Here are the reasons for Trump’s economic war with China

(THIS ARTICLE IS COURTESY OF THE GUARDIAN NEWS)

 

Here are the reasons for Trump’s economic war with China

On Friday the US president ‘hereby ordered’ companies to halt business with China, among other attacks – how did we get here?

Donald Trump and Xi Jinping in Osaka, Japan, on 29 June.
 Donald Trump and Xi Jinping in Osaka, Japan, on 29 June. Photograph: Kevin Lamarque/Reuters

Even by Donald Trump’s standards his Twitter rant attacking China on Friday was extraordinary. In a series of outbursts Trump “hereby ordered” US companies to stop doing business with China, accused the country of killing 100,000 Americans a year with imported fentanyl and stealing hundred of billions in intellectual property.

The attack marked a new low in Sino-US relations and looks certain to escalate a trade war already worrying investors, manufacturers and economists who are concerned that the dispute between the two economic superpowers could trigger a recession.

Not so long ago Trump called China’s president, Xi Jinping, “a good friend”. Now he is an “enemy”. How did we get here?

China, China, China

On the campaign trail Trump railed against China accusing it of pulling off “one of the greatest thefts in the history of the world” and “raping” the US economy.

Trump repeated the word China so often it spawned a viral video of him saying it over and over again. The attacks were a hit with voters and helped get him elected. He has continued lambasting China – to cheers – at rallies ever since.

Pinterest

His main beef? The trade deficit.

Trade deficit

The US imported a record $539.5 bn in goods from China in 2018 and sold the Chinese $120.3 bn in return. The difference between those two numbers – $419.2 bn – is the trade deficit.

That deficit has been growing for years as manufacturing has shifted to low-cost China and, according to Trump, it explains the hollowing out of US manufacturing.

For Trump, and especially for his adviser Peter Navarro, who once described China as “the planet’s most efficient assassin”, trade deficits represent an existential threat to US jobs and national security. China makes up the largest part of the US trade deficit but those fears are also behind his disputes with the EU, Canada and Mexico.

His detractors argue these deficit worries are hyperbole and a result of the US’s stronger economy, which allows consumers to buy goods at cheaper prices.

The truth is probably somewhere in between.

While it’s true that unemployment is at record lows and consumers continue to prop up the economy, manufacturing jobs have been lost (automation is also to blame for this) and with them wage growth (although the hollowing out of unions plays a part here).

But it is not just deficits that concerns Trump.

Thieves

China has a deserved reputation for intellectual property theft. On Friday, Trump estimated China robs the US of “hundreds of billions” a year in ideas.

In March, a CNBC poll found one in five US corporations had intellectual property stolen from them within the last year by China.

According to the Commission on the Theft of American Intellectual Property, the theft costs $600bn a year.

Beijing bucks

Like Tesla, Nio, a Chinese electric vehicle (EV) company, is suffering as subsidies for EVs are phased out. Unlike Tesla, Nio has Xi. China is pumping $1.5 bn into the company to keep it on the road, the latest in a series of handouts that the Trump administration believes are unfair.

Cheap steel and aluminium, subsidized by the Chinese government, are the origins of this trade dispute. According to the White House, last year alone China dumped and unfairly subsidized goods including steel wheels, tool chests and cabinets and rubber bands on to the US market.

To be fair the US too is more than willing to bail out its industries (see: the banks or the automakers) at the taxpayers’ expense. But at this point “fair” is not up for discussion.

Currency manipulator

Earlier this month the US officially accused China of manipulating its currency “to gain unfair competitive advantage in international trade”.

It was the first time since 1994 that such a complaint has been made official and comes as the dollar has strengthened against world currencies. The dispute adds another layer of tension to a complex situation.

China disputed the charge accusing the US of “deliberately destroying international order” with “unilateralism and protectionism”.

The International Monetary Fund (IMF) appears to be on China’s side, arguing the devaluation of the yuan is largely in line with worsening economic conditions in China.

What happens next?

The US has now slapped billions of dollars on tariffs on Chinese goods. China retaliated, again, on Friday with more levies on US goods. China’s economic growth has slowed to levels unseen since 1992; US economic forecasts have also been cut.

