America First: Winning Mr. Trumps Trade War Roberto J. Garcia, - - PowerPoint PPT Presentation
America First: Winning Mr. Trumps Trade War Roberto J. Garcia, School of Economics and Business 13.15 - 14.00 Festsalen, Urbygningen 12 November 2018 America First: Winning Mr. Trumps Trade War Outline of the presentation
School of Economics and Business
13.15 - 14.00 Festsalen, Urbygningen 12 November 2018
Outline of the presentation Introduction
America First Motivation: Why pursue a trade war?
Chronology of the trade war Theory Winning a trade war?: Some indicators Concluding observations
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America first
“Protection will lead to great prosperity and strength … because we protect …[the US] border from countries making
…” – Inauguration address, 20 Jan 2016 “Trade pacts are no good for us . . . or for our workers” – CBS republican primary debate in S. Carolina, 13 Feb 2015
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“Trade wars are good and easy to win … the US is losing many billions of dollars with virtually every country…” – Tweet announcing steel/aluminum tariffs, 2 Mar 2018 “The era of economic surrender is over. From now on we expect trading relationships to be fair, … and reciprocal… protect American workers and … intellectual property through enforcement of our trade rules.” – State of the Union address, 30 Jan 2018
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Reckless, unpredictable, unfit leader?
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Sources: Financial Times, “Chinese are wary of Trump’s creative destruction”, by M. Leonard, 25 Jul 2018,
Stable genius and master dealer?
Motivation: why pursue a trade war?
Trump’s trade war
Underlying logic Objectives
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Strategy
Theater of war
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Sources: Economist, “Trade with America: Assessing the pain”, p. 53-5; “Japan and the US: Watching nervously”, 8 Sep 2018, p. 41-2
4 battle fronts: of differing degrees and scope
1st front: solar panels + washing machines
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China challenges US tariffs at WTO
China ends sorghum tariffs during talks with US China initiates investigation into US dumping of sorghum ($1bn in export value) China applies tariff at 178.6%
US ITC finds injury to industry; recommends tariffs Tariffs: $8.5bn on panels; $1.8bn on washing machines
2nd front: steel + aluminum
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Canada: tariffs on $12.7bn; US subsidy to farmers; US challenges retaliation at WTO DoC reports a national security threat Tariffs on Turkey’s steel/aluminum to 50% and 20% Tariffs: 25% on steel, 10% on aluminum; applies to all exporters; exemptions for quotas; Tit-for-tat announced US DoC initiates investigation under Section 232, US Trade Expansion Act of 1962: “national security threat” EU: 25% tariff on $34bn of steel, aluminum, iconic US goods; Harley-Davidson moves production of EU-bound China: tariffs on $2.4bn of US exports in 2017
3rd front: automobiles and parts
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US DoC initiates national security investigation into imports of automobiles and parts NAFTA renegotiated with Mexico, Canada
Peterson Institute for International Economics, “Trump’s trade war timeline: An up-to-date guide”, C. Brown and M. Kolb, http://piie.com/blogs/trade-investment-policy -watch/trump-trade-war-china-date-guide, accessed Sep 2018.
Public hearings scheduled to discuss implications of 25% tariffs US-EU ceasefire through trade talks
4th front: Unfair trade, tech transfer + intellectual property theft
Tit-for tat: China, tariffs on $34bn; US threat on $200bn Tit-for-tat tariff threats on $50bn. US: 25% on electrical equipment, capital goods; China: 25% on cars, aircraft, ag US revises list to cover firms dependent on Chinese imports ($46.3bn of 2017 value) USTR reports unfair practices worth $60bn in tariffs Restrained tit-for-tat. US: 10% on $200bn; China: 10%
USTR initiates investigation of China under Section 301
US-China hold talks; tariff threats on hold China: tariffs on remaining $16 bn
Art of War, Sun Tzu
Preparedness: plan, calculate, be deceptive Waging war: avoid prolonged operations When/how to fight
Bargaining model of [trade] war
International relations literature – breakdown in diplomacy? Economics: scarce resources, unlimited and competing uses Disagreement over resource allocation and/or policy choice
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Sources: https://fas.org/man/artofwar.htm; photo: http://blog.tutorming.com/expats/life-lessons-from-the-art-of-war; Reiter, D., “Exploring the bargaining model of war”, Perspective on Politics, Vol 1, no. 1 (2003):27-43.
Theoretical economic principles relating to trade
Taxing imports is taxing exports
13 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00
1930 1940 1950 1960 1970 1980 1990 2000 2002 2004 2006 2008 2010 2012 2014 2016
Log export/import value
Imports Exports
Source: US Census Bureau, https://www.census.gov/foreign-trade/statistics/historical/gands.pdf, accessed Sep 2018.
