Trade War

Newsletter 37 - September 18, 2020

Welcome to Newsletter 37, this week’s edition of Trade War. The World Trade Organization has ruled that the Trump administration’s tariffs on Chinese goods violate international rules. Meanwhile, Washington announced Friday that it will ban TikTok and Wechat effective this weekend.

Xi Jinping has called for private entrepreneurs to strengthen their relation with the Chinese Communist Party, the latest example of the increasing influence of ideology in China’s economy. And a new Pew poll shows that global trust in both Russia’s Putin and Xi is higher than trust in Trump.

The US, China and especially the WTO are all losers

The World Trade Organization has decided that the trade war tariff’s Trump has imposed on China - more than $350 billion worth - violate international rules. “The United States had not met its burden of demonstrating that the measures are provisionally justified,” a three-member panel ruled.

“China’s retaliatory tariffs were also arguably a violation of WTO rules,” Peterson Institute senior fellow Chad Bown told Bloomberg News. “Beijing took matters into its own hands by imposing tariffs over its grievances before any WTO rulings were issued. There are no winners in this dispute. The United States, China and especially the WTO are all losers.”

China feels vindicated, but gets very little

“China feels vindicated, but will get very little from this. The tariffs won’t go away or be reduced,” John Gong, an economics professor at the University of International Business and Economics (UIBE) in Beijing said to the South China Morning Post.

“President Trump will do everything in his power”

The U.S. Commerce Department announced Friday that it will ban TikTok and Wechat effective this Sunday to “safeguard the national security of the United States.”

“Today’s announced prohibitions, when combined, protect users in the U.S. by eliminating access to these applications and significantly reducing their functionality,” the statement noted. 

“Today’s actions prove once again that President Trump will do everything in his power to guarantee our national security and protect Americans from the threats of the Chinese Communist Party,” said U.S. Department of Commerce Secretary Wilbur Ross.

Unite the private sector and the Communist Party of China

In yet another example of Xi Jinping’s aim to strengthen the role of ideology in the Chinese economy, private entrepreneurs are now being told they should have a closer relationship with the Communist Party of China.

“Chinese President Xi Jinping has stressed efforts to unite people from the private sector around the Communist Party of China (CPC) to better promote the healthy development of the private sector,” reports official mouthpiece CGTN.com.

Greater global trust in Putin and Xi than Trump

Global confidence in the U.S. has fallen to historic lows and president Trump is trusted less than Xi Jinping and Russia’s Putin, the latest poll by the Pew Research Center shows.

The impact of the U.S. mishandling of the coronavirus has contributed to the decline, Pew says in its survey of 13 countries including Canada, Australia, South Korea, Japan and European nations such as France, the United Kingdom, and Germany.

Meanwhile, “majorities or pluralities in these [polled] countries have named China as the world’s leading economic power in recent years, and that remains true in 2020. The exceptions are South Korea and Japan, where people see the U.S. as the world’s top economy.”

China hoped it could charm Europe..

“China hoped it could charm Europe as relations with the US went south, but its behavior on Hong Kong, Xinjiang, trade, the pandemic and other issues has been alienating people,” tweets New York Times reporter Steven Lee Myers.

“It makes it really hard for them to convey a message of cooperation and peacefulness and harmonious society, if at the same time you see schoolgirls being beaten up by the Hong Kong police,” Janka Oertel, of the European Council on Foreign Relations, told the New York Times, referring to a recent incident widely condemned after a video of it was shared on social media.

Reshoring but to Taiwan

Since the beginning of last year more than $38 billion of investment, mainly from technology companies, has returned to Taiwan, its economic affairs minister said recently, reported Bloomberg News.

Tech manufacturers including Innolux Corp., Accton Technology Corp. and Quanta Computer Inc. are all now building new factories in Taiwan. “The moves by Taiwanese companies are in contrast with U.S. firms, which haven’t responded to President Donald Trump’s calls to return home,” writes Bloomberg.

China-led AIIB girds for losses

The slumping global economy and COVID-19 are taking a toll on the China-led Asian Infrastructure Investment Bank, reported Nikkei Asian Review.

“The multinational lending institution's latest financial statement shows that the bank's impairment provisions have jumped nearly tenfold during the first half of 2020 from a year earlier, cutting its net profit by more than half during that same period.”

Notable/In Depth

Huawei’s mobile business looks to also be suffering, not just its 5G base stations, as shown in this graphic by ChinaTalk.

The Belt and Road Initiative is getting a lot less play in China’s state media, a possible sign of lessened ambitions, tweets MacroPolo China’s Neil Thomas.

Upcoming talk

Joining a 50-year long tradition, I will speak at Delhi’s Institute of Chinese Studies next Wednesday (5:30 am EST so not an easy time zone for those stateside..)

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