US-China Trade War

US-China Trade War

The US-China Trade War is more than just a trade war.

It’s a battle for global geopolitical influence, military might, and technological supremacy.

To understand the US-China Trade War, we need to analyze its root causes.

Study many of the reasons behind the trade disagreements, tensions and conflicts.

One of the main causes is the huge and growing US trade deficit with China.

The US trade deficit with China was US$375 billion in 2017.

The US exports to China were only US$130 billion whereas imports from China were US$506 billion.

The US is also leveraging on its advantages to force China to further open its doors for trade and commerce.

Make the necessary economic reform for trade liberalization.

Case in point, the Chinese government’s “Made in China 2025” seek to achieve 70 per cent of “self sufficiency” in replacing key imported component parts, especially parts that are used in advanced technology.

As it is, the Chinese Government is legislating the need for MNCs to share detailed information of sensitive technology, including source codes with local partners/authorities.

The US-China Trade War is but only a symptom.

A key underlying cause is for dominating global geopolitical influence.

President Xi Jinping shared his 2050 vision at the 19th Chinese Communist Party’s (CCP) Congress on 18 October 2017.

The two-stage goal was to make China the top innovative nation in terms of inventing and developing advanced technology by 2035, and to be a country with global influence by 2050.

Any US political leader worth his salt would be suspicious of China’s 2050 vision.

Recent events seem to indicate that the EU, China, Australia, and some Asian countries view the US as a lesser evil.

When push comes to shove, they may close ranks with the US.

President Xi Jinping or any member of the Politburo Standing Committee would not have a good night sleep on the prospect of facing an alliance of some of the most developed nations.

For Trump, he may just lose an election. But for the Chinese, they may lose another era of progress and be “shamed for a thousand years.”

My concern is that there may be a possibility of miscalculation and misfire in the ensuing US-China Trade War.

Case in point, the Smoot-Hawkes Tariff in 1930 was enacted to protect US farmers from agricultural imports from Europe.

By the time the bill made it to Congress, additional tariffs were initiated.

Those tariffs caused many countries to retaliate, resulting in a trade war that deepened the extended severity of the Great Depression.

As a results of enacting protectionist measures, prices of targeted imported products will increase.

Consumers have to not only pay more for their purchases, they may also have less choices, resulting in a potential decrease in their satisfaction levels.

Increase in costs may cause a cascade of collateral damages to affected industries and their value chains and eventually, it may affect the economy as a whole.

With the potential increase in the tariff rates, manufacturers that are dependent on the targeted goods and raw materials will have to pay more for these goods.

As a result, it will have a negative effect on their competitive edge, productivity, and profits.

Manufacturers may even relocate their operations to countries that are not affected by the protectionist measures, and that will lead to a loss of jobs and taxes.

If those operations are moved to countries with relatively low corporate governance standards, it may result in abuses of labor and destruction of the environment.

Inflation may drive the Federal Reserve to increase the interest rates and that may have a dampening effect on business growth, and economic welfare and stability.

Once protectionist measures are adopted, it may be difficult to remove them as it will cause hardships on companies that are reliant on such measures to protect them.

Over time, these measures may prevent both countries from optimizing their specialization levels and affect efficient allocations of limited resources and thus, put downward pressures on growth of their economies.

Exporters that are hit by protectionist measures may have to market and channel their goods to other countries.

The surge in such imported goods may trigger affected countries to introduce their own protectionist measures.

The tit-for-tat responses may also cause the world to take a more cautious approach in economic activity and adopt a more protectionist position.

These initiatives will affect the US, China and other countries.

The OECD, World Bank and IMF have generally predicted a slowdown in global economy.

In short, protectionist measures can potentially affect economic growth and lead to social hardships and unrests.

Singapore is in precarious position because of our long-established position to stay neutral.

Unfortunately, as they say, when two elephants make love or go to war, we may be trampled upon in the process.

More likely than not, both China and the US will influence Singapore to lean towards them, and they may even apply undue pressures on our people to take sides in the battle for hearts and minds.

Expect fake news and other misinformation to be circulated in the ensuing battle for allegiance.

What’s key for Singaporeans is to close ranks regardless of political beliefs, and stand together as “one united people”.

For without unity, we cannot withstand not just the trade and commerce, but also geopolitical storms ahead of us.

https://www.cnbc.com/2019/05/13/china-is-raising-tariffs-on-60-billion-of-us-goods-starting-june-1.html

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