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The facts and China's position on China-US trade friction

China Daily | Updated: 2018-09-26 08:00
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4. Trade protectionism will ultimately hurt US interests

Thanks to economic globalization, economies, particularly the larger ones, are highly interdependent. Ultimately, trade wars unilaterally initiated by the US administration will not only hurt other economies but also undermine US interests.

It will push up manufacturing costs and affect American jobs. A PIIE report contends that since 95 percent of the Chinese products hit by higher tariffs are parts and electronic components used in end products made in the US, raising tariffs on these Chinese products will only damage US businesses. 78 According to the New York Times, electric motors and other components from China are vital to the US boating industry, and it is not easy for importers to find substitutes. Their profit margins are too thin to absorb the cost of 25 percent tariffs, and raising prices would cost them market share. 79 General Electric estimates that new tariffs on imports from China could raise its overall costs by US$300-400 million. General Motors, Ford Motor and Fiat Chrysler Automobiles have lowered their full-year profit forecasts due to escalating tariffs. 80 Mid-Continent, the largest nail manufacturer in the US, said its sales would plummet by 50 percent after it raised prices to cope with its elevated steel costs, and that it laid off 60 of its 500 workers in June and planned to downsize by another 200. Mid-Continent's problems have already spread downstream. For example, Semo Packaging has started to shed its workforce as a result of fewer orders from Mid-Continent and similar customers. 81 PIIE also projected that raising tariffs on imported automobiles would cause 195,000 US workers to lose their jobs. If other countries retaliate in kind, 624,000 US jobs would be lost. 82

It will drive up prices in the US and harm consumers. Consumer goods account for a considerable share in the US imports from China. The figure (excluding food and automobiles) stood at 46.6 percent in 2017, according to the Bureau of Economic Analysis of the US Department of Commerce. For many years, the import of inexpensive yet quality products from China has been key to low inflation in the US. The US Association of Equipment Manufacturers has urged the administration not to levy economy-damaging tariffs, as they will only boomerang and increase the tax burden on US consumers. The US National Taxpayers Union warned in an open letter to Congress and President Trump on May 3, 2018 that higher protective duties would increase the prices which domestic consumers would have to pay and few people could hope to gain from such a change. 83 The US Alliance of Automobile Manufacturers concluded in a June report to the government that based on its analysis of 2017 automobile sales figures, a 25 percent tariff on imported automobiles would drive up the average price by US$5,800, thus increasing the cost for US consumers by nearly US$45 billion every year. 84

It triggers countermeasures from trading partners and will in turn hurt the US economy. The trade war waged by the US administration against China and many other important trading partners has led to countermeasures, and will cause huge losses to some regions, industries and firms in the US. As of the end of July 2018, major US trading partners including China, Canada, Mexico, Russia, the EU and Turkey had all announced countermeasures against US trade protectionism, and had filed lawsuits at the WTO. For example, the Canadian government announced on June 29 a tariff increase on US$12.6 billion of US goods, effective from July 1. The Russian Economy Ministry announced a 25 percent to 40 percent tariff hike on some US products on July 6. As a countermeasure to American duties on European steel and aluminum, the EU raised tariffs on US-made motorcycles from 6 percent to 31 percent.

The US Chamber of Commerce has pointed out that a trade war will hit some American states. For example, Texas could see US$3.9 billion worth of exports targeted by retaliatory tariffs; South Carolina, US$3 billion and Tennessee, US$1.4 billion. 85 The Consumer Choice Center stated that the US government is actually "punishing" American voters with the tariffs it introduced, as over 150,000 jobs in North Carolina and 6,500 workers in South Carolina, both being heavily export-dependent states, will be directly affected 86 by the retaliatory duties. Harley-Davidson Inc., a famous American motorcycle maker, estimated that the EU's retaliation will cost about US$2,200 per motorcycle shipped to Europe, forecasting US$30 million to US$45 million in costs linked to the EU tariffs for the remainder of 2018. As a response, the company is shifting the production of some bikes overseas. 87

It erodes investors' confidence in the American economic environment and results in less net foreign direct investment(FDI) into the United States. As the trade friction escalates, companies feel less confident and more hesitant about investment. Adam S. Posen, President of the Peterson Institute for International Economics, argued that beyond the cost of the trade war, the US government's policy of "economic nationalism" has taken a toll in another important sphere: net inward investment into the US by multinational corporations-both foreign and American-has fallen almost to zero. This shift of corporate investment away from the US will decrease long-term US income growth, reduce the number of well-paid jobs available, and accelerate the shift of global commerce away from the US. Data from the Bureau of Economic Analysis of the US Department of Commerce show that in the first quarters of 2016 and 2017, the total net FDI inflow was US$146.5 billion and US$89.7 billion. For the same quarter in 2018, the figure was down to US$51.3 billion. This is a result of a general decline in the US attractiveness as a place to make long-term business commitments. 88

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