American farmers were the first to feel the result, as China has canceled orders, and manufacturers are increasingly gloomy. So far US consumers have not felt the pinch but JP Morgan estimates the average US household will end up paying $1,000 a year for goods if the latest set of tariffs go through.

The unanswerable question is whether any of this will sway Trump. If his supporters continue to see a trade war with China – and the pain it will cause – as the necessary price to Make America Great Again, then the answer is probably no.

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India: Amid ongoing trade war, China no longer top trading partner of US

(THIS ARTICLE IS COURTESY OF INDIA’S HINDUSTAN TIMES)

 

Amid ongoing trade war, China no longer top trading partner of US

America’s neighbors Mexico and Canada have replaced China.

WORLD Updated: Aug 03, 2019 10:05 IST

Press Trust of India

Press Trust of India

Washington
China is no longer the top trading partner of the United States.
China is no longer the top trading partner of the United States.(AP Photo)

As a result of their ongoing trade war, China is no longer the top trading partner of the United States and has been replaced by America’s neighbors Mexico and Canada, according to a media report.

In the first half of the year, Mexico was the top trading partner of the United States followed by Canada, the latest official data reveals, according to The Wall Street Journal.

As a result of the ongoing trade war between the US and China, imports from China to the US dropped by 12 per cent and America’s export to China fell by 19 per cent, the daily said. After coming to power, Trump has imposed 25 per cent import tariff on Chinese products worth USD 250 billion.

Another 10 per cent tariff on products worth USD 300 billion will come into effect on September 1. Trump has so far maintained that China has been unfair to the US. China has also taken several retaliatory steps. According to a Commerce Department report, the total value of bilateral goods exchanged with China fell 14 per cent in the first half of the year to USD 271.04 billion, The Wall Street Journal said. ` “After holding the top spot among US trading partners from 2015 to 2018, China now sits at No. 3 and now smaller than Mexico for the first time since 2005,” it said.

(The story has been published from a wire feed without any modifications to the text, only the headline has been changed)

First Published: Aug 03, 2019 09:35 IST

China, Trump And Tariffs: My Idea On How To Best Do The Tariffs

China, Trump And Tariffs: My Idea On How To Best Do The Tariffs

 

First, the government of China is no one’s friend just as Putin’s government in Russia nor is the fat little Rocket Man in North Korea. I know that statement will bring a rebuke from Mr. Trump who thinks these guys love him, but then again, he is possibly the world’s biggest idiot. I did not say that the people of these countries are ass-hats like their Leaders and Ours are. I have nothing against the people of these Countries, just their Leaders, and our Leaders.

 

Now, about those tariff’s, this is what I wish our government’s policies were toward China. Personally I believe that the whole world should stop buying anything that has to do with China as long as they have a Communists government in place who seems to think that everything on earth should be theirs to control, including all the land, oceans and air space. When anyone buys anything that is made in China you are feeding their military buildup that they will use to subjugate their own people and the people of the Nations around them.

 

But for a more doable emmediate tariff policy I believe the following approach should be adopted. Instead of having a trade war with China via tariff’s I believe that our government should only put tariffs on products that are coming into the U.S. from companies who have outsourced jobs that used to be here in our Country.  Including to China, Indonesia, Vietnam, Mexico or any other Nation. For the purpose of an example let us use General Motors. If General Motors wants into the Chinese market for the purpose of making vehicles for the Chinese market I have no problem with that at all. But, if they take jobs away from our people and then want to sell in our market I believe that our government needs to put a 100% tariffs on all of those imports. Make it very un-profitable for the company to take away American jobs if they want to sell to our market. This program would keep American companies from closing factories here and it would force the companies who have closed shops here to reinvest in our Nation, not an enemy Nation like China.

