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Joel Arbaje; Photo Source: Skidmore Gage
The US government may soon impose tariffs on almost all goods exported from China. No rationale has been accepted for this policy: some, such as Treasury Secretary Steven Mnuchin, say the goal is to open Chinese markets and increase trade, while others, including the US representative, believe that.
The most convincing justification for the tariffs, however, is that they will "wean" the Americans from the Chinese production capacity. From this point of view, the goal is not expanded or "fair" trade, but "disengagement" from incompatible economic systems. This separation would be expensive. The question is whether this would ultimately be useful.
In Pakistan, China and the United States are facing the Chinese One Belt initiative, One Road. To understand what is at stake, it is useful to examine why China is in Pakistan in the first place.
First, consider the costs. Rates are taxes paid by residents when they buy property abroad. Like other taxes, tariffs distort economic activity and reduce consumers' real purchasing power. Total imports from China account for less than 3% of the US gross domestic product. The direct impact of adding a 25% tax to these imports would therefore be noticeable, but not particularly significant, particularly with respect to recent tax cuts and increases in spending federal.
The much higher cost would come from the broader implications of the reduction of bilateral trade relations. Since 1990, US companies have invested more than $ 250 billion in China to produce products for the growing Chinese market and the rest of the world. Economic disengagement would mean canceling a large part of these investments and taking the time and money needed to create new capacity elsewhere.
Despite these obvious dangers, there are positive arguments for "conscious decoupling" of the US and Chinese economies, as economist Christopher Balding said.
The simplest is that the United States would only match what the Chinese government is already doing. China has reduced its dependence on imports since the mid-2000s. The "Made in China 2025" industrial strategy explicitly aims to replace the few manufactured products that it still imports with domestic substitute products – an act of 39, aggression against the US economy. The Chinese government says that it has to switch sweatshirts to semiconductors to become a rich country. The Chinese government's desire to become independent of key US-based suppliers to Japan and Europe, considered politically hostile, is unreported, but at least as important.
By this logic, the United States has at least as many reasons as China to take extraordinary measures to restore their economic autonomy. At first glance, this may seem surprising: only about 14% of America's domestic needs are finally met by foreigners and Chinese producers only satisfy 2% of US domestic demand. The United States is self-sufficient in food and almost self-sufficient in energy and remains one of the largest manufacturers in the world. Yet, in some product categories, the United States has become increasingly dependent on Chinese production to meet domestic needs.
The value of China's manufacturing exports grew rapidly as a proportion of total US imports (see chart). In 2011, the last year for which we have complete data, more than a quarter of the value of US imports of "electrical and optical equipment" came from China, compared with only 4% in 2000. Similar rapid growth is observed in other product categories. important. This is partly explained by the fact that Chinese companies are buying more and more of their components from Chinese suppliers. With few exceptions, the popular rhetoric that Chinese workers and companies are simply assembling parts made elsewhere is outdated.
At the same time, US domestic demand is increasingly satisfied by imports. US production covers only about half of the United States' needs for high-value manufactured goods. The proportion of capital goods produced thousands of kilometers across the oceans could be considered dangerous from the point of view of national security (see chart). The relocation of part of the US manufacturing supply from a potential military adversary could be cautious – or it could precipitate precisely the kind of hostile reaction it was supposed to protect.
Others think that American and Chinese systems should "disengage" because they are too different and too big to interact without creating conflict. While China has an innovative and competitive private sector, and the United States is often plagued by cronyism and state leadership, these commonalities are far less important than differences.
Dani Rodrik, Harvard economist and author of Let's talk frankly about trade: ideas for a healthy global economy, argued that the global trading system should be flexible enough to accommodate "divergent economic strategies" and that governments should be given the opportunity to "favor [domestic] trade cuts between the United States and China may be preferable to endless arguments about "cheating" and market access and "job theft". will benefit the ordinary Chinese, but this might be more practical than waiting for the Communist Party to give up control of the heights of the economy.
"Disengagement" has some appeal. Unfortunately, even if the future benefits were worth the upfront costs, doing so successfully would require a strategic direction and political competence far superior to what has been demonstrated so far.
Write to Matthew C. Klein at [email protected]
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