TTP's demise screwed Asian democracies good and hard. Make China great again?
Trump has said he would end this deal the day he takes office. This was a major part of his campaign. Now will he? Should he? My main concern was that by killing it we would economically remove ourselves in Asia and cede the region to China by default. My other concern was that we could isolate ourselves so much so that we could find us being squeezed between China and Russia much to their joy and profit.
http://money.cnn.com/2016/11/23/news...sia/index.htmlAmerica is receding from the global economic stage, opening the way for China to take a lead role and a supporting one for Russia.
Donald Trump's decision to withdraw from the Trans-Pacific Partnership (TPP), a controversial trade deal, wasn't taken well by world leaders.
"The TPP without the United States is meaningless," Japanese Prime Minister Shinzo Abe said.
Others had another message: We'll move on without you and strike alliances with other nations.
"Another agreement can take its place, but not with U.S. participation," Peru President Pablo Pedro Kuczynski told Russia's state-run news outlet RT on Nov. 11. "It would include China, and Russia as well."
Trade is a top priority for many world leaders, especially Kuczynski. Last weekend, he hosted the APEC conference, a trade summit that drew President Obama and China's President Xi Jingping, along with leaders from Latin America and the Asia Pacific.
A day after APEC ended, Trump announced he would withdraw from TPP the day he arrives at the White House. That's not going over well with the 21 world leaders of APEC.
"We reaffirm our commitment to keep our markets open and to fight against all forms of protectionism," the leaders said in a joint statement.
As America under a new leader backpedals on doing business with other nations, China and Russia appear poised to fill the gap. China is already pushing its own trade deal known as the Regional Comprehensive Economic Partnership (RCEP). It includes many countries, such as Japan and Australia, that would have been in TPP.
If RCEP succeeds, China would be in a stronger position to lead a bigger free trade area in the future. Already in Asia, some countries, like the Philippines, are aligning themselves with China.
Chinese officials are also welcoming Latin American nations to RCEP, a clear pick up from the rubble of TPP.
And it makes sense. China and even Russia are already vying to take away American influence from Latin America, a region once considered the U.S.' backyard according to experts.
China and Russia have made major investments in Latin America in recent years.
China's state banks have poured $120 billion in investments into Latin America since 2005, according to the Inter-American Dialogue, a think tank in Washington. Since 2008, Russia has sent military arms to Venezuela, Brazil and Bolivia, among other nations, while cutting an oil exploration deal with Mexico, according to R. Evan Ellis, a professor of Latin American studies at the U.S. Army War College.
Even though China's growing ties to Latin America have been rocky at times, Trump's withdrawal from TPP may smooth that out.
The path ahead remains unclear but the rest of TPP nations are willing to strengthen trade ties without America.
"Concrete damage to U.S. interests has already been done," Eric Farnsworth, vice president at Council of the Americas, said referring to two Asia-focused trade agreements:the RCEP and the Free Trade Area of the Asia-Pacific (FTAAP), another potential trade deal that would include nations in Latin America, southeast Asia and Australia.
"The U.S. retreat on TPP has breathed immediate life back into" those deals, says Farnsworth, who attended the APEC meet in Lima, Peru.
TTP's demise screwed Asian democracies good and hard. Make China great again?
All those who are merciful with the cruel will come to be cruel to the merciful.
-Talmud Kohelet Rabbah, 7:16.
Make it a consensus: Trump is to American interests in Asia as Protectionism is to American standards of living ...too dangerous to consider.
To be fair, Clinton U-turned on the deal during the campaign. But that is academic, now; RCEP is all that's left. If Trump goes around repealing NAFTA and continue holding the "Mexican thing," hoo boy.
All those who are merciful with the cruel will come to be cruel to the merciful.
-Talmud Kohelet Rabbah, 7:16.
Trump is a business man first and foremost. So I have doubts whether TPP will be scrapped, if its in American business interest it will be kept and TTP is just that. Why both candidates said they would scrap it is a mystery. i don't buy it.
Campaigning is very different to governing.
Last edited by Double Edge; 24 Nov 16, at 12:10.
The TTPA grew out of the TPSEP. While my Govt. still advocates for it I suspect it's because of status reasons rather than sound economic reasons.
