China is increasing duties on American goods and devaluating the yuan, and attacking in all directions.
The trade war between the two largest economies of the world enters an open phase. Since July 6, the US has introduced new customs duties of 25 percent on imports from China, under which goods worth about $ 34 billion fall. The import duty on another 16 billion Washington promises to consider additionally. In response, Beijing announced a mirror increase in import tariffs for the same amount of $ 50 billion.
Whose economy is stronger?
President of the United States Donald Trump, who, after verbal threats to the Celestial Empire on the part of his two predecessors, nevertheless decided to start a trade war with China, announced in advance that if Beijing mirrored the “customs attack”, the next step would be to increase Washington’s duties by almost 10 percent for the whole of Chinese imports worth up to 400 billion dollars! The calculation, apparently, was such that here the Chinese can not adequately answer, because the PRC buys over the ocean a commodity mass of only 170 billion.
What will the trade war between China and the US result in?
What will the trade war of China and the United States bring?
Will this influence the leadership and economy of the PRC and which country will lose more as a result of such mutual attacks? Judging by the moods of the American political and business elite, in this situation the US was more vulnerable, because the North American economy is critically dependent on Chinese supplies of raw materials, components for engineering, electronics, consumer goods. In particular, the Automobile Industry Association of the USA called the new tariffs “taxes that will hit US companies, jeopardize the number of jobs and will have a negative impact on consumers.”
Kevin Brady, a Republican senator from whom Trump was elected president, expressed concern that new tariffs would adversely affect farmers, producers, workers and consumers. And the American Chamber of Commerce accused the head of state of choosing an incorrect approach to regulating the vernacular trade.
In a word, new tariffs are directed primarily against the real sector of the economy, including engineering and agriculture. And in fact during the elections it was the manufacturing industries that promised to protect Trump as opposed to the financial intermediary capital associated with opponents from the Democratic Party of the United States.
It is noteworthy that the Democrats, who in other cases severely criticized the incumbent president, supported the increase in tariffs: Chuck Schumer, leader of the Democrats in the upper house of Congress, called this decision of Trump correct. It is difficult to get rid of the assumption that Democrats thus push their worst political opponent into an economic trap, because experts estimate the loss of the US gross domestic product (GDP) from the measures taken at 0.5 percent, or about a trillion dollars! And this is fraught with rising inflation, rising prices and the loss of thousands of jobs, which, of course, will not appeal to all voters in the run-up to the already early presidential elections.
But for China, restricting or refusing US imports will be a difficult test: filling a commodity gap of $ 170 billion will not be easy, given that the bulk of the supply from the US is food. New sellers of millions of tons of soy, pork, salmon fish, pipes, energy carriers are difficult to find in one night. However, the Chinese did not forget the period of self-restraint, the strategic reserves of the country will allow us to pass the period of supplier change relatively painlessly. And energy from the US – oil and gas – can replace Iranian and Russian companies quickly and inexpensively.
Planning against monetarism.
But the trade confrontation between the US and the China has one more little-mentioned aspect: the US free market system is based on the principles of monetarism while China has its planned-market system with powerful state regulation. What strategies do opponents use?
The United States with their monetarist principles has only one method: to raise tariffs primitively, putting a barrier to Chinese goods, which, however, will find sales in third countries, including European ones. Probably, at dumping prices, but in exchange having obtained market share, replacing, respectively, Japanese, European or Korean competitors, which in a number of people would be grateful to the United States for such consequences of their ambitions. But 20 million tons of soybeans, for example, or a million tons of salmon US attach will be problematic.
And the American farmers will have questions to Trump. China, apparently, already had a “mobilization plan” in the event of an economic war. In addition to the reciprocal increase in duties, the People’s Bank of China and the major Chinese lending institutions associated with it devalued the yuan by several steps in several stages, thereby nullifying the possible American ten per cent increase in duties! The US can not respond in the same way: the administration is not able to influence the Federal Reserve System (the US Central Bank – Author’s note), which is also controlled by the Democrats! Yes, and a 10% decline in the dollar will cause a collapse not only in the US financial system, but throughout the world, literally blowing up all investment ties.
The next blow to the US the Chinese caused, reducing by 6-12 percent from July 1, import duties for fifteen hundred kinds of consumer goods, as well as for cars and their components – by 5-10 percent. At the same time, the State Committee for Development and Reform (analogous to the State Planning Committee of the USSR or to an incomparably lesser degree than the current Ministry of Economic Development of the Russian Federation) decided to lower barriers for foreign investors from July 28: the share of foreign capital in companies operating in the stock market, in the automotive, agriculture and many others , can reach a controlling 51 percent, thereby compensating for the possible outflow of investment due to the depreciating renminbi.
Parallel in China – under the auspices of the state created by the investment fund with a capital of 15 billion dollars. Its name, translated into Russian, sounds like the “Chinese Technology Foundation of a New Era”, which corresponds to the stated goals: protecting the Chinese technology sector and attracting the latest scientific developments. This is likely to be a response to Trump on his statements that it is necessary to stop transferring technological achievements of the United States to China. Thus, on the frontal and artless economic blow of the United States, Beijing meets the systemic complex and echeloned tactics under the control of the state. Who will be successful, if there is still no compromise, time will tell. However, it should be taken into account that Washington has drawn the European Union to the trade war as well, having increased duties on both European imports and practically the entire world, having destroyed the WTO rules in effect, in return offering to follow US trade laws and their interests. It is difficult to get rid of analogies: Hitler explained his armed aggression in Europe with similar motives. So, in fact, America has unleashed a world war in economy. It is to be hoped that only in the economy.