Page 22 - 2019 White Paper on the Business Environment in China
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9 White Paper on the Business Environment in China
February 14-15, 2019: The principal-level meetings a country’s consumers are prosperous enough to buy
between US Trade Representative Robert Lighthizer and more imported stuff. As a result, China has a surplus of
Treasury Secretary Steven Mnuchin with their Chinese US dollars and often reinvests those dollars in the US.
counterparts in Beijing. In such times, the dollar is generally stronger against
other currencies and further pushes up the trade deficit.
March 1, 2019: Deadline for a deal before a new The US$568 billion deficit isn’t just a dollar amount
round of US (and presumably Chinese) tariffs begins. that the US has lost. The last time the US ran a trade
surplus was 1975. Historically, trade in general helps
Financial and Fiscal Policy in Conflict the economic growth in developing countries, and in
turn helps emerging economies become consumers of
Global supply value chains are much more exported US goods and created American jobs. Also,
multinational and fragmented than they have ever been. when imports exceed exports, jobs lost to cheaper labor
China often imports parts from Japan, then assembles overseas over time were often balanced with better-
a final product and exports it to the US. Japan could be paying jobs domestically. Also, most studies have
seen as trading with the US, but on paper China has a shown that foreign competition helps make American
trade deficit with Japan and a surplus with the US. How producers more efficient. Until about 2000, most workers
much value does a country or a company add to the displaced by trade managed to find new jobs. That,
process is what should count, but current trade statistics however, did not happen after China was allowed into
do not reflect value but rather flows. Deutsche Bank the WTO. China at the time kept the value of its currency
economists Zhiwei Zhang and Yi Xiong came to a similar low relative to the dollar, heavily subsidized its exports
conclusion in 2018, writing in a note to clients that the and had a vast supply of low-wage workers. While some
US-China trade balance is “clearly misleading”. A lapse of those factors have since dissipated, they made it hard
in data can also be seen at the company level. Apple for US manufacturers to compete. Many closed plants
generated US$48 billion in revenue from China in 2016, and moved jobs abroad. The US tariffs don’t seem to
mostly from iPhone sales, but according to trade data, be the answer. The Federal Reserve Bank of New York
China imported only US$1 million worth of cell phones economists warns not to expect that the US tariffs will
from the US that year. From an international trade actually shrink the trade deficit. They contend that tariffs
perspective, iPhones sold by Apple’s Chinese subsidiaries will make other countries’ exports costlier and will likely
are not counted as imports, but from an economic and reduce the quantity and value of imports into the US.
financial perspective, iPhone is a US product and the US They also claim US exports will also fall, not only because
benefits the most from it. Perhaps Trade in Value Added of other countries’ retaliatory tariffs, but also because
(TiVA), an OECD measurement that tracks domestic the costs for US firms producing goods for export will
value-added in exports and how much it’s reflected in rise and make US exports less competitive on the world
final products of third parties, is a better way of looking market. The end result is likely to be lower imports and
at how nations measure up against one another in the lower exports, with little or no improvement in the trade
global economy. It may be far better in providing clues of deficit (Weinstein).
where the ultimate value is generated and explains the
changes of relative positioning. The TiVA model would The results were clear by October 2018. The US saw
remove balances from products that travel through its trade deficit continue to widen as soybean exports
China but are mostly made in other countries. These plunged by US$1 billion in first eight months of the year.
results suggest the US-China trade deficit is at least 15 Figures released by the Bureau of Labor Statistics and
to 20 percent overstated. From a systemic perspective, the US Census claimed the trade imbalance actually
there are very few things that China produces or trades increased (Cox). Whether or not this is a major problem
that are truly unique (Heeb). depends on what economist and trade experts you
listen to. Some do not believe that trade deficits hurt
Nevertheless, shrinking trade deficits was a the economy, and warn against trying to “win” the trade
cornerstone of Donald Trump’s campaign for the US relationship with particular countries. Others, however,
presidency and the primary reason for starting a trade believe that sustained trade deficits are often a problem,
conflict with China. According to Bloomberg, the and there is substantial debate over how much of the
problem is that trade deficits don’t always mean what trade deficit is caused by foreign governments, as well as
Trump says they do. A trade deficit can simply mean what policies, if any, should be pursued to reduce it.