At some point it became political rather than about trade, a sort of globalism that focused more on restriction of trade than freeing it; the worst aspects of global bureaucracy akin to the worst aspects of the EU regulations.
I suspect there's a certain tipping point where the sheer numbers and disparities of the various countries for such agreements become counter-productive to actual trade. For us for instance, agricultural access, while nominally immediately increased, actually reduced our long-term options.
In the realm of spirit, seek clarity; in the material world, seek utility
NewsBank InfoWeb Eurasia Review (Asia)
November 28, 2016
Right after the Asian-Pacific nations embraced the dream of free trade in the regional Peru Summit, President-elect Trump buried it.
Last weekend, Asia-Pacific Economic Cooperation (APEC) summit made it clear that it would move forward with trade pacts; with or without the US.
Right after the Lima summit, President-elect Donald Trump unveiled his plans for the first 100 days in office, which focus on campaign promises that will not require congressional approval. Among his first actions, Trump said he would “issue our notification of intent to withdraw from the Transpacific Partnership; and replace it with negotiating fair bilateral trade deals.”
Trump campaigned on a promise to halt the progress of the TPP trade deal. The world is different after his triumph, including world trade.
From Berlin Wall to Trump Wall
In the late 1980s, as the Cold War eclipsed in Europe and regional trade blocks surfaced around the world, Australia called for more effective economic cooperation across Asia Pacific, which led to the first APEC talks.
In Washington, neither Asia nor APEC was yet a priority. Rather, the focus was on the North American Free Trade Agreement (NAFTA), which would tie together the economies of the US, Canada and Mexico. “We have got to stop sending jobs overseas,” warned presidential candidate H. Ross Perot in 1992. “There will be a giant sucking sound going south.” But unlike Trump, he appealed to only one tenth of Americans.
Sure, there was free-trade skeptics among Republicans and Democrats, but the bipartisan majority still believed in free trade. While negotiated and signed by President George H.W. Bush, NAFTA became effective under President Bill Clinton in 1994.
By the early 2000s, President George W. Bush sought to extend the NAFTA. However, critics argued that the Free Trade Agreement of the Americas (FTAA) could split South America. So the initiative crumbled against opposition by Brazil and its progressive President Lula.
In the Obama era, Washington began to tout the Trans-Pacific Partnership (TPP). This initiative originated from a 2005 free trade agreement among just Brunei, Chile, New Zealand and Singapore. After 2010, Washington began talks for a significantly expanded, “high-standard” free trade agreement, which would reflect U.S. alliances in Asia and Latin America but exclude China.
While the original TPP was small but open, inclusive and had room for both US and China, the Obama plan sought to attract a dozen nations but grew secretive, exclusive and shunned China. Yet, it was an integral part of Obama’s “pivot to Asia,” which was intellectually formulated by former Secretary of State Hillary Clinton. That vision is now history.
If the regional free trade agreements drafted by advanced economies were energized by the fall of the Berlin Wall in the late 1980s, their demise today is characterized by the Trump dream of a Wall against Mexico. Along with the TPP, Trump will seek to re-define the NAFTA and the proposed Transatlantic Trade and Investment Partnership (TTIP) pact with Europe.
Meanwhile, free trade initiatives will shift to emerging economies.
China energizes free trade vacuum in Asia Pacific
After the US presidential election, some of Obama’s TPP partners -- including Japan and Mexico -- pushed for a modified TPP agreement before Trump could tear up the agreement. Prime Minister Abe hoped to hedge between a revised TPP, a bilateral free trade deal with the US, and China-led talks at a Regional Comprehensive Economic Partnership (RCEP).
But the RCEP is no alternative to either US- or China-led broad trade pacts. It reflects the interests of emerging ASEAN economies (and their trade partners in advanced economies), but has a slower implementation schedule and humbler goals.
Ever since the Trump triumph, apprehension has also spread across Latin America, which is struggling to prepare for the Fed’s impending rate hikes. In the past week or two, Mexican peso, Brazilian real and other Latin American currencies have already suffered heavy hits, which have been mirrored across the Pacific by the sell-off of Asian currencies.
Until recently, the U.S. pivot in the Asia Pacific has relied mainly on increasing security cooperation, whereas China’s focus is on economic development. Since 2013, President Xi Jinping has proactively pushed for broader economic ties with both emerging Asia and Latin America.
