Serious trade tension or trade war between US and China, financial concept : Flags of USA and China … [+]
Donald Trump’s battle against China has taken on a new dimension. The target is ByteDance, which is the parent of the social app TikTok and the one used mostly by teenagers who post short video clips.
It’s the latest iteration of the trade dispute between the two countries and one that got started in early 2018 with tariffs on Chinese solar panel makers. But the fight has escalated to the point where the countries’ 40-year friendship has deteriorated.
Just this week, the World Trade Organization said that U.S. tariffs imposed on China have violated global trading rules. Specifically, the three-member panel said that the duties assessed were unfair and disproportionate. The Trump administration will no doubt appeal the decision — a move that would likely become moot if Joe Biden is elected U.S. president.
Trade wars don’t work. For every action, there’s an equal and opposite reaction. Businesses will often pass those costs on to consumers. The best way to resolve disputes is through dialogue. Along those lines, governments that force the sale of a foreign enterprise will deter other investors because they are seen as unreliable and inhospitable.
To that end, Chinese leaders distrust Trump, who often disrespects their culture by mislabeling the coronavirus. Meantime, his now-indicted former campaign chief, Steve Bannon, is reported to be linked with debunked studies that said the virus first started in a Chinese lab.
“Trade is a win-win,” says Ray Keating, chief economist with the Small Business & Entrepreneurship Council, in an interview. “The better way would be to start positive and constructive free trade agreements.
“A lot of people view imports as negative. But that’s not the case and it doesn’t line up with Economics 101: each business focuses on what it does best and it then trades with others, whether across town or across borders,” he adds. “Value is created and we see the benefits of enhanced growth, better resource allocation and more consumer choice.”
Elbowing China out of the global marketplace hurts everyone. Whereas President Obama had wanted to enforce fair trade practices by implementing the multilateral trade agreement called the Trans-Pacific Partnership, Trump went right for the jugular: he’s penalized China with about $550 billion in tariffs, which have been met with $185 billion in tariffs on American products in return.
As for TikTok, the president wants to force the sale of its U.S. operations to protect national security — to prevent the social media company from gathering sensitive data on Americans. With tens of millions of users, it’s an iffy move and one that would require the cooperation of companies such as Apple
But TikTok is, instead, opting to use Oracle
“There is no authority in the U.S. to ban TikTok content, ban people from watching it, or ban people for working with TikTok, that’s just the president exaggerating his authority to put pressure on the deal,” says James Lewis, director of the Technology Policy Program at the Center for Strategic & International Studies, in The Economic Times. “You can put obstacles up, but there are workarounds.”
Lost Potential
Signage stands outside the Cheniere Energy Inc. liquefied natural gas (LNG) export terminal in … [+]
The TikTok controversy has inflamed political tensions between the U.S. and China. But the economic toll will be just as heavy: bilateral commerce between the United States and China reached $600 billion before the trade war. China, for example, imported $254 million in liquefied natural gas, or LNG, from the United States in January 2018. Now, though, China has stopped importing the frozen fuel from this country.
And there is not likely to be a rebound, says a study by the Institute for Energy Economics and Financial Analysis. The ill-effects of the coronavirus have led to a supply glut and falling prices in global LNG markets. Cheniere Energy, which is the largest U.S. LNG company, will likely earn more revenues this summer from cancelation fees than from actual sales, the think tank says.
It goes on to say that international customers are now buying LNG on spot markets rather than signing new long-term contracts. And none of this is good for U.S. companies, which have more than 20 such projects in various stages of development.
China, which has a voracious appetite for LNG, could come to the rescue. But the government there is in no mood to deal with Trump after his inflammatory remarks about the coronavirus in addition to his ratcheting up the trade war. Moreover, the institute’s analysis finds that PetroChina
“Even if China expands its gas use, the country will likely find cheaper sources of gas than U.S. imports, including domestically-produced gas, pipeline imports and LNG from lower-cost global suppliers,” says Clark Williams-Derry, an energy analyst and author of the institute’s study.
Nearly a third of the US economy is tied to trade, says economist Keating, noting that 5% is linked to China. Consider American farmers: before the trade war, China bought 61% of U.S. soybean exports – about a third of all US production. That market has now evaporated, says the American Soybean Association, and it may not return once China inks new deals with other suppliers.
American isolationism has also opened the door to Chinese economic expansion. Through its Belt and Road Initiative, China is creating a vast network of railways, pipelines and highways across four continents and 76 countries. China may thus be positioned to market its products and services around the globe. While Trump is focusing on nationalism and “Making America Great Again,” China is extending its global influence.
Indeed, the “America First” philosophy is an abject failure: Bloomberg Economics says that the trade war with China will end up costing the domestic economy $316 billion while Moody’s Analytics estimates that gross domestic products will lose 0.3% because of it.
What now? Some say that the TikTok mess is a ruse to divert attention from Trump’s political troubles. Others say that the efforts to force a sale may have limited merit but they have little practical effect and end up causing harm. Tesla
“You benefit most from free-trade policies and in keeping everyone engaged,” says economist Keating.
It may be too late for the Trump administration to turn back the clock. The damage has been done. The trust has been lost. If U.S.-China relations are to heal and if borders on both sides are to fully open, a new and more enlightened president must be sworn in.
