The National Retail Federation, one of a flurry of U.S. industry federations that issued a statement opposing the U.S. Government's plan to impose additional tariffs on another US$300 billion worth of Chinese goods on May 13 in Washington, D.C. [Photo/Xinhua]
The trade war initiated by the U.S. has caused public indignation around the world. Most enterprises and international organizations are criticizing the country for three reasons.
First, there is no legitimate basis for the U.S.-provoked trade war, according to international rules. The U.S. launched the trade war mainly using the Smoot-Hawley Tariff Act of 1930 and the Trade Act of 1974, which are U.S. domestic laws. It is completely unreasonable and illegal for the U.S. to impose sanctions on other countries in accordance with its domestic laws and regulations. Obviously, the U.S. is holding high the "big tariff stick"—sidelining international trade organizations such as the World Trade Organization and the United Nations Conference on Trade and Development (UNCTAD)—to sanction China and its own allies (including Canada, Australia, Japan, the Republic of Korea and some European countries), which is a violation of international trade laws as well.
Second, the U.S. wants to solve its trade deficit issue but is violating economic and trade laws at the same time. The U.S. has trade deficits with 103 countries, yet its policies are achieving the opposite result. According to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau, the U.S. international trade deficit (excluding the service trade) was US$807.5 billion in 2017 and US$891.3 billion in 2018.
The trade war launched by the U.S. against China and other countries and regions have led to an increase in these trade deficits rather than a drop. The U.S. market requires imported goods from all over the world to satisfy its domestic needs. Therefore, the U.S. itself is the source of the problem and should be held accountable for the consequences. The sanctions imposed by the U.S. on the results of trade based on market supply and demand are both ridiculous and in violation of international trade laws. With both sides suffering from sanctions, such policies stand to seriously influence the relationship between the U.S. and its trading partners.
Third, the negative influence of the U.S.-provoked trade war will affect the global economy. According to UNCTAD, foreign direct investment (FDI) worldwide dropped by 23% in 2017, and 41% in the first half of 2018. Additionally, it dropped by over 40% among developed countries in 2018.
Although FDI in China increased 3% last year, the foreign investment growth rate dropped significantly. The global trade growth rate also dropped sharply for the past two years. And now, the deepening trade war brings even greater risks. The International Monetary Fund has lowered its global economic growth rate estimate for 2019 three times in a row from 3.9% to the current 3.3%. This economic downturn has been caused by the uncertainty and risk the world economy faces as a result of the trade war launched by the U.S.
In addition, the Donald Trump administration is trying to create an America First policy and realize so-called "American supremacy" through the trade war, but it is just a fantasy.
Joe Haire, a ginseng farmer, on his farm in Wisconsin on July 25, 2018. He said he hopes for an end to China-U.S. trade friction to ensure the export of his goods to China. [Photo/Xinhua]
The global industrial, supply, service and value chains are closely linked, yet the U.S. is still using traditional methods to wage a modern trade war. As we all know, two thirds of global trade is composed of intermediate and investment products. When the U.S. imposed additional tariffs on US$50 billion worth of Chinese imports, 73% of these products were intermediate and investment products. When the U.S. imposed additional tariffs on US$200 billion worth of Chinese imports, 78% of them were these products.
Such a large proportion of intermediate and investment products provide U.S. enterprises with products required as part of their industrial chain and U.S. consumers with inexpensive, high-quality goods, while U.S. importers earn profits from the circulation of these products. In terms of practical consequences, 90% of the tariffs imposed by the U.S. will be borne by importers, which will ultimately pass to U.S. enterprises, consumers and farmers, inevitably lowering social welfare in the U.S.
Moreover, the tariffs will have a greater impact on the U.S. than on China. The new tariffs directly affect U.S. exports' access to the Chinese market. The major market for many hi-tech products and core parts is China. Hi-tech and advanced products must enter the global industrial chain, since they are of no value without access to markets. Practices against economic laws will merely accelerate the decline of the U.S. and trigger social problems and deep-seated economic risks at a crucial time.
Finally, dependence on foreign trade was as high as 60% in the early years of China's reform and opening up before dropping to 50% a decade ago and standing at around 30% currently. China is experiencing industrial restructuring and the structural change of supply and demand in domestic and foreign markets. As a result, the resilience, space and flexibility of economic development in China is sound. The U.S. escalating tariffs will not curb China's development.
The author is chief economist of the China Center for International Economic Exchanges.
This article was first published on Cnfocus.com.