In Lima, Peruvian President Pedro Pablo Kuczynski said that, if the US pulls out, he would support an Asia-Pacific trade accord that includes China and Russia. Like Peru, even Australia is now moving behind the China-led Free Trade Area of the Asia Pacific (FTAAP). Ironically, China’s initiative builds on a U.S. plan.
Chinese efforts, US plan
In 2006, C. Fred Bergsten, then chief an influential Washington think-tank, made a forceful statement in favor of the FTAAP, which he thought would represent the largest single liberalization in history. This initiative would be relatively open, inclusive and have room for both US and China. Indeed, Beijing’s push for an Asia-Pacific free trade area has been more active since fall 2014 when I predicted that, as a more inclusive and open plan, it had potential to achieve reflect real free trade in the region.
Oddly enough, the Obama Administration rejected the free-trade FTAAP for the geopolitical TPP, which China argued would have imposed a Cold-War like Iron Curtain on Asia Pacific by splitting the region between a US-dominated block and China’s allies.
Today, APEC’s membership has almost doubled to 21 countries, which account for almost 60% of the world economy, and nearly 50% of world trade. Beijing’s logic is persuasive: if you can make it in APEC, you can make it everywhere.
While the dream of free trade was born in the prosperous West, it will be completed in the emerging East.
GOP Proposal to Change Tax Treatment of Imports and Exports Raises Questions
Movement to cut corporate rate and place a levy on imports gains momentum, but impact of changes being considered still questioned
Dec 9, 2016
As a rule, taxing a behavior makes people do less of it, and that principle applies to anything from cigarette smoking to realizing capital gains.
That principle, though, isn’t so clear regarding a Republican proposal that for the first time would tax American imports while exempting exports from U.S. tax. And economists question whether such a policy, known as a border adjustment, would diminish imports into the country or increase exports.
The GOP election sweep of Congress and the White House has given the idea of adopting a border adjustment added momentum as part of the party’s plans to enact the most far-reaching overhaul of the U.S. tax code since 1986.
House Republicans are still at an early stage of revamping the entire tax code. And lawmakers are still working out details of the proposed border adjustment that, if enacted, would mark a sea change for U.S. corporate taxation. The idea already is being scrutinized by economists and businesses.
For the U.S., the idea of a border adjustment is novel and moving quickly from theory into reality. Republicans pitch it and a drop to 20% in the corporate tax rate as their alternative to the straight import tariffs President-elect Donald Trump has proposed.
Rep. Kevin Brady (R., Texas), the border-adjustment plan’s chief proponent, says the current tax code contains backward incentives that encourage imports and discourage exports. “By leveling the playing field between imports and exports, we expect much stronger demand here in the United States,” he said. “That’s a good thing.”
Yet deciphering the practical impact of such a change in the tax regime is more complex and must take into consideration factors such as foreign exchange rates, other countries’ reactions to any U.S. move and, of course, the plan’s ultimate design, which is still on the drawing board. “It’s not a simple subject,” said Alan Viard, an economist at the conservative American Enterprise Institute.
Meanwhile, companies are scrambling to understand the few emerging details of the border-adjustment plan. And some fierce opposition to it is emerging.
Koch Industries Inc., the conglomerate led by the billionaire Koch brothers who fund conservative think tanks and interest groups and are influential in Republican politics, sharply criticized the idea of a border adjustment on Wednesday. It warned of what it called ‘devastating” effects.
Import-reliant retailers and manufacturers are fired up, too.
Applied mechanically, without assuming the impact of currency changes, U.S. border adjustments under consideration would raise taxes on the motor vehicle and retail industries and cut them on chemicals and electronics, according to an analysis by Ernst & Young LLP.
Broadly, however, economists suggest adoption of a border adjustment might not necessarily have the desired effect and could be a wash at the end of the day because currencies and trade flows eventually adapt to changes in taxation. If U.S. exporters, freed of tax, are able to charge less for their goods abroad, demand for them—and the U.S. dollar—could rise, leading to higher overseas prices and ultimately moderating overseas sales for those same products.
