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FINANCIAL TIMES
China is winning the trade war with America
The White House would do better to focus on areas of legitimate
grievance
GILLIAN TETT
Sometimes statistics don’t behave as predicted. Take the thorny issue of
US-China trade and Donald Trump.
Earlier this year, the US president expressed fury about the size of
America’s bilateral trade deficit with China and imposed escalating
tariffs on $250bn worth of Chinese imports. The assumption inside the
White House was that this would cause the deficit to shrink, since
American companies would produce more goods at home and/or find ways to
avoid costlier imports. But
that theory has not played out — or not yet. Far from it. Last week the
US government released data showing that America’s deficit in traded
goods with China jumped 4.3 per cent in September to a seasonally
adjusted level of $37.4bn, a record high. This was due to a thumping 8
per cent rise in American imports from China. Exports, however, remained
broadly flat. And
while monthly data are notoriously unreliable, the trend is clear: in
the third quarter as a whole, America’s deficit with China reached
$106bn, up from $92.9bn in the same period last year, also due to a
startling rise in imports. For the year to September, the tally was
$305.4bn, compared with $276.6bn last year. Now,
from a macroeconomic perspective, this should not matter. After all, an
obsession with bilateral trade deficits is ridiculous in a multilateral
trading world, where trade in services matters as much (if not more)
than in goods. The White House would do better to focus on areas where
the US has legitimate grievances with China, such as intellectual
property abuse, not shipments of steel. But
this economic logic is unlikely to sway Mr Trump right now, least of all
when the White House is preparing for a meeting with Chinese president
Xi Jinping. So it is worth asking why the bilateral statistics are
moving the wrong way. Part
of the explanation is — ironically — the US’s current economic strength:
fast growth usually sucks in more imports. (Or, as some of Mr Trump’s
own advisers used to half-jokingly tell him, with limited success, the
easiest way to solve a trade deficit is to create a recession.) A
second contributing factor might be a time lag issue: American companies
have scrambled to stockpile imports to protect themselves from the trade
disruptions. A breakdown of the data suggests, for example, that the
sectors which are already subject to tariffs (such as steel) experienced
a particularly notable spike in imports earlier this year, which is now
subsiding. But
there is another possible explanation that is now being quietly mooted
by groups who follow the intricacies of global trade: China might
actually be winning the optics (if not substance) of the early round of
the trade fight. “The expansion of the US trade deficit with
China . . . is a sign the trade war went against America” in September,
Panjiva, a trade data aggregation service observed last week. Or as
Soren Skou, the chief executive of AP Moller-Maersk, the shipping
company, noted during an earnings call on Tuesday: “It is an ironic
development, but after Trump has turned up the volume, the US has only
increased their imports from China even more” — even as American exports
in sectors such as soyabeans have collapsed. Mr
Skou partly blames this on stockpiling. But, strikingly, he suggests
that the position of Chinese companies in the supply chain means that
they find it easier to source substitutes for American products than the
US does in replacing Chinese imports. A
third crucial issue, Mr Skou says, is that Mr Trump “can’t tell Nike,
Walmart and The Home Depot that they can’t import from China”. So he
predicts that American companies “will continue to import [from China]
and will work on solutions”, just swallowing the hit to margins (which,
of course, is being partly offset now anyway by the weakness in the
renminbi).
Beijing, by contrast, can simply order its state-controlled companies to
switch their trading patterns — and is probably doing so, given that the
Chinese government (unlike the chaotic White House) has a centrally
co-ordinated negotiating position and agenda. So
does this mean that Beijing will fail to make concessions in
negotiations? Not necessarily. After all, China’s economy is probably
more vulnerable to a trade war than America’s, and the picture could
change if (or when) stockpiling ends. But, if nothing else, the “ironic
twist” — to use Mr Skou’s phrase — in those pesky statistics shows how
hard it is to predict the precise consequences of a trade war. And
perhaps the folly of underestimating China as an adversary —
particularly if it stays disciplined, determined and untroubled by
democracy |