Tag Archives: trade war

G20 Surprise Show

Just published on Impakter:

The big news from the G20 meeting that just closed in Buenos Aires is the 90-day truce in the U.S.-China trade war that has rattled financial markets and threatened global growth. The smaller news is that Trump did not pull the rug under this meeting the way he had done at the last G7 meeting in Canada.

The prospect of a no-statement Summit similar to the G7 debacle had looked very real. As it turned out, the show was very different from what everyone expected, largely thanks to the strong action of French diplomacy, spurred by Macron who wanted a G20 summit statement on his favorite issues, climate change, globalization and growth. But the G20 meeting confirmed the previous G20 in Germany (July 2017): American isolationism is back.

To understand what happened, it helps to take a step back and consider what the G20 is really all about – just like the G7, acting at the margin of the United Nations.

The G20, born of a G7 meeting of finance ministers and central bankers in 1999, is made up of the world’s 19 most important countries in terms of their GDP, plus the European Union. The two giant state members are the United States ($19.39 trillion) and China ($12.24 trillion). Since the G20 was founded, both superpowers have distanced themselves from the pack as most countries’ GDP flat-lined:

In the diagram: Evolution of G20 Member countries Gross Domestic Product since foundation of G20 (1999) SourceData from World Bank  Last updated: Jul 6, 2018  ©2014 Google

In spite of the limitations of GDP as an indicator (it doesn’t capture social progress),the diagram is a striking depiction of the varying impacts of globalization, with the U.S. and China the big winners, at the expense of the rest of the world. And it shows clearly how the U.S., contrary to what Trump says, has always been “great” with the 2008 Big Recession a mere blip on its growth rate.

And it didn’t help that Europe (as a region) showed up in disarray at the meeting: The UK struggling with Brexit and not getting the expected support from Trump; Russia embroiled in an escalating fight with Ukraine; Merkel on her way out and rumored to be aiming for the presidency of the European Council; Macron battling yellow vests protests that are now in their third week and devastated Paris last Saturday.

That leaves on the international scene the two superpowers, the US and China. Some even talk of the emergence of a G2. In a sense, when Trump dined with Xi and crafted a truce in their trade war, that was a G2 meeting.

But if one of the superpower – in this case, Trump’s America – chooses to isolate itself with trade wars and its America First agenda, then China is left free to interact with the rest of the world. Which is precisely what happened. Let’s take a closer look.

The US-China 90-Day Trade Truce

Read the rest on Impakter, click here.
 
Featured photo: G20 Gala dinner 30 November 2018  Source: Official photo G20 Secretariat 

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Trump’s Trade Wars: The End of American Supremacy?

Today Trump opened another battlefront in his trade wars, with duties slammed on Chinese goods worth $34 billion. Expect China to retaliate with counter tariffs on US imports. China’s commerce minister was quick to announce: “China promised to not fire the first shot, but to defend national core interests and the interests of the people, it has no choice but to strike back as necessary”. A few hours later, China filed a complaint with the World Trade Organization, its second one.

Conventional wisdom has it that nobody wins from a trade war. Is it wise to ignore it? Trump has no doubts, he is convinced his trade wars will Make America Great Again.

This reminds me of the Italian captain who sank his own boat out of bravado. Remember Captain Francesco Schettino who famously sank the Costa Concordia cruise ship off the Italian island of Giglio in January 2012? He did this serenading a pretty lady in the dead of night, showing off his ability to sail close to the rocks. The ship hit the shore, capsized and 32 passengers and crew died.

Think of that beautiful cruise ship as a metaphor for the international order that America built after World War II, ensuring peace and prosperity through, inter alia, global trade. Now, Trump, like Captain Schettino, is steering the world ship towards the rocks while serenading his base:

Extraordinary. Watch how Trump’s audience looks enraptured, captivated by his show. And the numbers Trump throws around are totally out of context. Consider what he says of Canada, referring in a tone of outrage to a 275% tariff barrier. As if US farmers don’t have access to Canada’s markets because of it.

Is that the case? The fact is that 275% tariff barrier (which is indeed outrageous) only concerns a very small section of the market, milk and milk products. On average, trade barriers with Canada, as with all other advanced countries, are very low, around 2% to 5%. Not really enough to drive imbalances in trade.

The Real Causes of US Trade Deficits

US trade deficits have other causes, and they are nothing new. They’ve been going on since the 1960s, arising mainly from:

The rest on Impakter, click here and let me know what you think!

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Trade War with China: Who Wins?

We are now facing an escalating trade war between the US and China – started by the US. The question is: can the US win? And what will it cost the world?