 

As I said earlier, the people of China are not our enemy, but their government damn sure is. And, in my opinion, companies who have outsourced American jobs for the sole purpose of higher profits should be treated as enemies of the American people. If you have noticed, when a company closes shop here in the States and moves to a “cheaper” place to make their products they never ever lower the prices they sell their products for. If a company made a product here in the States and sold it for $20 then they close shop here and move to China they still sell the product for $20, the name of the game is all and only about profits, to hell with the people, they only want your money. We need to quit giving it to them. Force them to move back here, if they refuse then tariff the hell out of them and also sell all of their stock, don’t allow it to be sold on the U.S Stock Exchange, bankrupt their asses. If our Leaders really want to put America, then prove it!

China Targets Fedex For “Damage To Chinese Clients”

(THIS ARTICLE IS COURTESY OF CNBC NEWS)

 

Chinese authorities have filed a case to investigate U.S. parcel delivery service FedEx for allegedly undermining the rights of Chinese clients, state-run Xinhua news agency reported on Saturday.

According to Xinhua, FedEx failed to deliver express packages to designated addresses in China, “seriously damaging the lawful rights and interests of its clients and violating laws and regulations governing the express industry in China.“

The Chinese government’s move against FedEx comes after Chinese tech company Huawei said it was re-assessing its relationship with the U.S. parcel delivery service after several packages were diverted.

Huawei accused FedEx of diverting two packages postmarked from Japan and destined for company addresses in China to the United States without providing detailed explanation, according to Reuters news agency. FedEx also allegedly attempted to re-route two other packages sent from Vietnam to Huawei addresses elsewhere in Asia without authorization.

Huawei said all four packages contained documents and no technology. FedEx said it would cooperate fully with any regulatory investigation.

“FedEx values our business in China. Our relationship with Huawei Technologies Co. Ltd. and our relationships with all of our customers in China are important to us,” the company said in a release. “FedEx holds itself to a very high standard of service. FedEx will fully cooperate with any regulatory investigation into how we serve our customers.“

The Trump administration blacklisted Huawei from purchasing U.S. components after declaring a national emergency over threats to U.S. technology last month. The administration has subsequently eased those restrictions, allowing Huawei to buy U.S. components for 90 days to maintain existing networks.

Washington and Beijing are locked in escalating trade war after the collapse of trade negotiations. The U.S. has more than doubled tariffs on $200 billion of Chinese goods and has threatened to tax all Chinese imports. China has increased tariffs on $60 billion of U.S. goods.

VIDEO 04:29
How China could use its massive US debt holdings as a trade war weapon

China: US risks losing rare-earth supply in trade war

(THIS ARTICLE IS COURTESY OF THE SHANGHAI CHINA NEWS AGENCY ‘SHINE’)

 

US risks losing rare-earth supply in trade war

Xinhua

Waging a trade war against China, the United States risks losing the supply of materials that are vital to sustaining its technological strength.

China produces a majority of the world’s rare earths, chemical elements that have magnetic and luminescent properties and are used in a range of consumer products and electronics.

While rarely heard, the rare-earth elements are the materials that help light up your smartphone, make X-rays possible and ensure the safe use of nuclear reactors.

As the world’s biggest supplier of such materials, China has always been upholding the principles of openness, coordination and sharing in developing its rare-earth industry.

While meeting domestic demands is a priority, China is willing to try its best to satisfy global demand for rare earths as long as they are used for legitimate purposes.

“We are happy to see that the rare-earth resources and related materials can be used in making all kinds of advanced products that help better satisfy the demand for a good life of people from around the world,” said an official with the National Development and Reform Commission.

However, if anyone wants to use imported rare earths against China, the Chinese people will not agree.

By making unilateral moves to contain technological development of other countries, the United States seems to have overlooked one fact: The international supply chain is so intertwined that no economy could thrive on its own.

According to the US Geological Survey, from 2014 to 2017 the United States imported 80 percent of its rare-earth compounds and metals from China.

Along with the technological revolution and industrial evolution, rare earths are expected to be applied in more areas, and their strategic value will become more prominent, said the official.

China has reiterated its stand in promoting multilateralism and tried to avoid a trade war that hurts public interests.

But if necessary, China has plenty of cards to play.

