"It is actually a war on currency."
"It is actually a war on currency."
Chinese television is now saying that the 25 percent additional tariff imposed by President Trump on Chinese goods is actually an additional tax on American importers. It is the Americans who will actually pay the additional tariff for the fact that it is a tax imposed on imported goods. Effectively, this will mean higher prices for imported Chinese.
The problem, however, is that US trade negotiators lead by Robert Lighthizer and Treasury Secretary Steven Mnuchin insist in looking at the problem in terms of figure, that the US as of 2018 incurred a trade deficit of $419 billion. The solution they offer either exacerbates the problem like importing more from China or for it to revalue its currency to narrow the trade deficit. Instead, they continue to smear the issue like accusing China of intellectual property violation and forcing US businesses doing business in China to enter into contracts that would subject their so-called trade secrets and patented formulas to the possibility of being copied and pirated.
Nonetheless, even if such allegations exist, that cannot be the subject of negotiations as there exists an international arbitral body to decide on the matter for which a corresponding fine and penalty can be impose if found to be true. Unless the US trade negotiators take this step, there is no way China could answer those charges specifically alleging that China has violated their intellectual property right or copied and pirated their copyrighted and patented formula without their consent.
Moreover, the Trump administration has rather chosen the wrong approach. One might say, the 25-percent hike on Chinese exports entering the US is actually a tax on American importers. The President is lying between his teeth for even if the whole amount of excise trade commonly called tariff that will be collected will go directly to the coffers of the US treasury. It is initially the US importers like Wal-Mart that will pay the 25-percent additional tariff to be reimbursed to them by the American consumers. The bottom line means higher prices for the already depleted pockets of the consumers.
What is clear is that the US has used to trade negotiations China as a propaganda forum to unjustifiably and maliciously castigate and accuse China of unwarranted trade practices that on a second thought are problems of their own making. The US has to be reminded that China never employed any of its old practices to obtain trade concessions like resorting to the “gunboat diplomacy” demanding an enclave to establish their freeport area, exterritoriality to its personnel or establishing their so-called “American Quarter” as what they did in Shanghai and Peking (now Beijing) when US expeditionary troops were marching freely in China.
The World Trade Organization was established in 1997, but it was until Dec. 11, 2001 China was officially admitted as member. The US could not recall that it was behind the full membership of China to the WTO because they see its growing economy as something that will work to their advantage. US imports from China almost doubled within five years from $51.5 billion in 1996 to $102 billion in 2001. Other important conditions imposed by the US being the then dominant economic power was to commit itself to multilateralism and to adhere to the basic principle in international trade known as “Most Favored Nation Clause” (MFN) which is a commitment that a country will extend to another country the lowest tariff rate it applies to any other country. All member-countries of the WTO are committed to apply.
It is for this why the international community are puzzled why it imposed a $200-billion tariff on practically all goods from China entering the US. Some hotheads who are completely ignorant of what is going on bewail what they see as the “softness” of China when its merely imposed a $60-billion tariff on its US imports. Many experts see that China is logically and economically correct in imposing lower amount of tariff on US goods. For China to retaliate would amount to some kind of self-inflicted punishment. For ultimately it will be their importers that will have to pay for the added tariff in terms of higher prices.
Adding puzzle is why the US is zeroing on China for its trade deficit. This is asked because the huge trade deficit of the US with other countries appears to come in bulk that if one would look at the US as an entrepreneur, it might be wise for one to suggest that it better close shop. The US practically has trade deficit in almost all the leading economies and exporters of the world. They are as follows: China—$660-billion traded with a $419-billion deficit; Canada—$617 billion traded with a $20-billion deficit; Mexico—$611 billion traded with an $81-billion deficit; Japan—$218 billion traded with a $67.6-billion deficit; and Germany—$184 billion traded with a $68.2-billion deficit.
The most basic and logical question is why the US has singled out China for its trade deficit. Trump cannot argue that US trade deficit with these countries cited as instances cannot be cited as insignificant. Is it because China stands as the highest in trade volume with, but is comparatively lower in return for that the US import from these countries? According to statistics, more than 65 percent of the US trade deficit in goods is with China. The $419-billion deficit was created by $540-billion in imports. Main US imports from China are consumer electronics, clothing, and machinery.
The irony is that the US remains silent is that many of these imports are actually made by American companies doing business in China. They ship raw materials to be assembled in China for a lower cost. They are counted as imports even though they create income and profit for these US companies. This practice results in many outsourced manufacturing jobs. Many American products are leading in sales in China like Apple, Nike, Starbucks, Coca Cola, and many more. America only exported $120 billion in goods to China. The top three exports were agricultural products, aircraft, and electrical machinery.
While the US has made China its propaganda platform to castigate it for piracy, intellectual property right violation, dumping, and other forms of trade violation, it has not said anything about its other European trading partners where it equally suffers from an acute trade deficit. Trade and political analysts could not help but suspect that the US has chosen to single out China for it to exact as much greater concession which no respectable nation would accede. Flase accusation partakes that of an economic blackmail which China is not prepared to accept.
US trade deficit will continues to widen because American importers and consumers will continue to buy Chinese products not because they love Chinese products but like any consumer they too would like to stretch the dollar to as much goods their money could buy. Through the years, the US economy has become addicted to importing cheap goods produced by cheap labor. What they, however, failed to notice is while the hosanna of cheap imported goods continues, the increasing value of the dollar just to keep that economic mechanism work in their favor is that the increase in the value the dollar would equally affect local wage the per capita income of workers now mostly confined to services. The effect was a gradual diminution in the industrial and manufacturing output of the US. This was an inevitable course for why engaged in production when they can be produced elsewhere at cheaper cost and even better?
To be continued
