BBC News - Who loses out in the US-China trade war?

[Menthol]

Trade War in the long run is good for both countries.

For China, it will fastening the innovation.

While for USA, it will bring back manufacturing to USA.

But if we see it in the way USA want to stop or slowdown China technological and scientific advancement, it won't.

 

[PakSword]

Who loses out in the US-China trade war?

By Daniel Thomas
Business reporter, BBC News
14 May 2019

https://www.bbc.co.uk/news/business-48256535

The US-China trade war has escalated in recent days, with both countries announcing new tariffs on each other's goods.

US President Donald Trump has said repeatedly that China will pay these taxes, even though his economic advisor, Larry Kudlow, on Sunday admitted that US firms pay the tariffs on any goods brought in from China.

So is Mr Trump wrong when he says the trade war is good for the US, and generating billions of dollars for the US Treasury?

And who will lose most as the conflict escalates?

Who really pays the US tariffs?

US importers, not Chinese firms, pay the tariffs in the form of taxes to the US government, confirms Christophe Bondy, a lawyer at Cooley LLP.

Mr Bondy, who was senior counsel to the Canadian government during the Canada-EU free trade agreement negotiations, says it is likely that these additional costs are then simply passed on to US consumers in the form of higher prices.

"They [the tariffs] have a strongly disruptive effect on supply chains," he said.

What has the impact been on China?

China remains America's top trading partner, with exports rising 7% last year. However, trade flows to the US slipped 9% in the first quarter of 2019, suggesting the trade war is starting to bite.

Despite this, Dr Meredith Crowley, a trade expert at the University of Cambridge, says there is no evidence that Chinese firms have cut their prices in a bid to keep US firms buying.

"Some exporters of highly substitutable goods have just dropped out of the market as US firms have started importing from elsewhere. Their margins are too thin and tariffs are clearly hurting them.

"I suspect those selling highly differentiated goods have not reduced their prices, possibly because US importers rely on them too much."

What has the impact on the US been?

According to two academic studies published in March, American businesses and consumers paid almost the entire cost of US trade tariffs imposed on imports from China and elsewhere last year.

Economists from the Federal Reserve Bank of New York, Princeton University and Columbia University calculated that duties imposed on a wide range of imports, from steel to washing machines, cost US firms and consumers $3bn (£2.3bn) a month in additional tax costs.

It also identified a further $1.4bn in losses linked to depressed demand.

The second paper, penned by among others, Pinelopi Goldberg, the World Bank's chief economist, also found that consumers and US companies were paying most of the costs of the tariffs.

According to its analysis, after taking into account the retaliation by other countries, the biggest victims of Trump's trade wars were farmers and blue-collar workers in areas that supported Trump in the 2016 election.

--------------------------------------------

Just like when Trump claimed that "Mexico will pay for the wall", it turns out the US taxpayers were forced to pay for the wall. So who is surprised that the same thing is happening again?

"According to two academic studies published in March, American businesses and consumers paid almost the entire cost of US trade tariffs imposed on imports from China and elsewhere last year."

United States thinks that by putting tariffs, it can raise the prices of imported good from China at part with the us manufactured goods... Lolll...

Even if they put massive tariffs, it will raise the cost of living in the United States and the country will have to revisit the minimum wage... That will make the local prices more expensive... It's vicious cycle until China per capita comes close to the United States.

It is surely a war that United States is destined to lose....

 

[AndrewJin]

Thank you CPC US branch’s general secretary Trump!

 

[Chinese-Dragon]

It is surely a war that United States is destined to lose....

If Trump REALLY wanted to reduce America's insane Current Account Deficit, he would cut spending. Cut spending, tighten their belts and live within their means.

But cutting spending doesn't get him any votes, in fact it will probably lose him a ton of votes as economic growth slows, jobs get lost and income stops growing.

Much easier to blame foreign countries for it, that is what will get the voters in the US heartland excited. Of course, their Current Account Deficit, Fiscal Deficit and National Debt are reaching all-time highs, but who cares about that.