China’s trade war song goes viral, anti-US sentiment becomes visible

(THIS ARTICLE IS COURTESY OF INDIA’S HINDUSTAN TIMES)

 

China’s trade war song goes viral, anti-US sentiment becomes visible

The privately-produced song has more than 100,000 views on WeChat and is just one of many signs of brewing anti-American sentiment on Chinese social media as trade talks falter.

WORLD Updated: May 21, 2019 16:03 IST

Dandan Li
Dandan Li
Beijing, China
China-US trade war,anti-US sentiment,privately-produced song
Other plans include displaying the Chinese flag around National Day on October 1 and organizing teenagers to participate in themed summer camps.(AFP File Photo)

Perhaps nothing captures the growing anti-US sentiment in China better than a song about the trade war that is going viral in Beijing: “If the perpetrator wants to fight, we will beat him out of his wits.”

This privately-produced song has more than 100,000 views on WeChat and is just one of many signs of brewing anti-American sentiment on Chinese social media as trade talks falter.

State media has carried commentaries urging unified resistance to foreign pressure, including an editorial from the nationalist Global Times calling the trade dispute a “people’s war” and a threat to all of China.

Even seafood hasn’t escaped sharper rhetoric. Guangdong province’s Communist Party Youth League issued a WeChat post calling for China to eat more tilapia — a farmed fish now subject to higher US tariffs.

Trade War

The song, simply called “Trade War,” is set to the tune of an anti-Japanese song from the 1960s film “Tunnel War” — in which a Chinese town defends itself from invasion.

It begins with a male chorus singing “Trade war! Trade War! Not afraid of the outrageous challenge! Not afraid of the outrageous challenge! A trade war is happening over the Pacific Ocean!”

“I chose ‘Tunnel War’ because that is reminiscent of the similar situation that China is facing today,” the song’s producer and lyricist Zhao Liangtian told Bloomberg News on Monday. “Since the trade war broke out, I felt the urge to do something.”

On Tuesday, Chinese state media continued the belligerent rhetoric against the US.

‘Facing the US which is going against the trend of the times, China resolutely showed the sword,’ said an analysis from state-owned Xinhua News Agency that was republished widely in domestic media. ‘We are forced to take necessary measures and are prepared for a protracted war.’

A commentary in the People’s Daily warned that attempts to deprive the nearly 1.4 billion Chinese people of their right to development and impede the historical process of the great rejuvenation of the Chinese nation would be like ‘a mantis trying to stop a car with its arms.’

Silver Screen

China’s official entertainment industry is also caught in the crossfire.

The state-run China Central Television’s movie channel changed its May 16 prime-time schedule from live-streaming the red carpet of Asian Movie Week to a old propaganda film called ‘‘Heroic Sons and Daughters,’’ about the China-US conflict during the Korean War. It’s played a Korean War movie each night during prime time every night since.

A television series called “Over The Sea I Come to You,” about a father who accompanies his son to study in the US, was pulled off-air and replaced at the last minute. The show was set to premiere on Zhejiang Television and elsewhere May 19, according to a station announcement from earlier this once.

However — at least so far — US cultural products are still available. The worldwide blockbuster “Avengers: Endgame” is still in theaters and is the third-highest grossing film in Chinese box office history.

Rallying Patriotism

Starting Monday, Chinese radio and television stations will be required to play the country’s national anthem, “March of the Volunteers,” at 7 a.m. each morning through the end of the year, according to an official notice.

That order is only one small part of a national patriotic education plan, co-published by the party’s Central Committee and State Council, celebrating the coming 70th anniversary of the founding of the People’s Republic Of China.

The plan also aims to “encourage and mobilize the whole party, army and people of all ethnic groups to rally more closely around the CPC Central Committee with Comrade Xi Jinping at its core,” a reference to China’s leader.

Other plans include displaying the Chinese flag around National Day on October 1 and organizing teenagers to participate in themed summer camps that will lead them to “experience revolutionary feelings and inherit red genes.”

Waxing Poetic

Zhao, the ‘‘Trade War’’ lyricist, is a retired official in Yanting county, in China’s southwest Sichuan province. He’s also an accredited member of the Poetry Institute of China, which is affiliated with the Communist Party’s propaganda department.