“The effects on trade of these two components—the import tax and the export subsidy—are offsetting,” write economists Douglas Holtz-Eakin and Alan Auerbach in a recent paper. “Adopting them together imposes no trade distortions even though adopting either separately would.”
But there is more to Mr. Brady’s plan than border adjustment, and the entire GOP tax overhaul might change long-run investment decisions. The key is a global comparison of taxes.
Most major nations levy corporate income taxes and value-added taxes that are a sort of consumption tax applied at each stage of production. VAT, however, is removed from exports, so it applies only to a country’s domestic consumption. The U.S., which has a relatively low general tax burden, doesn’t impose VAT.
Mr. Brady’s plan, though he doesn’t describe it this way, could be thought of as in effect repealing the 35% corporate income tax in the U.S. and replacing it with a 20% tax that appears in many ways like a value-added tax that would apply only in relation to sales of domestically produced products and services sold in the U.S. and to imported goods.
As with VAT regimes abroad, Mr. Brady’s proposed border levy is applied where a product is consumed, not where a company’s corporate headquarters or intellectual property is located, as would be the case with a corporate income tax.
In Mr. Brady’s plan and in a VAT, a company’s capital expenses could be deducted immediately, though net interest wouldn’t be deductible. The only major difference between Mr. Brady’s plan and other countries’ VAT is that those taxes generally don’t allow tax deductions for wages, while his proposal would.
Viewed that way, the potential advantage for U.S.-made products, whether intended for sale at home or abroad, is clear. The competitive advantage for American companies wouldn’t stem from the border adjustment per se. It would come from the fact that other countries would still levy corporate taxes on top of VAT.
With U.S. corporate taxes abolished in favor of the redesigned corporate tax, any company paying corporate income taxes somewhere would be disadvantaged against a U.S. competitor.
In the simplest terms, here’s how the Brady plan would appear to work:
Today, a U.S. manufacturer exporting, say, machinery to France would pay U.S. corporate income tax and France’s VAT. Competing French machinery would bear the cost of the French income tax and VAT.
Under Mr. Brady’s plan, all U.S. taxes come off at the border. So U.S.-produced machinery sold in France would bear only French VAT, while French-made counterparts would be subjected to French income tax and VAT.
The same occurs in the opposite direction. A British drugmaker exporting to the U.S. would pay U.K. corporate tax and VAT. But that VAT would come off at the British border. A competing U.S.-made product sold domestically at present would be subjected to U.S. corporate income tax, which generally is higher than that of many other countries.
But under Mr. Brady’s plan, the imported U.K. drug, already bearing U.K. income tax, would get slapped with the new tax at the U.S. border.
If that British company were to move production to the U.S., it would avoid U.K. corporate tax and pay just the new 20% American tax.
“If the fundamental economic story about trade balance is correct, the only reason for a foreign firm to relocate production to the United States wouldn't be to get a U.S. tax subsidy or to avoid a U.S. tax penalty, but rather to avoid the foreign country income tax on the export sale,” Ed Kleinbard, former chief of staff of Congress’s Joint Committee on Taxation, said.
The big unknown about the tax regime Mr. Brady envisions is how other countries would react to what would be a change in U.S. policy that would create significant consequences for the country’s trading partners. Other nations could retaliate with punitive taxes and tariffs or file a challenge in the World Trade Organization, leaving the U.S. border-adjustment plan in limbo for years.
Still, Mr. Brady is confident the plan will pass muster. “I’m sure China and Europe and others will holler because their current tax advantage goes away and this will be a level playing field,” he said.
Whatever he thinks, dealmaking won’t help Mr Trump’s trade negotiations
Dec 10, 2016
IN A YouTube video released on November 22nd, Donald Trump—seated in front of an American flag and a leonine statue—confirmed his plan to put America first, “whether it’s producing steel, building cars or curing disease”. Mr Trump has already arm-twisted Carrier, a maker of airconditioning units in Indiana, to keep 800 jobs in the state rather than move them to Mexico. His transition team is preparing a list of “executive actions we can take on day one to restore our laws and bring back our jobs”. Implicit in the video was Mr Trump’s view of international trade: a patriotic contest in which countries strive to take each other’s jobs—or seize them back.
