Winner takes all. not in a trade war. March 2018 issue

Winner takes all. not in a trade war.

Talking about the impending trade war, the question Indian exporters are asking is, "How will it hurt me or my competitors across competing markets?"

Steven Philip Warner, President (VMPL) & Editor-in-Chief, The Dollar Business

Forgive me if this is outrightly loud, but type “mad president” on Google and see the results for yourself. The most common name… (ah! You guessed it???) Trump…appears 15 times on the very first search results page. In fact, there is a popular known media platform whose Op-Ed titled, “Donald Trump is a madman…” is worth spending seven minutes of reading time on. Even his daughter is not spared. Ivanka appears once on the search page (probably for being found guilty of defending her boss-dad in public or confronting him behind the scenes and therefore being at risk of being fired as his “daughter”?).
Let’s take this loudness a step further.
Type “crazy president” and you’ll see every inch of your search results page covered with Trump. In fact, when you type in "crazy president", the first auto suggestion is “Donald Trump”. So all this is what America and the world assumes about Trump. But as the world would have doubted for long, he is certainly not mad or crazy; he’s only loud, illogical at times with butter fingers on social media and a vicious mouth in the foreign policy circles.
So why all this talk about Trump? That of course has much to do with the cover story of this issue on trade wars and how the epicentre of the trade tremor is the White House. In fact, if you want me to pin the location by zooming in a few degrees more, you’ll probably spot Trump with his Diet Coke can at his desk. [He apparently drinks about 12 cans each day and doesn't touch coffee, tea or alcohol; how unAmerican that!]
Trump's tariff measures to apparently save American jobs and the rant to destroy the awkward, greasy destroyers (China) is not unexpected though, is it? But when they were announced, stock markets around the world started reacting, and the counter moves and threats from China followed.
Spoken by experience, a trade war is ineffective for the one who triggers it, expensive for the one who reacts and damaging for everyone else in the foreign trade and policy sense. Whose experience? America's, of course! [Pray remind Trump to order a note on the most famously forgotten example of protectionism gone wrong in the 1930s, a.k.a. The Smoot-Hawley Tariff Act.]
Talking about the impending trade war, it is important to consider the vulnerabilities. And that perhaps will answer the biggest question that Indian exporters are asking. How will it hurt me or my competitors in competing nations? That’s what I’ll attempt to clarify in a few paragraphs.
First, don’t believe all the attack that Trump is announcing at present. He doesn’t even know his numbers right. (He’d written in a tweet that US’ trade deficit with China is $500 billion; it’s in fact less than $350 billion!) So believe him less when he says he will destroy China and other emerging, manufacturing job-stealing nations, including India. (Sometimes I feel he revels in overstating China’s economic vulnerability.) Yes, the Trump administration has gone public with its multiple threats to impose high duties on about $150 billion worth of Chinese imports in total and Beijing says it will respond in kind. So a trade war is a possibility. But will that happen is a big question still. {If the Chinese Premier had initiated such an argument, we would have had a different view.]
Second, Trump says China will lose. China says America will lose more. Though we’d like to believe the Chinese more, truth is, there will be others losing too. As per research estimates, about 35-50% of the content of Chinese exports of cars, computers, electronic, and other modern equipment to United States is “foreign”. So be it the iPhone, GM cars, LEDs or other products, every country that exports to China will be hurt if Trump’s tariffs are aggressive enough to pull back Beijing's economic growth and force it to buy less from the world. Japan, Taiwan and South Korea, for example, are exporters of integrated circuits to China. So if America stops buying Made in China, these countries that feed China's production supply chain will feel the heat. If China imposes tariffs in retaliation, then there will be other losers. American and European companies whose production chains are found much in US and which then sell to China, are at risk. For instance, BMW manufactures its automobiles and Boeing its aircraft in America. These companies ship their products to China, which is a huge market for them. Beijing's retaliation will hurt America. In fact, international suppliers across UK, Canada, Italy, Japan, etc., that work with American companies like Boeing and GM will be in tears.

"Trump says China will lose in a trade war. China says America has much more to lose. Though we’d like to believe the Chinese more, truth is, there will be others losing too!"

Third, on a positive note, there will not be all losers. Some will gain too. Especially firms that are competing with American brands (like Airbus, Audi, etc.) or manufacturers across countries whose produce can replace Chinese exports to US (like India and Vietnam). But the net effect of gain will remain short-lived as Trump will first quarrel with China and to prove an extra point will then turn his attention to other emerging economies. Quite likely India.
No one advocates a trade war. Whether it helps or hurts, it disturbs the natural order of things in foreign trade. How damaging the world’s business minds consider the very prospect of a trade war is quite clear with the way bourses have reacted in recent days to news of anything related to a trade war. And above all, it’s time WTO interjects and prevents grassroots American politics to spoil peace in the world. If America hurts China by curbing its imports (in which China enjoys a surplus), it will hurt the world. And China can hurt America in return by curbing imports of select goods and even services (in which America enjoys a surplus). There is no end to this “eye-for-an-eye” mania.
Trump should not let his constipation give others sleepless nights. And sleepyhead WTO, wake up!

 

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