Zhao wrote the song’s lyrics last year and circulated them online, but said they had gone largely unnoticed until the negotiations went awry. He said some of his anti-US poems had been censored by authorities in the past.

After President Donald Trump threatened fresh tariffs earlier this month, Zhao sensed China’s government had changed its attitude. He paid 1600 Yuan ($232) — a third of his monthly paycheck — to finally produce his song. Other retirees sang the chorus.

In the current climate, the payoff has been immediate. “I have received many phone calls in the past days from people to show support for my work,” Zhao said.

(The story has been published from a wire feed without any modifications to the text, only the headline has been changed.)

First Published: May 21, 2019 12:21 IST

China’s Communist Party made a flashy graphic to show everyone what it thinks about the trade war

(THIS ARTICLE IS COURTESY OF CNBC AND CHINA’S ‘PEOPLE’S DAILY’ NEWS OUTLET)

 

China’s Communist Party made a flashy graphic to show everyone what it thinks about the trade war

KEY POINTS
  • The People’s Daily, China’s official newspaper for the Communist Party, publishes a post titled “This, is China’s attitude!” on its official WeChat account.
  • The post contains a graphic with three slogans touting the country’s defiant attitude in face of trade tensions with the U.S.
  • The dispute escalated overnight with Beijing retaliating against the latest round of U.S. tariffs on Chinese goods.

The official newspaper for China’s Communist Party published a morale-boosting graphic on Tuesday touting the country’s defiant attitude in the face of trade tensions with the U.S.

“This, is China’s attitude!” the People’s Daily said in the headline of a post on its official WeChat account.

The post contained just one image, with three slogans in gold lettering printed over the red Chinese flag and a picture of shipping containers. CNBC’s translation of the Chinese phrases reads:

“Negotiate, sure!”

“Fight, anytime!”

“Bully us, wishful thinking!”

Trade negotiations between the world’s two largest economies took a negative turn last week. On Friday, the U.S. raised tariffs on $200 billion worth of imported goods from China to 25% from 10%. Beijing responded late Monday local time with tariffs of up to 25% on $60 billion worth of U.S. goods.

China steps up US criticism

(THIS ARTICLE IS COURTESY OF CHINA’S GLOBAL TIMES NEWS NETWORK)

 

China steps up US criticism

By Wang Cong Source:Global Times Published: 2019/5/14 23:13:40

FM pushes back on Washington claims, keeps options open


Photo: VCG

China on Tuesday stepped up criticism of the US as tensions between the world’s largest economies continued to escalate, blaming the US for the renewed escalation that has roiled global financial markets and saying the US has underestimated China’s resolve and ability to defend itself.

As Chinese and US officials continued to exchange harsh words, China needs to be prepared for a protracted war with countermeasures and long-term reform and opening-up efforts, analysts said on Tuesday.

Asked at a routine press briefing about the US threat to impose tariffs on $300 billion in Chinese goods, Geng Shuang, a spokesperson for the Foreign Ministry, did not mince words about China’s plan to fight back.

“When it comes to a trade war, China does not want to fight one or is willing to fight one, but China is also absolutely not afraid to fight one,” Geng said. “If someone has brought the fight to our doorsteps, we will fight to the end.”

Though the spokesperson did not specify measures, China appears to keep options open. Asked about claims in social media that China should stop purchasing US agricultural and energy goods and Boeing airplanes if it retaliates, Geng declined to comment about the report but also stopped short of issuing a denial.

US officials appear to be moving forward with a threat to impose tariffs on $300 billion in Chinese goods. They plan a public hearing on June 17.

China announced it will impose tariffs of between 5 percent and 25 percent on $60 billion in US products starting June 1 in response to the US decision to increase tariffs on $200 billion in Chinese goods.

US miscalculation

China’s retaliation on Monday might have surprised US President Donald Trump and other US officials, who appeared to think that they could use tariffs to pressure China into signing an agreement, according to Wei Jianguo, a former Chinese vice commerce minister.

