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It’s official: Trump’s trade war with China is an absolute disaster



  • Trump’s trade war with China is officially a joke.
  • The World Trade Organization has just ruled that the Trump administration’s trade war with China violates the agency’s trade rules – rules the United States helped design.
  • This alone is not enough to plunge the trade war into utter nonsense.
  • But add the fact that the U.S. trade deficit rose to its highest level in 12 years this summer, and the fact that China is not meeting its purchasing targets, and that China has not made any structural changes to the its economy and well ….
  • The whole project looks completely ridiculous.
  • This is a column of opinions. The thoughts expressed are those of the author.
  • Visit the Business Insider home page for more stories.

Now we can officially say that Trump̵

7;s trade war with China is a total and farcical disaster.

There is no single reason, of course, but this week we saw the coup de grace. The World Trade Organization – a body the United States once helped design – ruled that Trump’s initial tariff bailout on Chinese goods violated WTO rules. Symbolically, this ruling crystallizes the fact that this trade war was a violation of the very principles of the United States.

In practice, however, this ruling will mean little to the administration. Trump and his staff will continue to pretend that negotiations are underway and that progress is being made. But the data does not confirm this. In July, the U.S. trade deficit – the measure Trump said he wanted to narrow by waging this trade war – rose to its highest level since 2008.

Then there is the Phase One trade deal that the US and China have made. Beijing has promised to buy huge quantities of US goods to close the trade deficit (again, it doesn’t) and revive the US economy. But Chad Bown’s data at the Peterson Instite for International Economics shows China is a mile short of its US commodity buying targets.

phase 1 US China trade agreement tracker


The Peterson Institute for International Economics


There are also few signs that Chinese policymakers are working on the structural economic changes Trump wants. Indeed, ever since the coronavirus hit China, there has been a shift to old and state-owned methods of increasing economic output. The same thing happened during the last financial crisis. To avoid economic fallout, China has started pumping credit into state-owned enterprises (SOEs) and infrastructure projects. According to research in The Review of Financial Studies, this process reversed part of the opening up of the Chinese economy that took place in the previous decade.

This closure is likely to happen again now during the coronavirus economic crisis. As a finance professor at Peking University Michael Pettis noted, prior to 2020 retail sales – an indicator of domestic consumption – were starting to catch up with industrial production – which is dominated by SOEs – as the engine of economic growth. Now industrial production is growing much faster despite the fact that China encouraged the rosier retail sales numbers in August.

Finally, there is the cost of the trade war to American businesses and consumers. Last September Moody’s estimated that the trade war had cost the United States 0.3% of GDP and 300,000 jobs, and other analyzes found that Trump’s tariffs have resulted in equally grim job losses.

In May, the Federal Reserve Bank of New York calculated that the trade war had reduced US stock prices by $ 1.7 trillion. Trump took office saying his trade tactics would set US manufacturing back, but 2019 was the industry’s worst year since the financial crisis.

So to review: The trade war with China failed to meet the Trump administration’s goals of changing the Chinese economy, reducing the trade deficit and / or bringing manufacturing jobs back to the United States. The agreement he produced was not respected. And the United States has been hit by the WTO – an organization it, once again, helped design – for violating the international trade rules it helped write.

How come this isn’t a joke?

This is a column of opinions. The thoughts expressed are those of the authors.




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