Trade War

Newsletter 1 - December 2, 2019

Welcome to the inaugural edition of Trade War, a newsletter highlighting the latest, vital news on the U.S.-China economic and business relationship and the on-again, off-again, interminable tariff battles. I was spending way too much of my time monitoring the latest news on this and thought it was a tad unhealthy. Given that I am incapable of stopping, I have decided to provide a small service (free, at least for now), letting others know what I see as the unmissable news of the week. I hope this will be a useful collection of articles worth checking out, and will save you the time of searching them out on your own.

A little background: I have been following and writing about the U.S.-China trade and business relationship for close to a quarter century now, starting from when I moved to Beijing in January 1995 and started working as a journalist for Businessweek (now Bloomberg Businessweek). (More on me here: (www.dexterroberts.com) The business relations of the two countries was a key part of the reporting beat and one of the first big stories I covered was the Washington-Beijing negotiations leading to China’s entry into the World Trade Organization in 2001, and the trade and investment skirmishes in the years following, as the business relationship became much, much bigger.

Watching the trade war unfold today it has been interesting to see how many of the same issues that bedeviled the relationship back then—poor intellectual property rights protections, technology transfer as the price for market entry, hidden state subsidies, and inconsistent application of laws and regulations implemented in a way to benefit local Chinese companies to the detriment of foreign ones—are those same ones or similar to those that negotiators struggle with today.

Warning, a shameless plug coming now (and there will be more in the future)  -- I’ve got a book coming out next March: “The Myth of Chinese Capitalism: The Worker, the Factory, and the Future of the World.” Although it is not on the trade war, “The Myth of Chinese Capitalism” does have a beefy section on China’s entry into the WTO. And in its entirety my book is a look at how China’s economy is a captive of unfinished reforms that are holding back its development today, and could well derail China’s future path of growth. You can even pre-order it here!

Finally, keep in mind that I am only now settling on style and particulars so please be forgiving if this inaugural newsletter is a little rough around the edges. And do subscribe if you like what you find here. Future newsletters will be more succinct following the format below.

Happy reading..

Trade War 1 - December 2, 2019:

'This trade war waged by tariffs is failing'

We seem to have entered a period of rapidly rising doubts about any possibility of an amicable, acceptable-to-both-sides resolution to the trade fight. And there is growing concern that the U.S. is waging the wrong war by over-focusing on tariffs as a punitive tool and by being too ready to accept state promises of agriculture purchases as a goal. After many months of on-and-off negotiations and promises of imminent breakthroughs (now diminished to the possibility of a “phase one” or “partial” trade deal, according to the Trump administration), many of those who watch and interpret the show are signaling frustration.

Yours truly, author of this newsletter, had a chance recently to voice his opinion to a reporter from his hometown newspaper. When asked for a status update on the U.S.-China trade spat, I said it like it is (or at least how it increasingly looks to me): “'This trade war waged by tariffs is failing,' said Dexter Roberts, a Mansfield Center fellow and frequent commentator on U.S.-China relations," reported the Missoulian on November 19th. And even while China’s demand for agricultural products soars, given China’s lack of arable land combined with growing living standards, trade frictions are pushing the Chinese to seek new markets, whether it be Brazilian soybeans or Australian wheat. “I think there’s a real possibility that these markets could be … lost forever,” Roberts said.

‘Amateur clown show’ or ‘The Godot of trade deals’?

Getting a lot more colorful with their commentary were some influential China watchers who took to Twitter to voice their opinions. “We don’t talk enough about the amateur clown show that is the Trump negotiation team. This “deal” is not even as good as a reversion to the status quo ante. Trump is negotiating a return to July 6 2018 before his tariffs kicked in. Nothing is better for anyone,” Jeremy Goldkorn, editor-in-chief of SupChina tweeted on November 20.

A week later, David Lynch, trade reporter for the Washington Post, used a more dramatic metaphor for the never-coming trade resolution, referring to the “Godot of trade deals” in a November 26 tweet.

And from China’s Global Times editor provocateur, came this warning: “So a friendly reminder to American farmers: Don’t rush to buy more land or get bigger tractors. Wait until a China-US trade deal is truly signed and still valid six months after. It's safer by then,” tweeted Global Times editor-in-chief Hu Xijin on November 20th.

