The real story behind the US trade war against China - Arthur Kroeber

Arthur Kroeber

The world was once again flabbergasted by the US trade measures since it did hurt designated trade enemy China less than potential US allies again China, says leading economist Arthur Kroeber, author of China's Economy: What Everyone Needs to Know®. Behind those measures are efforts to design a whole new playbook, to change global economy, he tells both Livemint and Bloomberg.

Livement:

Transparent Trump is doing exactly what he promised supporters on the campaign trail. He pledged to take on a Chinese government he claimed was “raping” and “killing” American workers. Trump makes no secret he’s miffed that Xi hasn’t curbed North Korea’s exploits. He’s desperate to change the narrative away from the Russia and corruption scandals swirling around his White House. How better than launching a trade war? 

Trouble is, Trump hasn’t considered the consequences. “The real problems,” says Arthur Kroeber of Gavekal Dragonomics, “are second-order effects, relating to the systemic impact of the US thumbing its nose at the global trading system it worked so hard to build. The basic question, impossible to answer at the moment, is whether this move is a one-off, driven by Trump’s visceral desire to impose big tariffs on someone?” 

While Xi’s China is the target, Washington’s tariffs will hit Brazil, Canada, European Union, Japan, Mexico, South Korea and Taiwan—all, in theory, US allies. And for what? China exports just a small fraction of steel and aluminium output to Trumpland. As such, Kroeber says, Trump’s tariffs “make it far harder to organize resistance to Chinese bad behaviour”.

More in Livemint. (Since the article has been published, Australia, Canada and Mexico have been exempted from trade levies.)

Bloomberg:

"The trade and security hardliners want to write a new playbook -- they believe China has prospered thanks to a cynical manipulation of global trade rules, and is now using the profits to subsidize huge investments in crucial technologies," Arthur Kroeber, head of research at economic consultancy Gavekal Dragonomics in Beijing, wrote in a recent note. 

While some in China press the U.S. for a list of demands for a deal, ultimately the Trump administration may not be seeking specific trade or market-access measures. For example, Trump didn’t press for U.S. banks to get greater access to China when he visited Beijing in November, China announced the measure after he left. 

Hard-liners instead are seeking "to either get China to dismantle its industrial-policy edifice and conduct its economy more along Western lines, or failing that, ensure the U.S. defeats China in the race for technological supremacy," Kroeber said. The context is that among Xi’s priorities is reducing reliance on foreign technology -- including a push for China to achieve a leadership position in semiconductor design and manufacturing.

More in Bloomberg.

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

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China has to change its steel policies - Sara Hsu

Sara Hsu

A dramatic reduction of global steel demand has sent the steel producers into disarray. China, good for half of the production, has upset the rest of the world by financing its export. A better policy would be keeping steel in store, until demand picks up again, writes financial analyst Sara Hsu in the Diplomat.

Sara Hsu:

China’s recent order requiring banks to finance steel exports represents an act of ill faith toward the U.S. and EU in particular, which have suffered from China’s low-price steel exports. As part of a global oligopolistic industry, in which a few firms dominate, steel firms should engage with the rest of the world. Failure to do so has resulted in declining profits for all steel firms and has created mistrust among non-Chinese players for Chinese firms. In return, the European Union has been loath to grant China Market Economy Status, which would allow Chinese firms to more easily justify their actions in WTO anti-dumping cases. 

Although it appears that China’s leadership wants to eliminate excess inventories of steel right away, the industry may be better off if the government chooses to purchase and hold stores of steel until demand rises, as it does for agricultural products. The incentive to export rather than hold steel comes from firms’ desire to lock in higher prices as steel prices continue to slide, and from firms’ need to stay productive rather than temporarily close and write down bad loans. 

As a result, both steel firms and their government advocates remain fixed on short-term outcomes and are not playing the long game. In the long or even medium run, China is committed to expanding urbanization. It will need a great deal of steel for this process. A steady rise in demand for steel will hike world prices. China will also have to continue to engage with its trading partners, and its dumping practices are generating some bad blood among its Western counterparts. Even if steel mills remain open and produce at a break-even level, storing steel inventories may result in higher prices and better trading conditions than exporting the glut to disenchanted foreign markets. 

While China’s reduction of steel capacity is a smart move at present, trade-related steel policies need to be revisited. If these policies are not altered, the industry and its workers will continue to suffer.

More in the Diplomat.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more financial experts at the China Speakers Bureau? Do check out this list.