One country is winning the trade war. It’s not the US and it’s not China
- US President Donald Trump once claimed that trade wars are ‘good and easy to win’, yet in his tussle with China the data appears to be proving him wrong
- That’s not to say there haven’t been any winners, though – they just might not be the ones you would think
Donald Trump says “trade wars are good and easy to win”. Conversely, orthodox economists like to say that in trade wars, there are no winners. Strictly speaking, neither view is correct; things aren’t that simple.
If true, that would make the US a clear loser in the trade war. Except it is very hard to see the effect in US economic data.
However, there is one obvious area where it can be argued the US is failing to achieve its objective. Trump’s stated aim in declaring his trade war was to reduce the US trade deficit with China. And if we look at a 12-month rolling sum, the bilateral deficit has indeed narrowed in recent months, from almost US$420 billion in December to just over US$400 billion in May.
However, over the same period, the overall US trade deficit with the rest of the world has grown by US$15 billion. And in the year since Trump opened hostilities, the overall US trade deficit has grown considerably faster than the US economy. So it can hardly be said that the US is winning its trade war. On balance it rather appears to be losing.
However, despite some success in circumventing US export controls, Chinese companies have definitely been on the losing end of Washington’s attempts to prevent them acquiring high-end US technologies.
But if both the US and China are losing the war, they are by no means the biggest losers.
So far it would appear that the economists are right, and that in a trade war no one emerges a winner. Nevertheless, there are some economies that do appear to have come out ahead on points from the first round of the US-China fight.
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In the long run, this shift in manufacturing for export will be a major shot in the arm for Vietnam’s economy, creating jobs, bringing in technology and know-how, and spurring investment in infrastructure, leaving Vietnam a clear winner.
Yet in the near-term, the trade war isn’t all good news. Just last week, the US government cracked down on transshipments of steel products through Vietnam to the US in order to avoid US tariffs. Further actions aimed at Chinese exports slapped with “Made in Vietnam” labels are set to follow.
Meanwhile, demand for capital goods and components to feed the local export industry has almost pushed Vietnam from a trade surplus into a deficit. Worse, the government’s practice of managing the Vietnamese dong against the US dollar means that the currency has appreciated against those of the country’s Asian competitors, making its factories less competitive. And it cannot devalue, lest it deter inward investment and draw US fire as a currency manipulator.
So while the economists are wrong when they say there are no winners at all in a trade war, Trump is also wrong: even for neutral countries that stand to come out on top, trade wars are anything but easy to win. ■
Tom Holland is a former SCMP staff member who has been writing about Asian affairs for more than 25 years