US leaders only care about short-term political gains. They are not going to cut spending, they are not going to tighten their belts, they are not going to stop eating. They will keep borrowing and spending, borrowing and spending.

 

[艹艹艹]

5 years later..............

 

[TaiShang]

Just like when Trump claimed that "Mexico will pay for the wall", it turns out the US taxpayers were forced to pay for the wall. So who is surprised that the same thing is happening again?

"According to two academic studies published in March, American businesses and consumers paid almost the entire cost of US trade tariffs imposed on imports from China and elsewhere last year."

Tariffs are basically imports tax.

Naturally, importers/consumers will bear most of the cost.

***

Who is paying for Trump's tariffs?

Liu Jianxi - 14-May-2019

China-U.S. trade spats escalated on Monday as Washington released a list of the 300 billion U.S. dollars worth of Chinese products that could face up to 25 percent tariffs. The move was immediately retaliated by China's new tariffs on 60 billion U.S. dollars in American goods.

While U.S. President Donald Trump repeatedly boasted on social media that China will pay for the new tariffs, the reality is the opposite. Statistics show that it is American businesses and customers that are bearing the majority costs of Trump's capricious trade war.

To begin with, the increased tariffs mean more taxes that American companies and individuals will have to pay for the imported Chinese goods. While some economists argue that Chinese exporters may lower their prices in an attempt to be more competitive in the U.S. market, Goldman Sachs' latest analysis shows that "no decline in the prices (exclusive of tariffs) of imported goods from China that faced tariffs."

The rising prices, without suspense, have fallen on ordinary American families. In an academic study published in March, economists from the Federal Reserve Bank of New York, Princeton University and Columbia University concluded that "the full incidence of the tariff falls on domestic consumers, with a reduction in U.S. real income of 1.4 billion U.S. dollars per month by the end of 2018." The duties imposed on a wide array of imports cost American businesses three billion U.S. dollars a month in additional tax costs, the paper calculated.

The conclusion is echoed by the World Bank's chief economist Pinelopi Goldberg. American farmers and blue-collar workers who supported Trump in the 2016 general election are ironically the biggest victims of the president's trade war, according to Goldberg.

Chinese made hats are displayed for sale at a Manhattan department store on May 7, 2019 in New York City. /VCG Photo


Statistics from the Trade Partnership Worldwide consultancy lead to the same conclusion – ordinary Americans are paying the most of the costs of Trump's tariffs. The annual spending of average American family of four will see a rise of 767 U.S. dollars on household goods if a 25 percent tariff is imposed on 250 billion U.S. dollars in Chinese goods, reducing American employment by 934,000. The figure will be 2,294 U.S. dollars if the same-level tariff is imposed on the remaining imports from China, killing 2.1 million jobs in a year.

The U.S.' heavy dependence on Chinese products has made the situation even worse. Among more than 6,000 tariffed items on the previous 200 billion U.S. dollars list are 1,150 items on which the U.S. is over 50 percent dependent on Chinese imports, according to Chinese Academy of International Trade and Economic Cooperation.

In the first four months of 2019, China's exports to the U.S. dipped by 4.8 percent. U.S. exports to China, in comparison, plunged 26.8 percent during the same period. This means while Chinese customers can easily find alternatives to American goods, American customers are heavily relying on Chinese products.

Trump's advice that American customers can buy alternatives in domestic market or from non-tariffed countries is thus unrealistic in the era of global integration. China is gradually becoming a source of global innovation and its cost-effective products cannot be easily replaced in the U.S. market.

Moreover, Beijing has seen prosperous trading relations with the EU and the ASEAN in the past decades. The country's trade volumes with the Belt and Road countries rose by 9.1 percent in the first four months of 2019, while the figure with the United States is seeing a downward trend.

Undeniably, China will also suffer. But the Chinese economy is resilient enough to go through the trade war. Even if American customers were forced to abandon Chinese imports, there are only 124 tariffed items for which China is more than 50 percent dependent on the U.S. market for export. "Made in China" products have been the most sought-after across the globe.

