Todd Bishop
US President Donald Trump once again changed the course of the trade war overnight. After negotiations from July 30 to 31, Trump released Twitter on August 1 and announced that it will levy a tax of 10 billion US dollars worth of US dollars on US products from September 1.
Although people have been numb to the deadlock in trade negotiations, it should not be overlooked that this upgrade of tariffs means that almost all categories of goods in China-US trade will be hit by tariffs.
How does Zhongnanhai see the upgrade of the trade war?
For this negotiation, one can imagine the scene in the elliptical office on August 1st – US Trade Representative Robert Lighthizer reports to Trump about the negotiations, and Trump’s dissatisfaction with the progress of the negotiations is probably written. on the face. Let’s levy a tariff, and the two will hit it off.
Trump said on Twitter that he is not satisfied with the progress of China’s purchase of agricultural products, and that his “friends”, Chinese President Xi Jinping did not stop the drug raw material Fentani from entering the United States. In other words, Trump wants a “big deal,” but China hasn’t even completed “small deals.”
However, when the leadership of the Chinese Communist Party listens to the progress of the negotiations in Zhongnanhai, they may not be concerned with the size of the transaction, but the influence of geometry after China and the United States take the next step.
Prior to the China-US negotiations broke down in May, the Chinese side gave three bottom lines at the time, showing the cards of the negotiations: first, the tariff must be cancelled; second, the purchase figures are in line with reality; third, the agreement text must be balanced.
In the unacceptable circumstances of these bottom lines, the escalation of the tariff war is expected. As for when China and the United States reach an agreement, whether China wants to increase US soybean imports, and whether China wants to “change agricultural products with China” is a negotiating tool at the transaction level, not a principle.
Therefore, Zhongnanhai must have already assessed the possible impact of tariffs on the Chinese economy. Based on the past three rounds of tariff increase, these effects mainly exist at two levels, namely, the direct impact on import and export trade, and the indirect impact on industry.
External demand in the Chinese market will not evaporate overnight
The most direct impact of tariffs is the import and export trade. It is undeniable that foreign trade is an important part of China’s economic growth, and the blow of tariffs is inevitably reflected in the growth rate of China’s economy.
The outside world has been closely watching the changes in China’s GDP and the impact of import and export data under the trade war. In the first half of the year, China’s economic growth rate was 6.3%, and the second quarter slowed down to 6.2%, lower than last year’s 6.6% GDP growth rate. According to China Customs statistics, the total value of China’s foreign trade imports and exports in the first half of the year was 14.67 trillion yuan (1 yuan is about 0.15 US dollars), an increase of 3.9% over the same period last year.
However, the change in total volume is not all.
In the first half of the year, according to official Chinese data, the total value of trade between China and the United States fell by 9%, accounting for 12% of China’s total foreign trade. However, China’s trade with the EU totaled 2.3 trillion yuan, an increase of 11.2%, accounting for 15.7% of China’s total foreign trade; the total trade value between China and ASEAN was 1.98 trillion yuan, an increase of 10.5%, accounting for 13.5%; The total trade value was 1.03 trillion yuan, an increase of 1.7%, accounting for 7%. The import and export of Russia, Saudi Arabia and Egypt, the “Belt and Road” cooperative countries increased by 11.5%, 34% and 11% respectively.
ASEAN surpasses the United States and becomes China’s second largest trading partner, which is enough to show that the external demand of the Chinese market will not evaporate overnight due to the trade war. Even in China-US trade, it is difficult for the United States to find a replacement for 500 billion U.S. dollars per year.
Although Trump believes that China “manipulates the currency” to promote exports, since the trade war, the renminbi has generally risen and risen. In the first quarter of 2019, the euro and the yen have even appreciated. The depreciation of the dollar has been controlled. Within a certain range. This reflects the independence of the exchange rate fluctuation after the RMB exchange rate reform. It also shows that the global demand for China’s foreign trade is not entirely due to the stimulation of the exchange rate.
The process of China’s economic transformation has already begun. The pulling effect of trade on the economy has been declining after 2008. The contribution rate to GDP growth before the trade war has fallen negatively, while the contribution of consumption to the economy has increased substantially. In 2018, China’s net exports contributed -8.6% to GDP growth, driving GDP growth to -0.6%. From the pull of foreign trade to consumption, the upgrading of China’s economic structure may be forced to accelerate under the trade war.
The trade war has limited the impact on China’s secondary industry
The US taxation, China’s counter-measure, this upgrade has been carried out for several rounds, as Chinese officials often say, no one can be a winner. Today, as the global industrial chain matures, the trade between China and the United States constitutes a large number of intermediate products. Among China’s $60 billion commodity counter-inventory list, the most tax-relevant addition to agricultural products and food also has resistance. Components such as capacitors, semiconductors and thyristors.
No matter who is taxed, the first and foremost damage is the enterprise and the factory, both in China and the United States. This is why Trump has repeatedly stated that companies and capital are “withdrawn from China” because of the trade war. Judging from the United States’ efforts to contain Chinese technology companies, China’s high-end manufacturing and technology fields are the targets of the United States.
The cost of imported high-tech parts and components has risen, and it is even impossible to import US technology products. To a certain extent, it is indeed a “one-word seal” for a company. However, from the current situation, it is not easy to suppress China’s industrial manufacturing.
Trump and Wright Heze are nothing more than trying to reproduce the “glory” of the US trade war against Japan in the 1980s, which has caused a huge blow to the Japanese industry. However, China and Japan are completely different in terms of economic volume, industrial institutions and foreign trade dependence.
Since the beginning of the 1980s, more than half of Japan’s cars were exported. After the signing of the “Plaza Agreement”, the proportion of Japanese machinery industry exports to total exports rose to 74.9% in 1990. Although Japan’s industrial structure is constantly changing, it is always single. And it has a high degree of coincidence with the US industrial chain, forming a strong competitive relationship.
China has become the largest trading partner of 130 countries, and it has formed a huge and complex industrial chain, and it still has great complementarity with the industrial structure of the United States. The industrial chain transfer that is taking place in China today is largely the result of industrial upgrading.
At the same time of the decline in GDP growth, the National Bureau of Statistics released data on July 28th. In 2018, China’s national new industry, new business, and new business model added 16.1% of GDP, up 0.3% year-on-year. Industries include modern agriculture, forestry, animal husbandry and fishery, advanced manufacturing, new energy activities, energy conservation and environmental protection activities.
Among them, these industries are developing faster in the secondary industry, with the current value-added growth rate reaching 15.1%, an increase of 3.2% over 2017. Under the pressure of trade wars, China’s secondary industry has found new growth drivers through structural reforms. The heat of foreign investment in the Chinese market has increased, indicating the potential of the Chinese economy.
Under the pressure of the United States, Huawei can accumulate confidence and inject confidence into China’s innovative technology sector. Of course, the dispute over science and technology between China and the United States will continue, and the great advantage of the United States is also a reality. However, in the trade war against China, not only is China’s losses worth worrying about, but Trump does not hesitate to contain China at the expense of the cost of living for American consumers. Perhaps the result is not worth the candle.