Correlation of US export and import value, 1930-2016
Businesses are consumers too
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10 20 30 40 50 60 70 80 90 100 1970 1980 1990 1994 1998 2000 2004 2007 2012 2016 2017 Import by end-use-category, % of trade
Car and car parts (15%) Industrial supplies and capital goods (49%) Consumer goods (36%)
Source: US Dept. of Commerce, Survey of Current Business, Mar issues year after date.
US imports by end-use-categories, 1970-2017
Trade imbalances reflect macroeconomic phenomena
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Macroeconomic indicators
US-China bilateral trade
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Source: Financial Times, “Trump declares trade war on China”, 9 May 2018, p. 9.
$130bn 2017 $506bn Bilateral export share
4.1% 0.7%
Current account position since tariffs
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Source: Trading Economics, https://tradingeconomics.com Accessed Sep 2018.
China’s surplus lower, deficit US trade deficit lower
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5 10 15 20 25 30 35 40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Export share of GDP, % Export share of GDP
Source: https://www.statista.com/statistics/256591/share-of-chinas-exports-in-gross-domestic-product/; Economist, Trade: A steamroller in reverse”, 10 Mar 2018, p. 54.
2006: China’s bilateral surplus was 10.2% of its GDP 2017: only 3.1% in 2017
GDP annual growth rates, US and China
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Source: Trading Economics, https://tradingeconomics.com Accessed Sep 2018.
Problem: Fast growth in US makes deficit worse and lessens impact of tariff. China’s slowdown predates tariffs and is related to other macroeconomic factors than tariffs.
China’s GDP growth US GDP growth
Stock market valuations, US-China comparisons
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Sources: Thompson Reuters, Datastream, accessed Sep 2018; Economist, “Trade war (2): Metal clashing”, 11 Aug 2018, p. 59.
Exchange rate, yuan to 1 USD
21 2014-01 07 2015-01 07 2016-01 07 2017-01 07 2018-01 07
Source: US Board of Governors of the Federal Reserve System.
US initiates trade war
Problem: A decreased value in the yuan makes China’s exports to US cheaper reducing effectiveness of the tariff.
US’s ability to affect China’s macro policy – econ slowdown
Makes dollar debt more expensive Sharp drop can spark currency crisis and capital flight
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Source: Financial Times, “China unveils stimulus to fight ‘uncertainty’”, by G. Wildau, 25 Jul 2018, p. 4.
Microeconomic indicators
Protecting steel and aluminum sectors
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Source: Financial Times, “Trump’s follies presage more protectionism”, 7 Mar 2018, p. 11; Economist, “Looming trade war: Massive attack”, 10 Mar 2018, p. 19-22.
The administration’s aim
steelmaking working at 80% of its capacity has nothing to do with how much specialty steel is actually used by defense department. US steel production (index, 2012=100)
Production relative stable
Protecting car and car parts sector
US 2.5%, EU 10% US rates on light trucks, 25% NAFTA: duty-free; strict local content can make EU, Japan’s export difficult
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Sources: Economist, “Carmaking in America: Rocky road ahead”, 25 Aug 2018, p. 47-8; and “Germany’s embattled carmakers: Brakes on”, 7 Jul 2018, p. 55-6.
US-EU ceasefire and NAFTA renegotiated – tariffs a credible threat in bargaining process?
US’s ability to delink Factory Asia from global supply chain
Integrated intermediate goods trade Suppliers–final assembly are close
Reshoring manufacturing to US? Could reshoring return lost jobs?
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Sources: Economist, “Banyan: Chain reaction”, 30 Jun 2018, p. 50; “Upsetting the Apple cart”, 15 Sep 2018, p. 78; chart: Economist, “The future of factory Asia”, 14 Mar 2015, p. 61-2; Financial Times, “America, China and the route to a trade war”, 11 Sep 2018.
US attacking the strategy: “Made in China, 2025”
Promote national champions in 10 high tech strategic sectors Domestic/international targets
Tariffs on imports Block strategic US exports Investment rules require checks – inward and outward – whether deals threaten national security (catch up with US technology)
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Sources: Financial Times, “America, China and the route to a trade war”, 11 Sep 2018, by G. Rachman, p. 9; Economist, “Trade with America: Assessing the pain”, 26 May 2018, p. 53-55; cartoon: 22 Sep 2018, p. 9.
Hard to assess whether trade war winnable
US preparedness for winning war
Trade war is not aligned with economics
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A new, prolonged cold war?
China not a “strategic partner” or “responsible stakeholder” Pax Trans-Atlantica (US-EU ceasefire) isolates China
perhaps an international coalition
“No country should require or pressure tech transfer from foreign companies to domestic companies through joint venture requirements, foreign equity limitations, administrative review and licensing processes.”
Hard to predict China’s response after tariffs? Harder to see how winning a trade war might be easy
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