The WSJ has an excellent article today asking Who Won the US-China Trade War?
That’s a non-paywalled link for interested parties.
Both the US and China claim victory.
US Won Theory
Robert Lighthizer, President Trump’s trade representative, who acted as the U.S. field general for the trade war, says the U.S. came out ahead in a much more important area. “My objective was to convince people that China is a problem—an existential threat to the U.S.,” says Mr. Lighthizer. “I think we convinced people.”
There is also plenty of data to show that China was the loser in the trade war because it took a bigger economic hit than the U.S., with much of the evidence compiled by Chinese economists. China’s economy is more dependent on trade for growth than the U.S., so tariffs make China more vulnerable. President Trump had that in mind, according to aides, when he would tell them the Chinese will “run out of bullets first.”
China Won Theory
Charlene Barshefsky, President Clinton’s former trade representative, also thinks that Beijing came out ahead politically. “They did not change their economic model one iota, reinforcing to Xi Jinping that their economic model can withstand even aggression by the United States.”
Overall, Chinese officials believe the trade war hurt the U.S. more than it has hurt China, pointing to the heightened inflationary pressure as a result of American tariffs on Chinese products. Inflation is now presenting a powerful threat to the Biden administration as November midterm elections approach. “Tariffs are a poisonous legacy of the last administration that this administration should remove,” says a senior Chinese trade official.
The trade war also reinforced to Beijing the need to reduce its reliance on American technology—a longtime Chinese goal. To that end, China has doubled down on the state-led economic model the Trump administration had set out to change.
Last year Beijing pledged at least $1.5 billion in the coming five years to support more than 1,000 smaller, privately held firms, dubbed “little giant” startups.
Curious Definition of Winning
Once again we see a curious definition of winning. To paraphrase, “We won the war because we lost an arm but they lost a leg.”
Lighthizer said “I think we convinced people.” Absolutely! Trump, convinced China to reduce its need on US technology.
On that basis, who lost the arm, and who lost the leg?
Six Phases of a Project
Different countries are at different phases.
The US is not quite at the panic stage yet. But praise, honors, and congratulations are owed to some of the non-participants.
Vietnam the Winner
Who won the U.S.-China trade war? In many respects, it’s been Vietnam. According to calculations by Kearney, China shipped $50 billion less in manufactured goods to the U.S. in 2021 than it did in 2018, as tariffs increased the cost of Chinese imports. During that same time, Vietnam—free from those U.S. tariffs—increased its factory goods shipments to the U.S. by $50 billion. Looked at from another angle, exports of manufactured goods from 14 low-cost Asian nations, including China, tracked by Kearney, increased by $90 billion in 2021 compared with 2018. Vietnam accounted for about half that increase.
Vietnam had become a manufacturing hub well before the trade war. Following the path pioneered by other export-heavy Asian countries, Vietnam welcomed foreign investment, improved its infrastructure and benefited from being close geographically to China and paying cheaper wages.
According to Moody’s Analytics, a market data firm, 46% of Vietnam’s exports to the U.S. now consist of electrical machinery, three times the percentage as before the trade war. Lower-value textile and apparel shipments also increased but at a much slower rate.
Over this period, America’s trade deficit with Vietnam also exploded nearly threefold to $90 billion. During the Trump administration, that gap attracted the attention of Mr. Lighthizer, who launched two investigations into Vietnamese trade practices that could have resulted in tariffs.
Luxshare Precision Industry Co., a supplier of components to Apple Inc. and other American companies, was one of many Chinese firms to cite U.S. tariffs as a reason to expand in Vietnam. In 2019, Luxshare announced it would build four factories in Vietnam. So far it has invested more than $3 billion there and plans to eventually shift one-third of its production to Vietnam.
Translation: Not content with losing an arm or a leg (take your pick), Lighthizer urged Trump to start a trade war with Vietnam.
And here’s the amusing kicker.
Chinese manufacturers also rushed to set up operations in Vietnam. More than half the fresh exports from Vietnam to the U.S. during the trade war originated from Chinese-owned factories, estimates Patrick Van den Bossche, a Kearney partner. Since 2017, Chinese investment in Vietnam more than doubled to $1.9 billion in 2020.
MishTalk Flashbacks
March 2, 2018: Trump Tweets “Trade Wars are Good and Easy to Win”
In one Tweet, Trump proves he understands neither trade math nor trading partner psychology.
Trump’s trade policies are set to exacerbate the next global recession, but economic illiterates are egging him on.
May 31, 2018: Trump Started a Global Trade War Today: Canada, Mexico Responded, So Will Europe
Trump has been itching for a global trade war ever since he took office. He just confirmed one. Regardless, of Trump’s primary target, if any, Trump wanted a global trade war. And he just started one. Only fools cheer.
June 3, 2018: Trade Talks With China End in Impasse and Threats from China
All sides lose in a trade war. One does not win a trade war by losing less. Trump is clueless about trade and barking up the wrong tree.
Exacerbate the Next Recession
I wish to emphasize my March 2, 2018 prediction.
“Trump’s trade policies are set to exacerbate the next global recession, but economic illiterates are egging him on.“
All of these tariffs, sanctions and supply chain disruptions, now expanded by Biden as well, have certainly exacerbated the inflationary pressures in this global recession.
The economic illiterates in the Biden administration have doubled, if not quadrupled down on Trump sanction ideas.
De-Globalization: New Supply Chains Are Inefficient and Will Drive Up Inflation
Flashback April 4, 2022: De-Globalization: New Supply Chains Are Inefficient and Will Drive Up Inflation
“Piped gas from Russia can be supplied to northern China at prices that are competitive when compared with LNG,” said Ken Kiat Lee, analyst at consultancy FGE.
And as Russian oil gets diverted to China, China will then buy less oil from the Middle East and then Middle Eastern oil will now have to be shipped to Europe with the same loss of efficiency as the shipment of Baltic oil to China.
If this sounds convoluted, it’s because it is.
US Sanction Policy Drives China Into Russia’s Loving Arms
As a result of US and EU sanctions on Russia, the price of Natural Gas has exploded, especially in Europe.
The price of oil is up everywhere, even as recession hits.
With all this going on, it’s debatable if anyone was a winner. But on a relative scale, Vietnam won.
The biggest losers of de-globalization are the US, India, food and energy importers, and any countries hurt by the surging US dollar.
No, president Trump, trade wars are not good, nor easy to win.
Here is one final flashback.
March 8, 2022: US Sanction Policy Drives China Into Russia’s Loving Arms
The global response to Russia has one huge beneficiary, China. The war accelerates a trend in place set in motion by Trump.
A recession fueled by collapsing demand, a liquidity crunch, and fading stimulus effects is coming up. Inflation sure doesn’t help.
Russia will not be the “cause” but the war in Ukraine and the global reaction to it will make things dramatically worse.
Hello president Biden, your sanctions on Russia have backfired just like Trump’s tariffs and sanctions on China.
This post originated on MishTalk.Com.
Thanks for Tuning In!
Please Subscribe to MishTalk Email Alerts.
Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.
If you have subscribed and do not get email alerts, please check your spam folder.
Mish
