Who Gains From Trump’s Tariffs? China

Article by Douglas Duane Dietrich, originally posted on Facebook:

Who Gains From Trump’s Tariffs? China
China’s already been slashing steel capacity.
This isn’t the start of a trade war, it’s friendly fire.

If Donald Trump was aiming at China with his lofty proposed tariffs on imported steel and aluminum, he’s a terrible marksman. Not only will Chinese leaders likely brush off the measures. They have good reason to embrace them.

China has taken advantage of Trump’s mistakes to become even more assertive in its foreign policy — harassing and threatening its neighbors over a range of security and territorial issues, further tightening its grip over the disputed South China Sea and forwarding its own diplomatic and economic agenda for Asia, such as the sweeping infrastructure development program known as “Belt and Road.”

The only way the U.S. will be able to contest rising Chinese power — not to mention tighten the squeeze on North Korea and press Pyongyang into negotiations over its nuclear and missile weapons programs — is through tight coordination with allies such as Japan, South Korea, Australia and India. Any squabbling among them would suit China’s strategic interests just fine.

China is unquestionably the big, bad wolf of the global steel industry. With roughly ten times the steelmaking capacity of the U.S., it’s been widely accused of dumping cheap steel on global markets, pushing competitors in other countries to the wall. The Trump administration has previously prodded Chinese leaders to impose steep cuts on steel production to take pressure off U.S. mills — to no avail.

The U.S. president clearly believes tariffs are the inevitable next step. Yet, any pain China feels from Trump’s import restrictions will be minimal. A measly 3 percent of total U.S. imports of steel products, by value, came from China in 2017. As Bloomberg economist Tom Orlik points out, China’s total exports of steel and aluminum to all countries account for barely 0.5 percent of its GDP, and the share going to the U.S. is relatively small. Even losing access to the American market entirely would thus have a negligible impact on growth.

China has already been slashing overcapacity in its steel sector — shutting down about 50 million tons in 2017 — for its own purposes, both environmental and economic. While that trend will likely continue, the Trump tariffs aren’t going to affect the decision one way or another. (By way of comparison, the U.S. imported less than a million tons of steel from China last year.)

The tariffs will hurt some countries, though — most prominently, America’s closest allies in Asia. South Korea accounted for almost 10 percent of all U.S. steel imports last year and Japan for nearly 6 percent. Even Taiwan, with a 4 percent share of those imports, could suffer more than China.

The same is true globally. Canada is the biggest supplier of steel to the U.S. The European Union worries that steel that might’ve gone to the U.S. will now find its way to Europe, pressuring local steelmakers even further.

Even if that doesn’t happen, China stands to gain. For one thing, unless the U.S. hands out exemptions to all of its allies — which some, including Canada and Australia, are still hoping for — the tariffs will make any sort of cooperation with America much more difficult politically. The U.S., EU and Japan agreed in December to work together to combat not only alleged Chinese steel dumping but intellectual-property violations; a true joint effort could have seriously undercut China’s push to acquire companies and cutting-edge technologies overseas. Now, any resistance is likely to be scattered, uncoordinated and thus less effective.

In Asia specifically, Trump is already seen as too soft on China and too rough on his close friends. He’s withdrawn from the Trans-Pacific Partnership, a trade pact meant to solidify U.S. alliances in the Pacific, and threatened to back out of a free-trade agreement with South Korea. Such steps have not only irked U.S. allies, but also raised serious questions about America’s long-term commitment to the region.

WHAT THE DEATH OF THE T.P.P. MEANS FOR AMERICA (Originally Writ Immediately Post-Inauguration) :

President Donald Trump today signed the death warrant for the Trans-Pacific Partnership. Throughout the Presidential campaign, the T.P.P. was discussed almost exclusively at high volume, with exclamation points present or implied. Its opponents, who include those in the Bernie Sanders wing of the Democratic Party, as well as Trump, argued variously that it would destroy jobs and the environment and strengthen China. Pro-trade members of the Obama Administration argued that the T.P.P. would “help increase Made-in-America exports, grow the American economy, support well-paying American jobs, and strengthen the American middle class.” These words were on the Web site of the Office of the United States Trade Representative on Monday morning, but by midday they had disappeared, replaced by “America First Trade Policy.”