In Mr Trump’s view of the world, trade deals are adversarial and zero-sum. Other countries are rivals competing for the same spoils, not trading partners enjoying mutually beneficial exchange. His plans to scupper the Trans-Pacific Partnership (TPP), a deal painstakingly negotiated over ten years with 11 other countries around the Pacific Rim, tally with Mr Trump’s reading of history. Too often, he thinks, bad deals, like the North American Free-Trade Agreement (NAFTA) and China’s accession to the World Trade Organisation (WTO), have destroyed American jobs and created American losers.
For Mr Trump, evidence of this pilfering lies in America’s trade deficit, which is most dramatic for goods (see chart 1). “China is both the biggest trade cheater in the world and [the] country with which the US runs its largest trade deficit,” wrote Wilbur Ross, Mr Trump’s pick as commerce secretary, and Peter Navarro, a senior adviser to his campaign, in September in a description of the next president’s economic plan. Mr Ross has said he wants to “spread the trade-deficit issue around the globe”.
The trade misery that Mr Trump laments is recognisable to Nate LaMar, a sales manager at Draper Inc, which makes window shades, projector screens and gym equipment. He remembers his home state of Indiana being hit hard by job losses as the car and steel industries collapsed 15-20 years ago. Even in his own company, it “felt like we were floating down a river towards a waterfall”. Chinese competition encroached on their export orders first, and then their domestic customers, flooding the bottom end of the market with cheap imports.
No one knows exactly what President Trump’s trade policy will look like—perhaps not even Mr Trump himself. His alarm about foreign competition, and his suspicion of trade deals, runs deep in his rhetoric, permeating his stump speeches. But even many of his supporters hope that he will stop short of some of his more radical campaign pledges. Mr LaMar is one of them. “I’m hoping cooler heads will prevail,” he says, naming Mike Pence, the vice-president-elect and a free-trade advocate.
Many of Mr Trump’s picks suggest radicalism, however. According to a transition-team press release, Mr Trump’s cabinet choices “signal a seismic and transformative shift in trade policy”. His personnel hint at an aggressive stance against Chinese steel in particular. The transition team includes Dan DiMicco, former boss of Nucor Steel, and Robert Lighthizer, a trade lawyer who has built a career arguing for higher steel tariffs, and is known in trade-policy circles as “the most protectionist guy in Washington”.
If hotter heads do win out, how far might Mr Trump go? Protectionism around the world is creeping up (see chart 2 ). But if Mr Trump follows through on his promises, that trend will be turbocharged. He has threatened to withdraw from NAFTA (“the worst trade deal maybe ever signed anywhere”, he insists). On December 4th he tweeted that there would be a tax of 35% on firms that fired employees, built a factory in another country and then tried to sell their products back across the border. He plans to label China as a currency manipulator on his first day in office and has threatened tariffs of 45% on its products.
Many foreigners blithely assume that America’s system of checks and balances will stymie Mr Trump’s more radical tendencies. But for trade, those checks and balances are weak. The president would have huge power to carry out his threats, at least in the short term. Under the Trade Act of 1974 he could impose quotas or a tariff of up to 15% for up to 150 days against countries with large balance-of-payments surpluses (which modern courts would probably interpret as the current-account surplus). And if Mr Trump were to declare a state of national emergency, the scope of his presidential power would extend to all forms of international trade.
Mr Trump’s actions could eventually be challenged in American courts. Plaintiffs might claim that he was violating constitutional freedoms or defying the original intention of the laws he would invoke. But Mr Trump may have the legal upper hand. American courts may not intervene to stop a trade war. America’s multilateral trade agreements are also more fragile than they appear. To renegotiate NAFTA, Mr Trump would require approval from Congress. To withdraw from it altogether, he would simply have to give the other partners six months’ notice.
After America’s formal departure, its NAFTA commitments would live on, enshrined in the domestic legislation that implemented them. But those commitments need not restrain a determined president. After merely “consulting” Congress, he could abandon NAFTA’s (mostly) zero duties and instead impose the WTO’s “most favoured nation” tariff rates on Mexican imports, according to Gary Hufbauer of the Peterson Institute for International Economics, a think-tank. For clothing and footwear, these tariffs are high. But on average, they are low: only 3.5%—not very satisfying for a budding trade warrior. He could avail himself of much tougher tariffs by accusing Mexico (or indeed China) of various kinds of cheating: such as subsidising their exports illegally or dumping products on the American markets below cost. Mexico or China could appeal to the WTO, but that would take time. The WTO’s dispute-settlement mechanism is weighed down by a backlog of cases.
