Unpacked: The U.S.-China Trade War

I’m David Dollar. I’m a senior fellow in the John L Thornton China Center at the Brookings Institution and I study the Chinese economy and U.S.-China relations. I’ve been working on and off on China for four decades, so I’m just fascinated in how it’s developed and where it’s going to go from here. The U.S. exports to China are really concentrated in agricultural products like soybeans, automobiles – we export a surprisingly large amount of automobiles to China – and then the well known Boeing aircraft sales to China, which are quite enormous. So, this trade war is going to hit those sectors in particular. That’ll mean some locations in the Midwest where they grow soybeans. The price of soybeans is already down 20 percent, so you could say that U.S. farmers are feeling this pretty strongly. The U.S. exports cars from Southern states like Tennessee, so they’ll feel this, and Boeing is concentrated in the Northwest, but it has production – I think – in all 50 states. So you’re gonna see, these particular areas are where you’re likely to see some pain as this trade war unfolds. China’s exports to the United States – a lot of these products are things like smartphones, iPads, tablets, computers, television sets, cameras, these kind of products. These are really global value chains. China happens to be at the end of the global value chain, so the smartphone – for example – comes into the U.S. as an export from China. There are hundreds – perhaps thousands – of different components, and in the modern world, they’re typically made in lots of different places and they’re brought together at different stages of assembly. China happens to be the final assembler for many, many products. So you’ll get an item that comes into the U.S, it’s listed as a two hundred dollar import from China, but actually more than half the value typically will be parts and components that came from South Korea, for example, or Japan. And so that means that as the U.S. imposes tariffs, half of the pain is going to be felt in those other countries, so yes, there’ll definitely be collateral damage, including to U.S. firms that produce and operate in China. It’s hard to see the off-ramp right now. The U.S. has announced tariffs on a total of 250 billion dollars in products from China. China’s partially retaliated, it’ll probably come out with more retaliation. I think for the next few months, we’re locked into this situation. No high-level negotiations are scheduled. I think the Trump administration believes this is a winning strategy for the midterm elections. Trump said he would hit China, now he has hit China. It’s not so serious that it’ll have a big effect on the U.S. economy. It’ll hurt some of the specific sectors I mentioned, but for the whole U.S. economy, this is rather a minor blip. So, I don’t see the Trump administration changing their strategy anytime soon, and on the Chinese side, it’s very unlikely that the Chinese leadership is going to cave in and do anything major. They’re willing to buy more products from the U.S., they’re gradually opening up more markets, so I think their offer is clear, and I think after the midterm elections, in 2019, we’re likely to see the two sides come together to try to negotiate something – something where both sides can keep face – but it’s unlikely we’re gonna see an off-ramp anytime soon.

Author Since: Mar 11, 2019

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