The T.P.P. would have created a Pacific trade zone not unlike the zone that nafta created in North America, but comprising a dozen countries bordering the Pacific—Japan, Vietnam, Brunei, Singapore, Malaysia, Australia, New Zealand, Canada, the U.S., Mexico, Peru, and Chile. By 2030, those countries would have been able to access one another’s ports with next to no tariffs or other restrictions.

Both proponents and detractors exaggerated the effects of the T.P.P., the impact of which was always going to be modest in measurable economic terms. The Peterson Institute for International Economics, a reputable but strongly pro-T.P.P. research organization, for instance, estimated that U.S. national income would grow by a hundred and thirty-one billion dollars a year by 2030 under the trade deal, a number that many T.P.P. advocates repeat as evidence of its magnitude.

But, even if the estimate turned out to be right, it would represent just half a per cent of the over-all U.S. economy—outweighed by even slight changes in, say, the average price of oil or the Federal Reserve’s key interest rate—and would have essentially no measurable impact on almost anybody’s life. In other words, it could easily be seen as somewhere between worthless and barely measurable in economic terms.

For a trade deal to have a major impact, good or bad, it would have to change the trade dynamics with a previously closed but potentially immense trading partner. Such a seismic shift happened when China joined the world trading system. But the U.S. already engages in trade with most of the T.P.P. countries. Instead, the deal would have meant marginally more trade with a set of second- and third-tier trading partners.

Why did the Obama Administration fight so hard for T.P.P.? The trade agreement was central to long-term U.S. interests around the world. It was the first step in engineering a single interlocking trade system to span North America, a significant portion of South America, and a decent chunk of Southeast Asia, as well as Japan. Modern products—from cheaper goods such as clothes to expensive and durable products such as computers, cars, and medical devices—are no longer made in one country. They require stable, predictable international supply chains, and the T.P.P. would have encouraged C.E.O.s, logistics managers, and others to place their bets on the world’s single largest trading zone, one that would have been dominated by the U.S., the largest and most developed economy in it.

By imposing a single legal regime on trade throughout its area, the T.P.P. would have offered incentives to firms to partner with others in the region. As the dominant party in the pact, the U.S. would have controlled future access to that zone. Labor and environmental activists in America had already won major victories, insuring that the T.P.P. would force a new set of standards on trading partners. For the poorer countries, especially Vietnam, these would have meant real advances for workers and the environment. After passage, other countries in the Pacific and in South America would have been anxious to join this large and growing trading zone and would have wanted to make sure they stayed on the good side of the United States. The zone would have all but surrounded China, which was not part of the pact, and would have served to pressure that country to change its own practices.

President Trump, like many others, is right to be concerned about people losing factory jobs, particularly in the Rust Belt, which delivered his victory. The T.P.P. probably would have killed some jobs there, and it surely would have created some others. Estimates suggest that it would have been a wash. But, over all, it wouldn’t have had much direct impact on blue-collar workers. The global shift away from tariffs and other trade barriers began in 1964 and was, largely, complete by the mid-two-thousands. There are a few real fights left, particularly over trade involving finance, entertainment, and pharmaceuticals, but, for American manufacturing companies and their workers, there just aren’t that many high trade barriers left. No deal is likely to have a significant impact on the number of jobs or on the wages workers receive. Jobs ultimately follow economic activity. Where are the customers? Where does it make the most sense to produce the goods those customers want?

Multinational corporations do have a backup plan, now that the T.P.P. is dead. It’s called R.C.E.P., the Regional Competitive Economic Partnership. It is made up of sixteen countries, all in Asia. Many were signatories to the T.P.P. The trade zone is not quite as big—R.C.E.P. represents less than a third of the global economy—but, in many ways, it’s a lot easier to join. The U.S. is not a member, and there are virtually no environmental or labor standards required. One country that is a member of R.C.E.P. is China, and it will be the nation that will dominate what will soon become the world’s largest trade zone.

That’s why China’s reaction to Trump’s announcement has thus far been relatively mild, simply urging all countries to avoid unilateral trade restrictions. If the White House really wanted to cause China pain, it could have targeted a range of other industries, from electronics to shoes. Going after steel and aluminum isn’t the start of a trade war; it’s friendly fire.



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