Trade war tactics, Part 7: Reviving tariffs and quotas.
by tonytran2015 (Melbourne, Australia).
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(Blog No. 174).
There are always countries which disregard social justice and international laws. Other countries cannot declare wars against them but they can engage in economic activities called “trade wars” that are also effective in putting pressure on the transgressors.
For example, some transgressor may use its economic strength to destroy domestic industries of other nations through predatory pricing, disregard laws on intellectual properties of other nations and give no reciprocity to its market access.
#trade war, #predatory pricing, #product dumping, #tariff, #quota, #Green movement, #conservation,
Trade war tactics, Part 7: Reviving tariffs and quotas.
1. Time line of current trade war.
2018 January 23:
30% tariff on solar panels (most of them are from China) reducing to 15% after four years. 20% tariff on washing machines for the first 1.2 million units imported during the year.
2018March 22:
President Trump relied on Section 301 of the Trade Act of 1974 to propose tariffs on additional 60Billion worth of Chinese export (over 1,300 categories including aircraft parts, batteries, flat-panel televisions, medical devices, satellites, and various weapons) to USA as “a response to the unfair trade practices of China over the years”, including theft of U.S. intellectual property.
2018 April 2:
China imposed tariffs on 128 products it imports from America: 25% on aluminum, airplanes, cars, pork, and soybeans, 15% on fruit, nuts, and steel piping.
2018 April 5:
Trump responded saying that he was considering another round of tariffs on an additional $100 billion of Chinese imports as Beijing retaliates. The next day the World Trade Organization received request from China for consultations on new U.S. tariffs
2018 June 15,
United States impose a 25% tariff on $50 billion of Chinese exports ( with “industrially significant technology”). $34 billion start July 6, with a further $16 billion to begin at a later date
2018 Sept 23:
USA imposed new 10% tariffs on $200 billion of Chinese goods, spanning thousands of products, including food seasonings, baseball gloves, network routers and industrial machinery parts.
China retaliated immediately with new taxes of 5% to 10% on $60 billion of US goods such as meat, chemicals, clothes and auto parts.
2. Argument against free-loaders.
A restaurant spent its effort to make fine food to attract eaters. It then sells beverage to those eaters at high mark ups. Is it fair to let customers buy and bring in their own beverage from the discount store next door ? Is it unfair for the restaurant to impose a surcharge on any “bring your own” beverage ?
A country spent its own money to build its national roads. Is it fair for any other country to make profits from the sale of cars driven on those roads, robbing the opportunity of making and selling cars by domestic industries of that nation?
America had been nurturing its democracy, innovation and free economy to the point that now its population has an actual need on digital technology. Is it fair to deny its domestic population the opportunity to establish its own digital technology and to enjoy its profits?
3. Has America oppressed China in the current trade war?
China may have said that it is being oppressed by a stronger American economy, with “a knife held to the throat” [3]. People should not forget that currently China is oppressing ALL its neighbors except Russia. [4, 5, 6, 7].
There are many Asian people supporting President Trump (openly or quietly) in this trade war.
4. Justification for tariffs and quotas.
Tariffs and quotas are used to reduce (wasteful and inefficient) consumption of some imported products (from the point of view of the ruling government). It is the right of each nation to define what is its desirable consumption pattern.
France had been criticized for placing virtual quota on its import of Video Cassette Recorders. With the benefit of hindsight, that restriction may have saved France a lot of money.
Currently the US may consider that solar panels and washing machines should provide an opportunity for American manufacturing industry. The current tariff are designed to give American solar panel and washing machine makers a chance to establish themselves.
The tariff on washing machines also put a brake on the wasteful short life cycle assigned by Americans on their washing machines. The Green and the conservation movement are now conspicuously absent in their protest against the wasteful American habits of retiring their washing machines early.
Tariffs and quotas can also redirect consumer and industrial spending toward supporting ally and friendly nations (who are imposed zero or lower tariffs than unfriendly countries).