If Mr Trump did impose tariffs of 35-45%, the Mexican and Chinese governments would not wait for the WTO’s courts to intervene. They would retaliate. China could cancel contracts with the likes of Boeing, an American plane manufacturer, or disrupt Apple’s supply chain. China is a big customer for some American products. It accounted for roughly 60% of America’s soyabean exports between 2013 and 2015. In a trade war, it could cut these purchases.
After economists at the Peterson Institute highlighted this possibility, team Trump dismissed the analysis as “project fear”. “If China cuts off American farmers, Chinese people will go hungry,” they scoffed. But other countries, such as Argentina or Brazil, produce soyabeans. Switching could be relatively straightforward.
As well as blocking American goods at its borders, China could squeeze the many American firms operating within them. General Motors and its affiliates, for example, sold 372,000 cars in China in November, compared with just 253,000 in its domestic market. In Mr Trump’s own words: “leverage: don’t make deals without it.”
Imposing a punitive tariff on American firms operating in Mexico would be even more disruptive. Under NAFTA, companies have sprawled across the border. “We make things together in North America,” says John Weekes, Canada’s original NAFTA negotiator. Every dollar of Mexican exports to America contains around 40 cents of American output embedded within it. Tariffs of the level that Mr Trump suggests would be so disruptive that Luis de la Calle, a Mexican economist, doubts that they are credible. When it comes to car production, “you cannot run a plant in Michigan without Mexican imports,” he says.
If Mr Trump were to press ahead with his tariffs, the Mexican authorities would first try to find a smart response. They have had some practice. After years of the Americans failing to allow Mexican lorries to cross the border as easily as NAFTA stipulated, in 2009 the Mexicans imposed duties on, among other things, Christmas trees from Oregon. Not coincidentally, the state’s congressional delegation includes a member of the transportation committee. But in an escalating trade war it would be hard to pick a duty that would not backfire. If Mexico stopped importing American car parts, for example, it would hurt its own assembly lines. Retaliation might take unconventional forms. Turning a blind eye to outgoing migrants could rile Mr Trump more than duties on American goods.
Most tariffs backfire, hurting the country that imposes them by raising prices, blunting competition and depriving consumers of choice. In September the Peterson Institute predicted that a symmetric trade war, in which Mexican and Chinese imposed equal tariffs on American exports as America did on their exports, would ripple through the American economy, lowering private-sector employment by nearly 4.8m, or more than 4% by 2019.
Despite domestic and international restraints, Mr Trump would, then, be fully able to start a ruinous trade war. But would he be willing to do so? It could be that his threats to tear up trade agreements and raise tariffs are simply bargaining chips, designed to force governments to the negotiating table. In his book, “The Art of the Deal”, Mr Trump explained that his style of dealmaking is quite simple. “I aim very high, and then I just keep pushing and pushing and pushing to get what I’m after.”
Volunteer, or else
What, then, is he after? In his approach to trade dealmaking, Mr Trump might take inspiration from history. When Ronald Reagan was faced with a big trade deficit with Japan, he browbeat Japan’s carmakers (among others) into restraining their exports “voluntarily” (see article). But life was simpler under Reagan. He could negotiate with a handful of Japanese firms that made their goods in Japan and sold them in America. Today, parts and components criss-cross borders and a great deal of trade happens within firms. “The information you need to have to be able to act strategically seems to me to be daunting,” says Chad Bown, a trade expert. Reagan’s tactics also had unintended consequences. With only a fixed number of cars to sell, Japanese producers innovated and moved into more profitable higher-end products.
Mr Trump is keen to increase exports and not just block imports. Indeed, his team may see the threat of import tariffs as a means to prise open foreign markets. Mr Ross believes that China, Japan and Germany should import more liquefied natural gas from America, rather than the Gulf. He also believes that China should relax its import quotas for cotton (although why China would add more imports to its mountain of surplus cotton is not clear).
