US vs. China trade disputes – "Trump Mistakes Bad"

Klemens Kindermann: The trade conflict between the US and China is becoming more and more acute. Unless a last-minute solution is found, the US special tariffs will come into effect tomorrow, by 25% on Chinese imports, worth $ 34 billion. I can now talk to the expert from China, Professor Rolf Langhammer of the Kiel Institute for the World Economy. Professor Langhammer, to what extent is China's economy hit by these punitive tariffs?

Rolf Langhammer: The experts, my Chinese colleagues, expect the effects to be very limited as long as he stays with those 34 billion. This magnitude affects about 0.4% of China's gross domestic product. Measured by world trade, it is 0.11 percent, which represents very small orders of magnitude. 50 billion are planned; the first $ 34 billion would come into effect. Above all, there is the export of semiconductor industries and computer equipment to the United States. It's still very limited. But as I said: this is only the beginning and it could be that $ 16 billion more in two months to come. This would then be much more focused on Chinese products, which may be related to Chinese industrial policy for 2025, then there is still, or threatens in space, a much larger magnitude of about 200 billion . But as I said: Up to now, the 34 billion are pin bites and not so significant.

Kindermann: For some time, China has been trying to become more independent of massive exports to the United States. How far is China?

Langhammer: China is not there yet. The transformation from an investment-oriented economy and export to more innovation and domestic consumption, this transition will take time. Of course, the Yuan is experiencing a period of weakness right now. He evaluates against the dollar. This in turn facilitates exports and helps the export industry. China is still in the early stages of restructuring its economy. The consumption rate is significantly lower than that of the major industrialized countries. We will have to wait a while to see if this succeeds, and of course it is not without friction, as it would mean unemployment in some sectors, especially in the export industry. And the transition to a quality service company to come

"No one can win such a trade war"

Kindermann: US President Donald Trump said that the United States was the trade dispute with China because China, with its $ 300 billion trade surplus, has more to lose than the United States. Is it true?

Langhammer: It may be that he is mistaken. The two economies are closely linked. China is a big believer in the United States, they hold a lot of American debts. On the other hand, of course, the Chinese market is very important for US companies, especially for service companies. It is still relatively closed and if it opened, it would be a great opportunity for the US economy. Nobody can win such a trade war, they lose both. And believe that it is only because of the Chinese trade surplus, which by the way has become smaller compared to previous years, that the Americans would win such a war, it is very naive.

Kindermann: Could the work of American companies in such a trade war in China be made much more difficult, for example, in product approval applications?

Langhammer: Yes, that's exactly what the Chinese do. They could make the presence of US companies in the service sector very difficult. They could withdraw their licenses and all that is possible. The Americans know that, and also, say, serious economists in the United States are warning President Trump to really get into this trade war, because the American economy would suffer as well. As he always believes, it is not only a pure national economy, but also an export-oriented economy in the service sector. Since China is a huge market and China would block access to this market, there would be a big problem.

Kindermann: What to expect? Will China devalue its currency to facilitate exports? Will there be countermeasures?

Langhammer: There is a significant weakness in the current exchange rate, and China certainly does not want to give President Trump another argument, a manipulation of the exchange rate to boost his exports. This is the accusation that has been made in the past time and again that the Chinese currency is undervalued. This is no longer the case. It is currently experiencing a weakness, which may also be related to US monetary policy, which has recovered considerably. I do not think that the Chinese government or the central bank – but it depends on the government – would put in place measures to artificially reduce the yuan to support the export industry. It would be ammunition for Mr. Trump and the Chinese know it.

Kindermann: But against-homework will come?

Langhammer: Counter-duties will come. They are announced, to the extent that Americans perceive rights, so really, step by step, and "like me, I like you". And most importantly, it concerns agricultural exports to the United States, soybeans. Of course, it is precisely the state electors who elected Trump. That's what the Chinese have also thought of. Of course, Chinese consumers are also affected, but soy can also come from other countries, for example from Brazil. There will be no big problem. But, of course, it is a deliberate policy against the American voters who voted for Trump

"When two elephants quarrel, the grass suffers"

Kindermann: Could Europe be the beneficiary of the conflict? The "New Silk Road" Project also targets this direction

Langhammer: No! No, I do not see that. I see that European companies, which invest here in the United States and China and export to other countries, will suffer as well. There is an Indian proverb that says: When two elephants quarrel, the grass suffers. In this case, the third countries would also suffer. This includes the European Union as well as European companies. Of course, suppliers in Southeast Asia would also suffer because they are all closely related in these cross-border value chains, in these supply chains. This too is a great danger because of this trade war. In other words, I do not see European companies benefiting from it.

The Silk Road initiative is, of course, an initiative for Chinese companies because they will receive the most orders. This, of course, also has its origin in the significant overcapacity in China's primary industries, which has accumulated over the last few years, ie. In the cement industry and so on. And China wants to try to reduce this excess capacity by the initiative of the Silk Road or to get rid of it in exports.

The statements of our interlocutors reflect their own opinions. Deutschlandfunk does not embrace the statements of its interlocutors during interviews and discussions.