Trade War

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Trade War

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Trade War

Newsletter 8 - January 27, 2020

Dexter Roberts
Jan 27, 2020
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Trade War

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Welcome to the eighth edition of Trade War. Obviously the big—and alarming—news out of China is the rapid spread of the Coronavirus. And while the clear focus is on slowing its transmission and helping those who might already have it, the virus is also likely to have a huge impact on China’s economy and China’s trade with the world.

Shave about 1 percentage point off China’s 2020 growth rate?

The Wall Street Journal appears to be first out of the block to look at the economic impact with this interesting article from January 26. Key point: back during the SARS virus of 2003, China’s economy was hit hard, even though then the economy was even more investment-driven, and most consumption came via purchases by the state and its companies. This time the impact will be worse, with an economy much more dependent on individual’s consumption, where the virus’ spread will surely inhibit buying, even if some purchasing can still happen online. The article lays out where the impact is/will be severe:

-- Tourism: During this busiest season of all for tourism, the Lunar New Year, the virus is keeping most Chinese—sometimes involuntarily—in their homes. Shanghai Disneyland closed on Friday, offering refunds to ticket holders.

--Entertainment: “China’s movie business typically does nearly one-tenth of its $9 billion-plus annual box office during the weeklong holiday. Seven film premieres are canceled, including “Leap,” a biopic starring Gong Li as the coach of the national volleyball team that was expected to fare especially well.”

“The current coronavirus outbreak could cost more than 40 billion yuan ($5.77 billion), which would shave about 1 percentage point off China’s 2020 growth rate,” one economist tells the Wall Street Journal, basing his estimate on a comparison with SARS.

“Your Chinese factory might shut down tomorrow”

For those sourcing goods from China, now is the time to start coming up with some serious contingency plans, writes China investment lawyer Dan Harris:

"If your company has its widgets made in China, you need to realize that your Chinese factory might shut down tomorrow or next week or next month. If your Chinese factory is within or near ground zero for the virus, it has probably already shut down."

Harris predicts that the coronavirus is sure to accelerate the ongoing decoupling already happening with the trade war, with global factories moving production out of China to Southeast Asia and elsewhere.

Twitter avatar for @danharris
Dan Harris @danharris
China’s Coronavirus Impacts Everything: What Your Business Should Do NOW. chinalawblog.com/2020/01/chinas… #coronarvirus #CoronaOutbreak #coronavirus #ChinaPneumonia #chinaCoronovirus #china
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5:32 PM ∙ Jan 26, 2020
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“Will SARs rejuvenate the Communists?”

And from the vault with a piece from 2003: yours truly considering what the ultimately successful tamping down of SARS meant for the Communist Party some 17 years ago (spoiler: it arguably made the Party even stronger - And Xi Jinping is likely to push for even more centralization and control, in the eventual aftermath of this latest health crisis too.)

Free Trade Is Dead. Long Live Managed Trade

On to trade: smart economist and former colleague Peter Coy from Bloomberg Businessweek announces the onset of a new era of “managed trade” in an interesting piece.

Soviet-style managed trade

Over at PIIE, Gary Clyde Hufbauer argues that the only way for China to reach its purchasing commitments is “to resort to Soviet-style managed trade,” which will lead to “distortions, lots of favoritism, and inevitable corruption.”

Twitter avatar for @PIIE
Peterson Institute @PIIE
The only way for China to reach its purchasing commitments is to resort to Soviet-style managed trade. The erosion of a market system of international trade is sure to cause distortions, lots of favoritism, and inevitable corruption. piie.com/blogs/trade-an…
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3:37 PM ∙ Jan 23, 2020
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Apparently part of “managed trade” is a looseness with the numbers. In a speech at Davos, Trump unilaterally added an additional $100 to what purportedly the Chinese have promised to buy (like many of Trump’s numbers, best to ignore.)

Twitter avatar for @sdonnan
Shawn Donnan @sdonnan
He has now added $100 billion in less than a week...
Twitter avatar for @ChadBown
Chad P. Bown @ChadBown
President Donald Trump gave a speech today in @Davos at the World Economic Forum. Remember the US-China phase one deal’s Chinese commitment to buy an additional **$200 billion** of US exports??? Trump now says, “it could be closer to $300 billion.” 😳😳😳 https://t.co/YZfafFlTB6
12:19 PM ∙ Jan 21, 2020
81Likes37Retweets

Dealmaker is a better look than arsonist

And some words of caution in a tweet from David Henig, the UK director of the European Centre For International Political Economy: despite the “phase one” deal and other trade truces, don’t expect frictions to fall away. “The global system and WTO is still under serious threat, but there’s an election to be won, and dealmaker is a better look than arsonist.”

Twitter avatar for @DavidHenigUK
David Henig @DavidHenigUK
Don't be fooled by this year's trade truces, the global system and WTO is still under serious threat, but first there's an election to be won, and dealmaker is a better look than arsonist in it. Hoping countries use the relative calm to prepare a plan for next year and beyond.
Twitter avatar for @EmmanuelMacron
Emmanuel Macron @EmmanuelMacron
Great discussion with @realDonaldTrump on digital tax. We will work together on a good agreement to avoid tariff escalation.
7:33 AM ∙ Jan 21, 2020
42Likes17Retweets

Historic tech war in an era of techno-nationalism

Meanwhile, any signs of truce in the trade war are likely to be overshadowed by an intensifying tech war, with semiconductor production at the heart of it, warns a new report from the Hinrich Foundation. “The United States and China are in the early stages of a historic tech war in an era of techno-nationalism.”

“The intensifying nature of the US-China tech war, combined with the scale and depth of China’s market — and the massive economic gains it provides to American and foreign semiconductor companies — creates a collision of vested interests that has sparked a flurry of protectionist policies in Washington and elsewhere.”

Notable/In Depth

A very good blog by the Peterson Institute’s Chad Bown on why the purchase promises of "phase one" are extremely unlikely to be met, and how the deal is sure to have serious negative consequences.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
A very good blog on why the purchase promises of "phase one" are extremely unlikely to be met, and how the deal is sure to have serious negative consequences, by @ChadBown piie.com/blogs/trade-an… via @PIIE
piie.comUnappreciated hazards of the US-China phase one dealThe centerpiece of President Donald Trump’s much anticipated “phase one” trade agreement with China,
7:36 PM ∙ Jan 21, 2020
9Likes8Retweets

This site has lots of data with very cool graphics showing US-China investment flows; From the Rhodium Group and the National Committee on US-China Relations.

And here are two charts showing how China usurped the US as the world’s trading partner of choice, in the years from 1980 to 2018.

Twitter avatar for @LizAnnSonders
Liz Ann Sonders @LizAnnSonders
From 1980 to 2018, clear shift in world’s trading partner of choice … perhaps unsurprisingly, it’s now China (as per @IMFNews) @howmuch_net
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4:17 PM ∙ Jan 27, 2020
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