China's diversified trading partners mean the country can easily find alternative buyers in face of Trump's tariffs. Before voicing support for Trump's 2020 election campaign, American citizens should think twice – who on earth is paying for their president's tariffs?

https://news.cgtn.com/news/3d3d414f31596a4e34457a6333566d54/index.html

 

[Mista]

If Trump REALLY wanted to reduce America's insane Current Account Deficit, he would cut spending. Cut spending, tighten their belts and live within their means.

But cutting spending doesn't get him any votes, in fact it will probably lose him a ton of votes as economic growth slows, jobs get lost and income stops growing.

Much easier to blame foreign countries for it, that is what will get the voters in the US heartland excited. Of course, their Current Account Deficit, Fiscal Deficit and National Debt are reaching all-time highs, but who cares about that.

US leaders only care about short-term political gains. They are not going to cut spending, they are not going to tighten their belts, they are not going to stop eating. They will keep borrowing and spending, borrowing and spending.

Cutting spending will get them into a recession.

If the US wants to cut the deficit, they should cut interest rates and let the dollar devalue massively. Exports will be cheaper and imports more expensive, two birds with one stone.

They are not going to cut spending, they are not going to tighten their belts, they are not going to stop eating. They will keep borrowing and spending, borrowing and spending.

Because at the end of the day they are exchanging paper money for tangible improvement in standards of living, and they can simply print the USD. It's like playing monopoly and the banker has unlimited supply of money.

Sure, it will cause inflation but the cost will be shared with the rest of the world who holds USD.

And ironically the larger the US current account deficit, the more USD the rest of the world holds.
The more USD the rest of the world holds, the more the rest of the world has vested interest in the USD.
The more the vested interest in USD, the stronger the USD as the rest of the world buys US debt.
The stronger the USD, the larger the US current account deficit.

 

[Chinese-Dragon]

It's like playing monopoly and the banker has unlimited supply of money.

They can only keep printing money as long as the USD remains the world's main reserve currency. So that the world's Current Account Surplus countries like China/Germany/Japan keep lending them money by buying their bonds (and are willing to take the losses when they print more).

But what happens when the USD is no longer the world's reserve currency? Nothing lasts forever, and Donald Trump seems eager to speed the process up as much as possible.

Then they are left with an astronomical amount of debt and deficit which can't be paid off by borrowing more, since borrowing costs have now gone up.

If they try to pull in more revenue by raising taxes, that will push the US into recession (if it was somehow not already in recession by that point)... and it won't even come close to being enough.

It will be one of the worst economic disasters in history, and nobody wants that, especially not China. But how do you tell the fattest man in the world to stop eating/borrowing/spending. How do you tell them to tighten their belt and live within their means.

 

[Mista]

They can only keep printing money as long as the USD remains the world's main reserve currency. So that the world's Current Account Surplus countries like China/Germany/Japan keep lending them money by buying their bonds (and willing to take the losses when they print more).

But what happens when the USD is no longer the world's reserve currency? Nothing lasts forever, and Donald Trump seems eager to speed the process up as much as possible.

Then they are left with an astronomical amount of debt and deficit which can't be paid off by borrowing more, since borrowing costs have now gone up.

If they try to pull in more revenue by raising taxes, that will push the US into recession (if it was somehow not already in recession by that point)... and it won't even come close to being enough.

It will be one of the worst economic disasters in history, and nobody wants that, especially not China. But how do you tell the fattest man in the world to stop eating/borrowing/spending. How do you tell them to tighten their belt and live within their means.

Like you said nothing lasts forever, and in the long run we are all dead.

So why would they cut spending now when nothing lasts forever? Especially when the large current account deficit is supplying the world with USD and indirectly contributing to the absolute dominance of the USD?

If nothing lasts forever, then even debt/savings don't last too. In the even longer term, the political entity known as the US may not even exist in its current form.

That 'astronomical amount of debt' is denominated in USD which is printed by them. Borrowing costs can easily be brought down by expanding money supply.

That results in inflation and a devaluing of the USD until current account is balanced in equilibrium.