“I don’t think they thought about China’s will and resolve to defend its core national interests and major concerns, especially at the final stage,” Wei said. “They also haven’t considered China’s ability to stand up to pressure… and the reaction from US [consumers and companies].”

Geng also said that some in the US might have miscalculated the situation, continued to confuse the public, and asked for unreasonably  higher prices. “So we would certainly push back against these claims,” Geng said.

US officials have claimed that China walked back on a “95 percent” done deal and blamed that for the escalation.

Citing previous cases where the US backtracked from deals, Geng said that the US cannot accuse China of walking back from its positions and promises.

Prolonged war

Though both Chinese and US officials left some room for further talks, with Trump publically calling for a meeting with President Xi Jinping at the G20 summit in Japan in June and Chinese officials calling for the US to meet China halfway, no formal plan has been announced so far, leading some to believe this could be a prolonged trade war.

To prepare for a protracted war, analysts said, China must continue to carry out reforms and opening-up measures to boost market vitality and expand overseas markets for Chinese products to reduce reliance on the US market or any other single market.

“The reform and opening-up policy has been a magic key for China to address serious issues over the past 40 years. And a magic key is what we need to deal with the situation now,” said Cao Heping, an economics professor at Peking University, noting that more concrete actions are needed.

China has opened up more sectors to foreign investors, including finance, manufacturing and healthcare, and passed a new Foreign Investment Law to offer greater market access and better protection for foreign firms. It has cracked down on intellectual property rights violations and sought to increase foreign goods.

“The trade war has not changed and will not change China’s pace for further reform and opening-up,” Liu Ying, a research fellow with the Chongyang Institute for Financial Studies at Renmin University of China in Beijing, told the Global Times on Tuesday.

Posted in: DIPLOMACY,ECONOMY

China hits back by raising tariffs on US products

(THIS ARTICLE IS COURTESY OF THE SHANGHAI CHINA’S SHINE NEWS)

 

China hits back by raising tariffs on US products

Xinhua

China yesterday announced that it will raise the rate of additional tariffs imposed on some of the imported US products from June 1.

China had earlier imposed additional tariffs on US$60 billion worth of US imports, the rates of additional tariffs on some of the products will now be increased to 25 percent, 20 percent and 10 percent, according to a statement by the Customs Tariff Commission of the State Council.

A total of 5,140 US products will be subject to additional tariffs of 5 percent, 10 percent, 20 percent and 25 percent starting on June 1, the finance ministry said in a statement yesterday.

The decision follows the US move to increase tariffs on US$200 billion worth of Chinese goods from 10 percent to 25 percent as of May 10.

The measure taken by the United States escalated trade frictions and violated the consensuses reached by both sides to tackle trade disputes through consultations, the statement said.

The US move damaged the interests of the two sides and did not meet universal expectation of the international community, it said.

To defend multilateral trade mechanisms and safeguard its own rights and interests, China had to adjust its additional tariffs on some of the goods imported from the United States in response to the US act of unilateralism and trade protectionism, the statement noted.

China hopes that the United States would return to the right track of bilateral economic and trade consultations, make joint efforts with China to meet each other halfway and strive to reach a mutually beneficial and win-win agreement on the basis of mutual respect.

China-U.S. trade war worsens, the trade deficit increases

(THIS ARTICLE IS COURTESY OF THE BROOKINGS INSTITUTE)

 

As the trade war worsens, the trade deficit increases

David Dollar

Editor’s Note:David Dollar unpacks the effects of a continued trade war on the economies of China and the United States. If such protectionist measures stay in place long enough, he notes, global value chains will adjust. In that case, U.S. trade deficit will shift away from China and toward the rest of Asia and Europe, but the overall U.S. trade deficit will not change in any significant way. This piece originally appeared on The Hill.

The trade war that the U.S. has unleashed on China continues to ratchet up. The next round of 25-percent tariffs on $16 billion of imports from China will go into effect Aug. 23.

China is committed to retaliate and will implement its own 25-percent tax on $16 billion of imports from the U.S. As the tit-for-tat escalation continues, it is impossible for China to match the U.S. dollar-for-dollar because it imports so much less from the U.S. than it exports.

