USA 0 China 1

USA 0 China 1

November 19, 2018 0 By Michel Santi

China is about to win the first leg of the trade war against the US. The latest statistics are actually shocking for the US Government, with the trade deficit with China at its highest historical level. These figures – that show a Chinese surplus of more than 37 billion dollars for the month of September, that being an increase of 4.3% from the month before – are the strongest signs of the US shooting itself in the foot, or put another way, of this trade war starting to work against its initiators. Isn’t it comical that Trump’s verbal diarrhoea seems to be having the exact opposite results, namely more Chinese exports to the US, whereas Chinese imports – of soya, for example – from the US have totally collapsed?

This confrontation that was triggered at the start of the year by the American President’s simplistic tweet – “Trade wars are easy to win” – demonstrates that the reality is often far removed from any theoretical whimsy that has persuaded Trump that this conflict would allow American businesses to produce more nationally, leading to a reduction in the US’s trade deficit. The increase in the price of American imports from China isn’t discouraging American consumers since their deficit against China over the first 9 months of this year stands at 306 billion dollars, compared with 277 billion over the first 9 months of 2017! The excellent shape of America’s economy certainly has a lot to do with it because – after all – the best way to reduce a trade deficit is to spark a recession… In any case, the logic of macroeconomics states there should be no fixation on bilateral surpluses (or deficits) in a globalised world, and in a multilateral context.

The fact remains that the main reason – from my own analysis – for this Chinese victory, at least in the first round of this trade war, lies in each country’s governance of business and economic policy. Trump can only dissuade Home Depot or Walmart (for example) from importing from China, whereas Chinese companies are bound to follow directives from Beijing. American imports from China are therefore set to remain steady – even increasing alongside US growth – while the Chinese government’s policy stance and its measures in retaliation to the increase in American customs duties are being applied immediately and systematically to all actors involved. In other words, Chinese companies are looking to alternative foreign partners as their American counterparts maintain the status quo.

But don’t upset Donald Trump – it’s basically impossible to predict the consequences of trade wars that are only “easy to win” on paper.

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