New research calculates the cost of the Sino-American trade war

T.He is elementary The two-year segment of the “first phase” trade agreement between the United States and China will end on December 31 No country is in the mood to celebrate this occasion. Mutual animosity is as fierce as ever; A new American law banning forced labor is the latest flashpoint in Xinjiang. Nevertheless, it is a good moment to take stock of the economic consequences of the Sino-American trade war. The verdict has been consistently negative for both countries ছাড়া with one notable exception.

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Start with the brightest failure. As part of the first phase of the agreement, signed on January 15, 2020, China pledged to import dramatically more than 2017 200 billion worth of goods and services in 2020 and 2021 compared to the 2017 level. China has long complained of manipulating its economy, with the United States claiming it manipulated trade flows. It turns out that the Chinese officials either lacked the will or the power. According to data compiled by Chad Bowen of the Peterson Institute for International Economics, a think-tank, China will reach one-tenth of its purchasing target. Even allowing epidemic-related barriers has made China’s strategy of buying more of its products uncomfortable for China.

More broadly, the trade war has hurt both the Chinese and American economies, as a growing research firm shows. The superpowers began to hit each other with tariffs in early 2018, allowing economists to crunch the numbers of two full-fledged pre-years. At that time, the average American tariff on Chinese imports increased from 3% to 19%, while the average Chinese tariff on American imports increased from 8% to 21%. It’s hard to overstate how big a blow it was to the world’s largest bilateral trade relationship. Pablo Fazgelbaum of Princeton University and Amit Khandelwal of Columbia University calculated that tariffs were imposed on more trades as American shares. GDP Compared to the infamous Smoot-Hawley tariff of 1930, which led to a spiral of international retaliation and perhaps worsened despair. Unfortunately, the Sino-American trade war did not cause such a catastrophe. In the beginning, the global economy was in a much better position. And price effects are bound by complex supply chains.

At the beginning of the trade war, there was a general perception that both sides would bear the cost of tariffs: Chinese suppliers would charge a little less for their goods and American importers would pay a little more. Yet a preliminary study by economists, including Gita Gopinath, now IMF, It has been found that American importers actually bear more than 90% of the cost of American tariffs. The obvious explanation was that they had very few options other than relying on Chinese suppliers, at least in the short term, and could not negotiate lower prices. In addition, prices have fallen sharply to consumers, suggesting that retailers are absorbing costs through thin profits.

This cannot be permanent, writes Mrs. Gopinath and her colleagues: At some point, American importers will incur high costs for consumers. Chinese economists can happily point to the current rise in US inflation to argue that this is happening now. On the margins, of course, they are right that tariffs can be inflationary, even as US Treasury Secretary Janet Yellen admits. But the displacement caused by the epidemic এক a one-fold increase in shipping costs from microchip shortages বড় is a big factor in raising prices. Trade wars only increase headaches.

One reason why the United States imposed tariffs was to encourage manufacturers to move there. Yet trade frictions have discouraged business investment in the U.S., according to research by Mary Amity of the Federal Reserve Bank of New York and others. Shares of companies doing business with China have plummeted, especially since the tariffs were announced. This reflects lower returns on capital and, increasingly, weaker incentives for investment. All told, the annual investment growth of listed American companies was expected to shrink by 1.9 percentage points by the end of 2020. Aaron Flynn and Justin Pierce of the Federal Reserve Board speculated that higher tariff exposure was associated with a decline in American production. Employment 1.4%. The burden of high import costs and retaliatory tariffs outweighs the benefits of seeking refuge from foreign competition.

So far all this may seem like a victory for China. But recent research shows that it has hurt a bit. Due to a lack of granular official Chinese data, Devin Chor of the Tak School of Business and Li Binjing of the University of Hong Kong studied satellite images of night light to measure economic activity. The lion’s share of China’s population, they saw, was inattentive to trade wars. But for the export-intensive parts of the country directly affected, they estimate that tariffs have led to a 2.5% contraction. GDP Another method of economists, including Xu Mingzhi of Peking University per person, was to view data from the Chinese job platform In the six months since the tariff hike, companies facing American tariffs have posted about 3% less ads and reduced pay offers by an average of 0.5%. Chinese officials prefer to speak of bilateral cooperation as “win-win”. Trade has lost the war.

Eggs in more baskets

The trade war, however, has been constructive in one respect. US imports from China were partially lower before tariffs were imposed. In contrast, its imports from Vietnam have doubled and increased by 20% from Mexico. In a nutshell, this could be a sign that trade is shifting from China’s more skilled producers to somewhat less efficient ones.

But as a business strategy, it looks cute. One lesson from last year’s supply-chain snarls is the danger of over-reliance on a single source. American companies can thank the trade war for starting a dirty business of redesigning their supply chains. The trajectory of Sino-American relations indicates that they have every reason to move quickly. 3

Read more from Free Exchange, our column on economics:
Has the epidemic shown inflation as a financial phenomenon? (18th December 2021)
Why Demographic Transitions Are Accelerating (December 11, 2021)
Stablecoin explosion rekindles controversy around “free banking” (December 4th, 2021)

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This article is published in the print edition of the section “The Lost Ordeal” in the section on Finance and Economics.

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