5. Ineffective retaliation measures by China.
China has imposed its tariffs on American soy beans. Note that soy beans are a basic staple food of Chinese people, from which they make soy-milk, tofu, bean sprouts and soy-sauce. The tariff cannot reduce soy beans consumption by Chinese people, it can only redirect their purchase preference. Can China buy soy-beans elsewhere ? If the trade war drags on for too long, American farmers may decide to stop producing soy-beans and China may be the ultimate loser for having to pay higher price to buy soy beans outside America.
Chinese tariffs on American luxury goods like hand phones, designer hand bags, airplanes, cars, etc…[5c] only turn them into items for “status symbol” and may ultimately promote their sale to Chinese super-rich people.
6. Naming winner and loser.
2018 March 30:
On Monday, Brussels launched a safeguard investigation into how it could combat surges of steel imports… from inflows of Japanese, Chinese, Turkish and Russian steel that would be diverted away from the U.S. [8]
2018 July 13:
“The S&P 500 on Friday hit a four-month high … the Nasdaq close at a record high. The S&P 500, Nasdaq and the Dow Jones Industrial Average were also tracking for their second straight week of gains.” [9]
2018 July 17:
“Since the White House announced the first tariffs — on washing machines and solar cells on Jan. 22 — the Shanghai Index of Chinese stocks is down nearly 20 percent, while the S&P 500 is off less than 1 percent… Since the end of March,..the yuan has slid nearly 7 percent, again demonstrating the impact the trade war…” [10]
As at 2018 July, America has been the winner in the current trade war.
7. Conclusions
Trade wars are bloodless and are preferable to military wars to put pressure on those countries that disregard international laws and social expectation.
a. Tariffs are not nice to advocates of free-trade but they are really useful to shape a national economy.
b. Tariffs are necessary, only their appropriate levels have to be determined.
c. Once countries enter trade war, there will be a reduction in international trade and a number of countries may enter their recession. Countries with self-sufficiency will outlast their competitors, free-loaders usually lose.
America is winning the current trade war and should prosecute its well chosen war to its end.
References:
[1]. https://survivaltricks.wordpress.com/2018/06/20/trade-war-tactics-part-1-predatory-pricing-and-tariffs/
[2]. https://edition.cnn.com/2018/09/23/politics/trump-trade-war-china/index.html
[3]. https://www.telegraph.co.uk/business/2018/09/25/china-says-cant-hold-us-trade-talks-knife-throat/
[4]. https://thediplomat.com/2015/08/pentagon-denounces-excessive-maritime-claims-in-the-south-china-sea/
[5]. https://www.bloomberg.com/quicktake/territorial-disputes
[5b]. https://superforest.blog/2018/10/08/blinding-consumers-to-the-true-cost-of-soy/
[5c]. https://wentworthreport.com/2018/07/02/the-china-trade/
[6]. http://www.abc.net.au/news/2016-07-13/rothwell-south-china-sea-verdict-explained/7624120
[7]. http://www.abc.net.au/news/2017-11-29/south-china-sea-why-is-australia-worried-about-chinas-stance/9206998
[8]. https://www.politico.eu/article/president-donald-trump-winning-the-trade-war-for-now-steel-aluminum-tariffs/
[9]. https://www.cnbc.com/2018/07/13/cramer-trump-winning-china-trade-war-and-the-stock-market-confirms-it.html
[10]. https://thehill.com/opinion/finance/397447-trump-is-winning-the-trade-war-because-china-has-more-to-lose
Added after 2018, Sept 26:
[11]. https://johnib.wordpress.com/2018/09/26/south-china-sea-do-china-and-the-u-s-know-each-others-intentions/
Sixty percent of all soybeans grown worldwide are now exported to China,
[12]. https://us-issues.com/2018/10/02/china-in-water-crisis/
Conservation requires an increase in soybeen prices: rising demand for meat has driven soy production to nearly 10 times what it was 50 years ago. A full 80 percent of the world’s soybean crop is fed to livestock.
[13]. Blinding consumers to the true cost of soy?, https://superforest.blog/2018/10/08/blinding-consumers-to-the-true-cost-of-soy/
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