Trade War

Newsletter 20 - May 18, 2020

Welcome to Newsletter 20 of Trade War. The big news this week was the U.S. Commerce Department’s decision to further block Huawei’s access to key components for making semiconductors. The move aims to “protect U.S. national security by restricting Huawei’s ability to use U.S. technology and software to design and manufacture its semiconductors abroad,” the commerce department statement explained on May 15. 

That was accompanied by Trump ratcheting up the anti-China vitriol on his Twitter stream, criticizing Beijing for not contributing as much to the WHO, UN, and World Trade Organization, thus giving them “massive advantages over The United States.” Expect more moves against China in the run up to the presidential election, including likely additional pressure on Chinese companies listed on U.S. exchanges.

‘Survival is the key word’

Huawei chairman Guo Ping responded saying he expects that his company’s “business will inevitably be affected,” adding “we will try all we can to seek a solution.” Guo’s comments came in a keynote speech given at the company’s annual global analyst summit. “Survival is the key word for us at present,” Guo said in an answer to a question raised in a q&a, reported Reuters.

‘Our Economy was blowing everybody away’

Along with criticizing China for not paying enough dues to organizations including the WTO, Trump tweeted May 16 that “Prior to the Plague floating in from China, our Economy was blowing everybody away, the best of any country, EVER.”

Decoupling ain’t so easy

But while calls for decoupling keep growing, that’s not likely to happen very quickly. Take the example of Japan: while Tokyo has said it will offer its companies money to move out of China, many are responding with “no thanks. A reminder of the difficulties of de-coupling from the world’s fastest growing consumer market,” tweets the Lowy Institute’s Richard McGregor.

Five Japanese companies including Toyota told the South China Morning Post “they intended to continue to manufacture in China on the grounds that it remains a critically important market and that it would be expensive and unnecessarily disruptive – particularly at the present time – to relocate a large part of their operations elsewhere.”

Who’s decoupling from whom?

Even while the possibility of a real decoupling between the U.S. and China grows, March data shows growing Asian economic integration, reports David Goldman in the Asia Times, in a piece with interesting accompanying graphs.

“The March data denote a steady increase in Asian economic integration, in which a larger portion of Asian trade is directed towards Asia itself. While America contemplates decoupling from China, it seems that Asia is decoupling from the United States,” writes Goldman.

‘We have to protect ourselves’

Meanwhile in Europe a politician is calling for an outright ban on Chinese companies taking over European companies during the pandemic. “We have to see that Chinese companies, partly with the support of state funds, are increasingly trying to buy up European companies that are cheap to acquire or that got into economic difficulties due to the coronavirus crisis,” said European People's Party group leader Manfred Weber reported Politico. “We have to protect ourselves.”

Responsible Great Power?

The People’s Daily, the mouthpiece of the Chinese Communist Party, has started to regularly use the expressions “responsible great power” and “great power responsibility” during the covid-19 crisis, apparently as part of a bid to boost China’s “soft power” globally.

The expression “responsible great power” first came into use under earlier leader Jiang Zemin in the 1990s then became even more frequent under his successor Hu Jintao, following the global financial crisis, writes Neil Thomas in a commentary for the Paulson Institute. This year under Xi it surged even more “suggesting that Beijing [sees] the chaotic global pandemic response as an accelerant for its longstanding aspirations.”

Later, this happened

At the same time, China is showing its willingness to use trade to punish other countries for political moves it views as unfriendly, such as supporting an investigation into the handling of the coronavirus.

“China has confirmed it will impose a tariff of 80.5 per cent on Australia’s barley exports following the conclusion of its anti-dumping investigations, delivering a massive blow to the Australian barley industry,” reports the South China Morning Post. The tariffs follow “a ban on beef exports from four meat processing plants in Australia” last week.

“The moves raised suspicions in Australia that China is using technical requirements to punish Canberra for its political position in pushing to coordinate an international inquiry into the origins of the coronavirus.”

WTO head to step down

In a scoop, Bloomberg’s Jenny Leonard reports that WTO director Roberto Azevedo will step down in September, a year earlier than originally expected.

Notable/In Depth

Good piece on the challenges facing globalization from economist George Magnus in The Article.

A bunch of useful charts from the Peterson Institute showing how China purchases as promised in “phase one” are not happening.

Cargo ship messages - a new way to track trade from the IMF.

The plight of Chinese migrant workers is now worsening with covid-19 as I explain in this adapted excerpt from my new book, in Foreign Policy.