22
February 14-15, 2019: The principal-level meetings a country’s consumers are prosperous enough to buy
between US Trade Representative Robert Lighthizer and more imported stuff. As a result, China has a surplus of
Treasury Secretary Steven Mnuchin with their Chinese US dollars and often reinvests those dollars in the US.
counterparts in Beijing. In such times, the dollar is generally stronger against
other currencies and further pushes up the trade deficit.
March 1, 2019: Deadline for a deal before a new The US$568 billion deficit isn’t just a dollar amount
round of US (and presumably Chinese) tariffs begins. that the US has lost. The last time the US ran a trade
surplus was 1975. Historically, trade in general helps
Financial and Fiscal Policy in Conflict the economic growth in developing countries, and in
turn helps emerging economies become consumers of
Global supply value chains are much more exported US goods and created American jobs. Also,
multinational and fragmented than they have ever been. when imports exceed exports, jobs lost to cheaper labor
China often imports parts from Japan, then assembles overseas over time were often balanced with better-
a final product and exports it to the US. Japan could be paying jobs domestically. Also, most studies have
seen as trading with the US, but on paper China has a shown that foreign competition helps make American
trade deficit with Japan and a surplus with the US. How producers more efficient. Until about 2000, most workers
much value does a country or a company add to the displaced by trade managed to find new jobs. That,
process is what should count, but current trade statistics however, did not happen after China was allowed into
do not reflect value but rather flows. Deutsche Bank the WTO. China at the time kept the value of its currency
economists Zhiwei Zhang and Yi Xiong came to a similar low relative to the dollar, heavily subsidized its exports
conclusion in 2018, writing in a note to clients that the and had a vast supply of low-wage workers. While some
US-China trade balance is “clearly misleading”. A lapse of those factors have since dissipated, they made it hard
in data can also be seen at the company level. Apple for US manufacturers to compete. Many closed plants
generated US$48 billion in revenue from China in 2016, and moved jobs abroad. The US tariffs don’t seem to
mostly from iPhone sales, but according to trade data, be the answer. The Federal Reserve Bank of New York
China imported only US$1 million worth of cell phones economists warns not to expect that the US tariffs will
from the US that year. From an international trade actually shrink the trade deficit. They contend that tariffs
perspective, iPhones sold by Apple’s Chinese subsidiaries will make other countries’ exports costlier and will likely
are not counted as imports, but from an economic and reduce the quantity and value of imports into the US.
financial perspective, iPhone is a US product and the US They also claim US exports will also fall, not only because
benefits the most from it. Perhaps Trade in Value Added of other countries’ retaliatory tariffs, but also because
(TiVA), an OECD measurement that tracks domestic the costs for US firms producing goods for export will
value-added in exports and how much it’s reflected in rise and make US exports less competitive on the world
final products of third parties, is a better way of looking market. The end result is likely to be lower imports and
at how nations measure up against one another in the lower exports, with little or no improvement in the trade
global economy. It may be far better in providing clues of deficit (Weinstein).
where the ultimate value is generated and explains the
changes of relative positioning. The TiVA model would The results were clear by October 2018. The US saw
remove balances from products that travel through its trade deficit continue to widen as soybean exports
China but are mostly made in other countries. These plunged by US$1 billion in first eight months of the year.
results suggest the US-China trade deficit is at least 15 Figures released by the Bureau of Labor Statistics and
to 20 percent overstated. From a systemic perspective, the US Census claimed the trade imbalance actually
there are very few things that China produces or trades increased (Cox). Whether or not this is a major problem
that are truly unique (Heeb). depends on what economist and trade experts you
listen to. Some do not believe that trade deficits hurt
Nevertheless, shrinking trade deficits was a the economy, and warn against trying to “win” the trade
cornerstone of Donald Trump’s campaign for the US relationship with particular countries. Others, however,
presidency and the primary reason for starting a trade believe that sustained trade deficits are often a problem,
conflict with China. According to Bloomberg, the and there is substantial debate over how much of the
problem is that trade deficits don’t always mean what trade deficit is caused by foreign governments, as well as
Trump says they do. A trade deficit can simply mean what policies, if any, should be pursued to reduce it.
22