The Trump team’s approach also seems distinctively granular, hands-on and micro-managerial. They are happy to pursue specific commercial outcomes, rather than creating fruitful commercial frameworks. Instead of writing the rules of the game, within which companies are free to make choices, they seem keen to negotiate the outcome of the game: additional cotton exports to China, greater LNG sales to Japan, more Carrier jobs in Indiana.
In their view, the success of these deals is measured by the trade balance that results. Trade deficits are intrinsically bad, they seem to think—a sign the country is losing. Part of the issue is the way trade figures are calculated. Mr Trump is right to point out that Chinese exports account for a large and rising share of America’s total trade deficit in goods. But China’s status as the world’s factory means that much of the value embedded in those exports is in fact coming from America itself. An iPhone shipped from China to America contributes to the Chinese trade surplus, but also Apple shareholders’ bank balances. According to Deutsche Bank, on a value-added basis, China accounts for only around 16.4% of America’s trade deficit in goods (see chart 3).
Whether trade deficits are good or bad, trade deals are best seen as a way of raising trade flows in both directions, rather than an instrument for turning deficits into surpluses. According to mainstream economics, a country’s overall balance of trade is more powerfully influenced by macroeconomic forces, such as the strength of demand and the currency. Targeting a bilateral deficit using bilateral tariffs is “a terrible idea”, says Douglas Irwin, author of “Free Trade Under Fire”. But more targeted options exist. A tough stance on Chinese steel is more justifiable than a general crackdown on imports, for example. “It’s crystal clear that China is subsidising their steel industry,” says Mr Irwin.
The Obama administration has already been cracking down: between 2013 and 2015 it initiated 74 anti-dumping investigations into metal products from a variety of countries. On November 7th it found China guilty of dumping certain types of plate steel at more than 68% below cost. On December 11th tension could increase further, as on that day China will claim that their transition to a “market economy” will be complete under WTO rules, reducing their exposure to anti-dumping duties. These investigations are already having a chilling effect on steel imports from China (see chart 4), which fell by 70% in the first half of 2016, compared with a year earlier. Mr Trump may even find himself behind the curve—or claim the credit.
There are some sensible things Mr Trump could do. If his team did want to boost American exports, he could lift some ideas from the US Trade Representative’s annual document outlining barriers around the world. He could focus on lowering barriers to American exports of raw milk to Mexico and chicken to China, both of which have imposed health-related import restrictions. On services, where America boasts a trade surplus, a deal to tackle burdensome licensing and discriminatory regulatory process could boost exports.
In theory, renegotiating NAFTA would also be no bad thing. The Mexicans would welcome new rules on logistics and e-commerce, which did not exist when NAFTA was first negotiated. Although he cautions that any renegotiation would take time, Mr Weekes says that the evolution of global supply chains warrants an update to the agreement’s rules-of-origin regulations.
Mr LaMar would certainly prefer a more constructive approach. His job, after all, is to sell his firm’s products around the world. Those small and medium-sized firms that survived the onslaught of Chinese competition did so by diversifying and expanding abroad. He can take comfort from the words of Robert Zoellick, an American trade negotiator under George W. Bush. “Unusually for a US president, Trump’s words may or may not convey policy. We’ll have to watch what he does, not what he says.”
Harping on about Chinese currency exchange rates is about useful as if NATO asked the Soviets to reduce the number of 300mm+ railway artillery in their possession during CFE talks.
How do other countries react, they will have to lower their income taxes. Though this isn't necessary because producing in the US is to sell to US. producing for the Us does not mean production elsewhere has to reduce.
Last edited by Double Edge; 13 Dec 16, at 12:42.
Thomas L. Friedman:
"Trump wants to get tougher with China on trade and security. That's not crazy. But how would I do that? I'd organize an alliance of Pacific trading nations that surround China and enlist them in a trade pact that supports U.S.-style rule of law, greater market access for U.S. intellectual property and products and promotes U.S. values -- as opposed to China's. I'd call it the Trans-Pacific Partnership, or TPP for short.
Oh, wait. President Barack Obama did that, but Trump scrapped TPP on Day 1 without, I am sure, having read it. Now there is every reason to believe out Asian-Pacific allies will fall even more under China's economic sway and trade 'rules.' How smart is that?"
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