It is worth listening to Carlos Gutierrez, co-chairman at Albright Stonebridge Group, a major global corporation and former U.S. Commerce Secretary who spoke on 18 June on “Bloomberg Daybreak: Americas”:

He reminds us that the free-trade agreements that have been brokered since the 1980s are not as bad as Trump would have it: they have consistently given the US a surplus. The point is: There never was a similar agreement with China. And he doesn’t mince words in describing the dangers for the whole world. He urges restraint.

Clearly Trump is not listening. A few hours after Gutierrez talked to Bloomberg, Trump had threatened an additional 10% tariffs on another $200 billions worth of goods:

Trying to answer the question of “who wins a trade war”, Bloomberg has rounded some major experts asking them what they thought. While the answers are interesting, they all focus on the short term and unfortunately don’t go beyond are the framework of classical economic analysis which overlooks geo-political factors:

  • China has limited room to retaliate in a trade war escalation: It only buys $130 billion worth of American goods while the US deficit with China runs to $375 billion; this is a “high stakes game of poker” and “China will run out of U.S. imports that it can hit with tariff countermeasures long before the U.S. does” (Rajiv Biswas, IHS Markit Singapore);
  • China needs to open up to global innovation and investment: “both China and the U.S. and other countries can really benefit from this Made-in-China 2025 strategy” (William Zarit, chairman of American Chamber of Commerce in China);
  • This is creating a “perfect storm” for China’s export Industry: it’s not just Trump’s tariff war but also the probable US Senate ban on ZTE, the Chinese electronic producer that Trump wanted to save; such a ban would  stop it from importing the American chips it needs for its phones and other products, hitting at the very heart of Made-in-China 2025 strategy;
  • There will be winners and losers, for example, China will need to buy agricultural goods from other sources than the US and that will benefit countries like Australia and Brazil; many Asian countries that are part of the China value chain will be hit.

Instead, to evaluate the dangers from a trade war, we need to look at the longer term and more broadly to geo-political factors. And here, the picture is not so reassuring.

The trade war with the US is but a battle in a much larger war. A battle that surely hurts in the short run, but will leave China victorious in the long run. Because China has acquired the “soft power” weapons to win.

Forget the Trade War: China’s Soft Power is Poised to Conquer the World

What has been happening since Trump took over the White House is this: A political void has been created, a void in world leadership that China is eager to fill, and most likely will.

Consider the facts.

Read the rest on Impakter, click here.

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Trump Watch: Trade Wars to “Make America Great Again”

June 15 was a special day for Trump – good old television unexpectedly displaced his tweets. Two televised events gave him ample room to rant about fake news and push for his favorite justification for trade wars: resentment at “unfair treatment” of America by the rest of the world, allies included.

One was a surprise half-hour long  interview with Fox & Friends. A short video released by The Washington Post focuses on the main points he made:

The other was an 18 minute Q&A session with reporters outside the White House:

Significantly, Trump did not discuss trade at any point in either televised sessions, although on that same day he had just slapped steep (25%) new tariffs covering $50 billion in trade with China. Watching Trump make all his pet points, one is struck by the fact that he covered the same old topics. Those he’s been constantly and obsessively tweeting about.

First, Hillary Clinton and the possibility that his winning the presidency was never a clear-cut victory. He pretended to misunderstand the just released report from the FBI Inspector General – enabling him to claim the report “exonerates” him. The report does nothing of the sort, it reviews the FBI investigation into Hillary Clinton’s use of a private email server while she was secretary of state. It finds some faults with the then FBI Director James B. Comey for not adhering closely to protocol, along with others in his team, notably Peter Strzok and Lisa Page who were having an affair and exchanged over-the-top bragging emails.

Yet Trump calls the report a “horror show”, not because of what’s in it, he says, but because of the conclusion that there was no political bias in the FBI investigation.  Trump cannot accept that. For him, there was “total bias”; the FBI was a “den of thieves”; Comey is a “criminal”; the top FBI management is “scum”; if you “polled the FBI, the real FBI”, you’d find they all “love” him.

In short, there never was any collusion between his campaign and Russia. We’ve all heard that before, over and over.

Second point, on national security. America’s military, built up to the tune of $700 billion a year, will be bigger than ever. The wall is needed, borders must be secured, a “compromise immigration bill” cannot be supported. The separation of immigrant children from their parents at the border is regrettable but it’s the Dem’s fault.