 

[Chinese-Dragon]

That 'astronomical amount of debt' is denominated in USD which is printed by them. Borrowing costs can easily be brought down by expanding money supply.

That results in inflation and a devaluing of the USD until current account is balanced in equilibrium.

I would love to see how much the US would need to inflate and devalue the US dollar to escape the amount of debt they currently have, especially when the US dollar is no longer the world's reserve currency and so the rest of the world won't be willing to finance that money printing.

Maybe by that point the dollar will be so low that the US nominal GDP will be lower than India's.

The power of the USD is the backbone of America's global financial power. When the dollar is not worth anything what financial power will they have left. What buying power will they have left to sustain their lavish importing lifestyle? At that point will they finally tighten their belts and live within their means?

 

[Mista]

At that point will they finally tighten their belts and live within their means?

A devalued USD will correct the distorted current account balance. More exports, lesser imports. It has the same effect as an appreciating RMB/Yen/Euro, which is what the current US administration wants.

 

[Chinese-Dragon]

A devalued USD will correct the distorted current account balance. More exports, lesser imports. It has the same effect as an appreciating RMB/Yen/Euro, which is what the current US administration wants.

Alright let's discuss this a bit.

US economic growth is driven by Consumer Spending, which makes up the vast majority of annual GDP growth for them.

That's why they need a strong dollar right, to keep prices of consumer goods low. Imagine how much an Apple iPhone or MacBook Pro would cost to import otherwise (not that it's cheap even now).

If the dollar is devalued (so the dollar has less buying power) then the prices of consumer goods will shoot up. How can a Consumer Spending driven economy do well with a weak currency and high prices for consumer goods? What will they be consuming?

It will certainly improve their Current Account balance though, since they can no longer afford to consume so much (especially any products that contain imported components), i.e. less spending and more saving. But what will that do to economic growth (and thus jobs and income)?

 

[Mista]

Alright let's discuss this a bit.

US economic growth is driven by Consumer Spending, which makes up the vast majority of annual GDP growth for them.

That's why they need a strong dollar right, to keep prices of consumer goods low. Imagine how much an Apple iPhone or MacBook Pro would cost to import otherwise (not that it's cheap even now).

If the dollar is devalued (so the dollar has less buying power) then the prices of consumer goods will shoot up. How can a Consumer Spending driven economy do well with a weak currency and high prices for consumer goods? What will they be consuming?

You have to understand that the US economy is predominantly domestic driven. Domestically produced for domestic consumption. It's trade share of GDP is one of the lowest in the world despite being the 2nd largest trading country.
Their household consumption alone is more than $13 trillion in 2017 while total imports is 'just' $2.3 trillion, or around 17%.

 

[Chinese-Dragon]

You have to understand that the US economy is predominantly domestic driven. Domestically produced for domestic consumption. It's trade share of GDP is one of the lowest in the world despite being the 2nd largest trading country.
Their household consumption alone is more than $13 trillion in 2017 while total imports is 'just' $2.3 trillion, or around 17%.

Yes and a consumption-driven economy wants a strong currency to keep the prices of consumer goods low right?

If the dollar is massively devalued then consumer spending will fall, since the dollars in their pockets won't be able to buy as much as before, and the prices of consumer goods will go up right?

A weaker dollar means they won't be able to buy as much as before, which will have a huge negative impact on growth in a consumption-driven economy.

P.S. From the numbers I saw, consumption makes up 76.2% of China's GDP growth.

https://www.cnbc.com/2019/01/20/reu...of-chinas-2018-gdp-growth-exports-a-drag.html

 

[AndrewJin]

You have to understand that the US economy is predominantly domestic driven. Domestically produced for domestic consumption. It's trade share of GDP is one of the lowest in the world despite being the 2nd largest trading country.
Their household consumption alone is more than $13 trillion in 2017 while total imports is 'just' $2.3 trillion, or around 17%.

That's some very shadow understanding on the surface.
Even a country of 90% relying on consumption is hugely subject to foreign trade fluctuations.
You talk as if domestic part and the trade part are completely separated.