Defining the China model

One of the most important players back during negotiations for China to enter the World Trade Organization in the late ‘90s, then U.S. Trade Representative, Charlene Barshefsky, also has gone downright negative, interesting given the key role she played in bringing China into the world trading system. Speaking at the Bloomberg New Economy Forum in Beijing on November 21st, Barshefsky laid it bare saying that “today the China model fuses the Party, resurgent state planning, massive subsidies, protectionism and IP theft -- all turbo charged by scale,” calling the response of the U.S. to this threat as “feeble,” citing the failure by Washington to invest in its own infrastructure, while abandoning multilateral diplomacy.

At the same conference, Henry M. Paulson, Jr., former Treasury Secretary, warned that the current trend of ever more tariffs and “decoupling” between the U.S. and China was very bad for the global economy and that “The originators of America’s disastrous Smoot-Hawley Tariff Act of 1930 would be ecstatic.”

State of play

Two things to watch, going forward: Will China continue to retaliate against Trump’s signing of the Hong Kong Human Rights and Democracy Act and show their displeasure via trade negotiations? So far they have only banned U.S. military ship and plane visits to Hong Kong and put visa restrictions on some U.S. NGOs and human rights organizations. And what happens on December 15th when Trump has promised to add substantial new tariffs on Chinese goods including laptop computers and mobile phones.

Who Pays the Tax on Imports from China?

"Who Pays the Tax on Imports from China?" is the title of a recent report by the NY Fed. Spoiler alert: It's not the Chinese: “The continued stability of import prices for goods from China means U.S. firms and consumers have to pay the tariff,” write Matt Higgins, Thomas Klitgaard, and Michael Nattinger in the piece published by the Federal Reserve Bank of New York Liberty Street Economics on November 25th. And while it is difficult to measure how that burden is split between consumers and businesses, “sustained high tariffs on Chinese goods will encourage a search for alternative suppliers,” the NY Fed analysts warn.

‘Cool and calculating China’

China seems intent on seeking out new partners for the future. Utilizing the vacuum left when Trump pulled the U.S. out of negotiations for the Obama-era Transpacific Trade Partnership, China is building economic relations with the EU countries through its One Belt One Road initiative, and crucially, pushing through RCEP, or the Regional Comprehensive Economic Partnership, which potentially brings together the Southeast Asian countries, Japan, Australia, New Zealand and China to name just some of the possible signatories, and what would be the world’s biggest free-trade grouping. “Cool and calculating China is trying to build up global trade even as things fall apart around the world,” is the title of an opinion piece in the South China Morning Post published on November 18th.

“Apple building plants in our country, not in China”?

Meanwhile, Trump has been claiming victory in his anti-globalization goal of bringing back American factories. Unfortunately, the latest example he cited turns out was completely wrong. As New York Times reporter Jack Nicas wrote in a November 20th Tweet that went viral (13.6K retweets and 41.7K likes): “President Trump just toured a Texas plant that has been making Apple computers since 2013 and took credit for it, suggesting the plant opened today. "Today is a very special day."  Tim Cook spoke immediately after him and did not correct the record.”

Trouble is, the factory which indeed was producing Apple computers, never returned from overseas, and instead was built at its present location way back in 2013 (it is a factory owned and operated by Apple contractor Flextronics). In his tweet thread Nicas continued quoting Trump and then by contrast, offered some facts: “President Trump: "I said, ‘Someday we're going to see Apple building plants in our country, not in China. And thats what’s happening." This is false. Apple hasn't built any plants in the U.S. & still makes the vast majority of its products in China.”

Notable/In depth

“How Trump’s Trade War Went From Method to Madness,” a detailed look at how the Trump strategy on trade has unraveled into chaos, from Bloomberg’s very good trade reporters Shawn Donnan and Jenny Leonard

“Did Trump’s Trade War Impact the 2018 Election?” A November paper from trade researchers Emily J. Blanchard, Chad P. Bown, and Davin Chor, showing how Trump and Republican electoral prospects could be hurt by the Trade War.