Third point, the whole world and America’s closest allies especially, Europe, Japan and Canada, took “horrible”, “unfair” advantage of America both on trade and military aid. The only ally that got a nod of approval was Giuseppe Conte, the new Prime Minister of Italy, because they shared a common anti-immigration stand. This conveniently overlooks the massive differences in their stand: Italy, in spite of the recent spat with France over immigration – now resolved – is still receiving immigrants and does not separate children from parents.

For Trump, all will change now. We need to realize, he tells us, that President Obama “lost” Crimea, he “gave it away”. And that happened because Putin “had no respect for Obama”. With him at the helm, disrespect like that can never happen again. He is making friends with the right people, he can call up North Korea dictator Kim Jong-un anytime. And Putin, he feels, should be back in the G7.

What next: A Series of Trade Wars?

The mass of falsehoods was bewildering. Some American journalists wondered whether the Republican party would finally react, for example, Chuck Todd, NBC News political director tweeted:

Read the rest on Impakter, click here.

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Trump Watch: G7, the Gig is Up!

The G7 fiasco was not entirely a surprise, but the extent of the damage done is stunning. Here’s my assessment of the future of the G7 (it’s coming up against China-led Shanghai Cooperation Organization that met at the same time as the G7!). The article is on Impakter, here is the opening:

This G7 was like no G7 ever since it was founded in 1997.  Even before leaving for Canada, Trump rocked the boat, suggesting the G7 should be a G8, with Russia back in – conveniently forgetting why Russia was kicked out in 2014 (for invading Crimea and abetting rebels in Eastern Ukraine).

Then he turned up late. A bilateral meeting with Macron had to be postponed. He missed most of a working breakfast on the issue of women, he skipped the climate change meeting. He left nearly a whole day early to fly to Singapore for his “historic nuclear summit” with North Korea’s dictator – even though this meeting is still two days off.

In the end, Trump blew it up, refusing to sign onto a joint communiqué he had agreed to before leaving. Expect the G7 never to be the same again – at least not until America produces another President.

In his news conference before leaving, Trump was his usual aggressive self, grousing about unfair tariffs slapped on the United States by its closest allies – a claim roundly rejected by economists. Far from being huge as Trump claims, average trade-weighed tariffs are marginal: the latest WTO data (2015) shows that for the EU they stood at 3 percent, Canada at 3.1 percent and the US was slightly lower, at 2.4 percent.

The problem is that they vary by product and in the US, states slam on additional barriers. Not to mention Buy American laws that keeps foreigners out of US government procurement. Moreover, it appears that Trump confuses the European VAT for a tariff. In short, the US trade deficit is not caused by tariffs but by Americans’ purchasing preferences.

Once on the plane, he tweeted his withdrawal, threatening future tariffs on automobiles and accusing Trudeau of “false statements”:

Then he doubled down with insults, calling Trudeau “very dishonest and weak”:

Something like this has never happened before, and the fact that the American President did it makes it a watershed event. It’s not just a matter of being astonishingly rude to democratically elected colleagues. It’s a matter of starting a trade war with allies that jeopardizes America’s leadership and threatens global prosperity. World politics won’t ever be the same again.

Read the rest on Impakter, click here.

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TRUMP WATCH: Defying China on Trade

Just published on Impakter. Here’s the opening:


In a single tweet on 5 April, Trump gave a double whammy: against China, reminding everyone that he’s fighting China on trade, and against Amazon’s “chief lobbyist”, the hated “Fake News Washington Post”:

Not bad for a single tweet. To anyone wondering why the Washington Post’s headline is characterized as “phony” when the news about the levying of trade penalties is real enough, the answer is fairly simple.  Trump has recently engaged in an unprecedented flurry of tweets against Amazon, “ranting obsessively about it”. To the point where one is justified in wondering whether he has a personal grudge against Jeff Bezos, the founder of Amazon and owner of the Washington Post.

Maybe he does, but the truth is that the Washington Post has been very good at unearthing uncomfortable news about him. For example, they were the ones who discovered he had given highly classified information to the Russian Foreign Minister and Ambassador in the course of a visit to the White House back in May 2017.

Trade War or Trade Talks?

That’s the real question. Are Trump’s threats of trade penalties the opening salvo of a coming trade war? Or, more simply, trade talks?

Trump has just ordered the US Trade Representative to consider coming up with levies on $100 billion more of Chinese goods (that immediately sent US stock futures tumbling). This came on top of a Chinese announcement on Wednesday that China would levy a 25 percent tariff on about $50 billion of US goods (including soybeans, automobiles, chemicals and aircraft). But the US had started it all, issuing on Tuesday a list of tariffs on $50 billion of Chinese products.

Tit for tat – and a clever tit from China…

Read the rest on Impakter, click here.

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