.
Indeed those are good examples. In this particular case, the US regime’s efforts are even more futile, given that all of those MIC2025 industries have plenty of room to grow in the PRC’s domestic market, & grab marketshare from existing foreign players inside the PRC before they even need to expand overseas.
Yes, why finance the US war machine ??
‘de-industrialized, uneducated, unskilled, poor, violent’
I would be interested to know that, you as a SYED (direct descendants of the trader Muhammed), what made you to make such generalisation about the whole Sunni Islam.
For some reason, I believe, you think the Shia Islam has done much better.