A more open China can avoid a no-win trade war with the US
A trade bust-up promises only losers: American consumers, Trump himself and China’s export-oriented economy. But Xi’s Boao Forum speech offers hope of a mutually beneficial way out
The goal of a war, be it hot or cold, about trade, territory or anything else, is destruction.
And destruction means not only the loss of lives, but the destruction of any assets tangible or intangible, as can be seen in the simmering trade war between the United States and China.
The spectre of a full-blown trade war between the world’s two largest economies threatens the worst disruption to, and destruction of, the global economy in modern times. Basic economics suggests any such conflict will incur losses all around.
Nevertheless, fears that we are indeed headed for such a scenario are growing, fuelled by continuing tit-for-tat threats between the world’s largest traders. Washington and Beijing have each announced US$50 billion worth of punitive tariffs against each other and the US has raised the prospect of a further tariff of US$100 billion on goods.
Has Trump tweeted us back to the cold war?
As there will be no winner in a trade war, the question shifts to who will be the biggest loser.
From an economics perspective, US multinationals and consumers themselves will be the first to be hit by US President Donald Trump’s punitive tariffs.
Most Chinese exports to the US fall into two categories. First up are those concerning US-branded products – supply chains in which US firms are involved, such as consumer electronics (think iPhones and laptops where the brand is American, but the parts involved are Chinese). The second category involves labour intensive consumer goods, such as toys and clothes, which cannot be produced as cheaply in the US. In both these areas, American consumers will pay for Trump’s additional tax.