The next round threatened by the U.S. will cover $200 billion in additional imports. The Chinese announced retaliation will hit a much smaller volume, $60 billion of imports. Still, we are moving toward complete taxation of trade in both directions.

The direct effect of these measures on the Chinese economy is small so far. China’s exports in July were up 12.2 percent over the prior year, ahead of market expectations. The International Monetary Fund’s (IMF’s) updated forecast for China’s GDP growth this year is 6.6 percent, above the target for the year.

Indirect effects are harder to measure but are arguably larger. China began the year in a tightening cycle, trying to rein in the excessive credit growth of the recent past. The regulators were determined in particular to reduce the shadow banking sector and to bring more financial activity back into the formal banking system.

Investment growth has been slowing all year, and the stock market peaked and started falling in January, well before the trade war got serious. The protectionism from the U.S. has contributed to the pessimistic mood in China. Investment growth was practically nil in July, and the Shanghai market is now down 24 percent since the January high.

The July data also show some easing of the tight money policy, though no let-up in the campaign against shadow banking. This suggests that the authorities are worried about the impact of the trade war on growth, but it is also a reminder that China has tools at its disposal.

Aside from monetary easing, the government is also pursuing some modest additional fiscal stimulus. China can afford to spend more public money on education, health and environmental clean-up and can use the fiscal adjustment to its advantage.

Another obvious tool is the exchange rate. Since April, the U.S. dollar is up 8 percent against a basket of major currencies. The Chinese yuan has more or less followed the same trend: It is down 9 percent against the dollar over this period.

This is one reason that China’s exports were buoyant in July. Too much depreciation could set off financial panic, but depreciating against the dollar in line with the other major currencies in the world makes sense in the current environment.

China’s Ministry of Commerce announced this week that Vice Minister Wang Shouwen will visit Washington, D.C. in late August for talks with Treasury Under Secretary David Malpass. It is good that the two sides are talking, but there is not likely to be a negotiated settlement anytime soon.

The Chinese side is confused about what the U.S. wants. It feels that near-agreements were reached twice before only to have the U.S. pull back. What China is ready to offer is clear:

  • It will agree to some big headline numbers for purchases of agricultural products and energy, which is more of a publicity stunt than a policy change;
  • it is already committed to opening some important markets in China, such as automobiles and financial services; and
  • it would agree to some general language about improving intellectual property rights protection and avoiding forced technology transfer.

These talks at the vice minister level should clarify positions, but an end to the trade war will likely require higher-level talks and ultimately a meeting between Presidents Trump and Xi. The next time that the two will meet, barring an exceptional summit, would be at the Group of 20 summit at the end of November in Buenos Aries.

An important obstacle to reaching a settlement is that the U.S. administration has put a big focus on trade balances, and those are very hard to change.

Because of the large fiscal stimulus, the U.S. economy is growing rapidly. Interest rates are rising, as is the value of the dollar. It is natural in this situation for the U.S. trade deficit to widen.

In the first half of the year, the overall U.S. deficit in goods was up 7 percent. The deficit with China was up 9 percent and 16 percent with Europe. Those trends will almost certainly continue in the second half of the year. Protectionism aimed at China will not have any big effect on the overall U.S. deficit.

The protectionism should eventually reduce imports from China, but it will also reduce U.S. exports and increase U.S. imports from other locations. Much of what the U.S. imports from China are intermediate products used by U.S. firms to be more competitive.

Taxing these will naturally result in some lost business for U.S. firms, both in the domestic market and in export markets. If the protection stays in place long enough, global value chains will adjust. Some labor-intensive final assembly will shift to countries like Vietnam in order to avoid the 25-percent tax.

Suppliers such as Japan, South Korea and Taiwan will retain more production at home rather than off-shoring to China. China is likely to remain the center of the Asian production hub, but will concentrate even more than it does now on intermediates and less on final goods for the U.S. markets.

All of this will shift some of the trade deficit away from U.S.-China toward larger trade deficits with the rest of Asia and Europe. But the overall U.S. trade deficit will not change in any significant way.