How Asia Could Circumvent US-China Trade War

On March 22, fulfilling previous campaign pledges, U.S. President Donald Trump announced the imposition of $60 billion worth of new tariffs on Chinese imports, targeting technology products….

Trump said he had asked “the highest Chinese representatives, including the president…to reduce the trade deficit immediately by $100 billion.”

The deal-making president said he would be seeking “reciprocal” trade arrangements with all trading partners, with the likelihood of eventually “negotiating a deal.”

China’s response was swift, with the communist-ruled nation’s Ministry of Commerce releasing a detailed list of 128 U.S. products it would potentially target. The products, worth around $3 billion, ranged from U.S. agricultural products to aluminum and steel pipes, with U.S. pork facing a 25 percent tariff.

Lose-Lose

Nevertheless, the “lose-lose” nature of any trade war between the United States and China is demonstrated by the interdependence of the two economies. For example, Chinese smartphones use chips from U.S. manufacturer Qualcomm, while many parts of Apple’s iPhones are made in China.

The United States accounts for around 20 percent of Chinese exports, while China is the United States’ largest goods trading partner, being a major buyer of U.S. soybeans, aircraft, electrical machinery, and vehicles, among other exports.

Globally, the OECD has estimated that a 10 percent hike in import tariffs across China, Europe, and the United States could reduce world GDP by 1.4 percent and global trade as much as 6 percent, reversing the recent synchronized global growth.

Alternative Solution – Services

In 2017, the United States had a $811 billion deficit in its goods balance but enjoyed a $242 billion surplus in the services account, with the top contributors to the U.S. trade deficit comprising China (59 percent), Mexico (12 percent), Germany (12 percent), and Japan (10 percent).

“This is in line with what Chinese Premier Li Keqiang said this week, that there is no winner in a China-U.S. trade war and that China will open up its economy further to imports (with elimination of import tariffs) and investment, and fully open its manufacturing sector.”

Such an impact would still be well short of Trump’s desired $100 billion reduction in the trade deficit. But it would be a better outcome for Asia and the world than a costly “beggar thy neighbor” trade war.

FULL ARTICLE (SOURCE) at: https://thediplomat.com/2018/03/how-asia-could-circumvent-us-china-trade-war/

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