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Who is the real winner In the Sino -US trade war?
Release Date:2018-09-20 Message Source:原创 Views:

The Sino US trade war is in full swing, and there is a trend of continued expansion. Therefore, there are many more analyses about which side of the trade war will lose. Most analyses are one-sided and have many problems.

 

Trump's own view seems to be that China exports more to the United States than the United States exports to China, so the Sino-US trade war is certainly a greater loss for China. This pure businessman's view is too simple.

 

Many of China's exporters have low profit margins, and even rely on the government's export tax rebates and production subsidies to make small or small profits on ordinary products. Once tariffs are imposed on these products, it is difficult to absorb tariff shocks by reducing profits and to survive in export markets. Therefore, if the trade war expands, the impact on China's exports will not simply increase in a straight line, but accelerate.

 

Let's start with some questions about Trump's simple merchant view. A fundamental mistake in Trump's simple view is that exports are profitable and advantageous, and imports are costly and unfavorable. Therefore, whose exports will be reduced more, who will lose more. This simple view overlooks the fact that a country, region or enterprise can not only benefit from exporting abroad at a higher price than it sells at home, but also from importing at a lower price than it buys or produces at home. In fact, at least in the long run, exports are not an end in themselves, but are worth the cost of exporting in order to earn foreign exchange that can be used to buy goods from other countries.

 

For these reasons, if the trade war reduces China's exports to the United States, it is not only bad for China, but also bad for the United States; if the United States exports less to China, it is not only bad for the United States, but also bad for China. As a result, trade wars usually have no winners, and where to lose more can not be simply determined by the amount of exports from both sides.

Secondly, according to the accounting method of international trade, imports and exports are misleading because they are based on the total value of exports, not on their added value. In many cases, American company A not only employs Chinese workers, but also uses American capital, enterprise capability, design, some raw materials and semi-manufactured products from Southeast Asian countries. After production in China is completed or even assembled, it is exported to the United States at a price of 100 yuan per piece. In trade accounting, this is entirely China's exports to the United States, counting 100 yuan each. But the added value that belongs to China may not be 20%, and that earned by Americans themselves may be more than 40%. Overall, China's exports to the United States accounted for only 25.5% of its value-added exports and 24.8% of its exports to the United States, according to estimates from 2015 data. On the other hand, the United States exported more than 50% of its value to China in the same year.

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In the long run, most of the factors of production originally used to produce commodity A exported to the United States can be transferred to the production of other commodities B, including those exported to other countries and consumed at home. If the profit from the original A production is relatively low, the loss from A to B is rather small. Therefore, low affordability may mean that short-term shocks are faster and larger, but it also means that long-term losses are smaller. For those exports that rely on government subsidies or cause major domestic pollution, their production and export are likely to be unfavorable to China. Reducing the production of these exports may be beneficial to China, or its losses are negative. On the issue of domestic pollution, Sino-US trade is more profitable for the United States in this respect, because China's overstepping to the United States is on goods, but on services, it is the United States'overstepping to China, and the production of goods is more polluting than services. However, China should be more profitable in terms of technology transfer and follow-up indirectly derived from trade.

 

The impact of the medium and short term also depends on the blow of business confidence, especially in terms of investment. If unemployment is caused by a large decrease in confidence and total demand, the impact may be great. In this regard, however, China has emerged from the crisis more quickly than the United States and other countries in terms of its effectiveness in dealing with the global financial crisis around 2008. After four trillion of 2009, China quickly resumed rapid growth. After years of quantitative easing, the United States and other countries began to recover only about two years ago.

How long is the loss? Factors affecting this include the difficulty and cost of product and factor transfer, and the degree of substitution of other markets. In fact, as mentioned above, not only will exports lose as a result of trade wars, but also imports. For example, if China reduces its soybean imports from the United States, it may have to import more from Brazil at a higher price or produce more at a higher cost. Similarly, the U.S. will suffer from a decrease in Chinese exports to the United States, or from a decrease in their imports from China.

 

China's losses are limited. From the point of view of asset allocation, like other conditions, China seems to be the Asian country with the lowest impact of Sino-US trade frictions. The industries that will be hit by U.S. trade measures are textiles, leather and footwear from Vietnam, computer and electronics from Taiwan and Malaysia, and chemical and petroleum products from Singapore.

 

One reason for the limited impact on China is that China's economy has shifted from export-oriented to domestic-oriented in recent years. Since 2009, the direct contribution of net exports to China's GDP has been zero or negative. The proportion of exports to GDP decreased from 35.3% in 2006 to 18.1% in 2017. China's exports to the United States account for GDP, down from its peak of 7.2% in 2006 to 3.4% in 2017. These figures refer to total exports. According to the added value part of the country, as mentioned above, only about 1/4. Therefore, 3.4% becomes less than 1%.

According to a simulation by the Bank of England, the central bank, the US-China trade war would reduce global GDP by 2.5% in three years, by 2% in Britain, and by 5% in the United States the most. But with the recovery from the Great Recession in the U.S. and the tax cuts after Trump in power, the 5% reduction is probably hard to see.

 

Because the US dollar is a special position of the world currency, the United States is the most able to bear the trade deficit. As the world economy grows, prices rise, and the volume of transactions per unit of product increases, countries increase their holdings of the dollar. Therefore, the US dollar naturally flows from the us to other countries, which naturally leads to the international trade of the United States. To the extent that these factors can support, the U.S. surpass is in fact a huge interest of the United States, at least equivalent to other countries to the United States interest-free loans. Moreover, as long as the international currency position of the US dollar is maintained, the loan will never be repaid. Trump, a businessman, seemed to only see money, but he didn't realize that money was spent on shopping. If you don't have to use a lot of exports, you can get a lot of imports, which is good for the United States, and you don't have to try to correct it with a trade war that's bad for everyone.


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