Trade Wars and their Effect on the Economy and You - Why Trade Wars Are Bad and Nobody Wins
A trade war occurs when one country (Country A) raises tariffs (a tax or duty) on another country’s (Country B) imports in retaliation for Country B raising tariffs on Country A's imports.
Trade wars are a side effect of protectionism, government actions and policies that restrict international trade, generally with the intent of shielding local businesses and jobs from foreign competition, or of righting trade deficits (a country's imports exceeding its exports).
The Basics of a Trade War
Trade wars can commence if one country perceives another country's trading practices to be unfair or when domestic trade unions or industry lobbyists pressure politicians to make imported goods less attractive to consumers. Trade wars are also often a result of a misunderstanding of the widespread benefits of free trade.
A trade war that begins in one sector can grow to affect other sectors. Likewise, a trade war that begins between two countries can affect other countries not initially involved in the trade war. As noted above a trade war can result from a protectionist penchant.
A trade war is distinct from other actions (e.g. sanctions) that have detrimental effects on the trading relationship between two countries in that its goals are related specifically to trade. Sanctions, for example, may also have humanitarian goals. In addition to tariffs, protectionist policies can be implemented by placing a cap on import quotas, setting clear product standards, or implementing government subsidies for U.S. processes to deter outsourcing.
· A trade war occurs when country A raises tariffs on country B's imports in retaliation for B raising tariffs on A's imports.
· Trade wars are a side effect of protectionist policies.
· Trade wars are controversial: Advocates say they protect and provide advantages to domestic businesses; critics claim they ultimately hurt local companies, consumers, and the economy.
‘The Pros and Cons of a Trade War
The advantages and disadvantages of trade wars in particular, and protectionism in general, are the subjects of fierce debate.
Proponents of protectionism argue that well-crafted policies provide competitive advantages: by blocking or discouraging imports, they throw more business domestic producers' way, which ultimately creates more jobs. They can also serve to overcome a trade deficit. While painful, tariffs and trade wars may also be the only effective way to deal with a nation that behaves unfairly or unethically in its trading policies.
- Protects domestic companies from unfair competition
- Increases demand for domestic goods
- Promotes local job growth
- Improves trade deficits
- Punishes nation with unethical trade policies
- Increases costs and induces inflation
- Causes marketplace shortages, reduces choice
- Discourages trade
- Slows economic growth
- Hurts diplomatic relations, cultural exchange
Critics argue that protectionism often hurts the people it is intended to protect long-term by choking off markets, and slowing economic growth and cultural exchange. Consumers have less choice in the marketplace; they may even face shortages if there is no ready domestic substitute for the imported goods that tariffs have impacted or eliminated. Having to pay more for raw materials hurts manufacturers' profit margins. As a result, trade wars can lead to price increases—with manufactured goods in particular becoming more expensive—sparking inflation in the local economy overall.
Real World Example of a Trade War
While running for President in 2016, President Donald Trump expressed his disdain for many current trade agreements, promising to bring manufacturing jobs back to the United States from other nations where they have been outsourced, such as China and India. After his election, he embarked on a protectionist campaign; he also threatened to pull the U.S. out of the World Trade Organization (WTO), an impartial, international entity that regulates and arbitrates trade among the 164 countries that belong to it.
In early 2018, President Trump stepped up his efforts, particularly against China, threatening a big fine over alleged IP theft and significant tariffs on $500 billion worth of Chinese products such as steel and soy. The Chinese retaliated with a 25% tax on over 100 U.S. products. Throughout the year, the two nations continued to threaten each other, releasing lists of proposed tariffs on various goods. In September, the U.S. implemented 10% tariffs, though only on approximately $250 billion worth of goods. Although China responded with tariffs of its own, the American duties did have an impact on the Chinese economy, hurting manufacturers and causing a slowdown.
In December, each nation agreed to halt in imposing any new taxes. The tariff war cease-fire continued into 2019. In the spring, China and the U.S. actually seemed on the verge of a trade agreement.
But at the beginning of May, literally less than a week before final talks were slated to begin, Chinese officials took a new hard line in negotiations, refusing to make changes in their company-subsidizing laws and insisting on the lifting of the current tariffs. Angered by this apparent backtracking, the President doubled down, announcing on May 5 that he was going to increase tariffs from 10% to 25% on $200 billion worth of Chinese imports, as of May 10. He may have felt emboldened by the fact that the U.S. trade deficit with China had fallen to its lowest level in 2014.
As of May 9, the trade talks between the two nations were still on, however.
Article BY KIMBERLY AMADEO Updated May 13, 2019
A trade war is when a nation imposes tariffs or quotas on imports and foreign countries retaliate with similar forms of trade protectionism. As it escalates, a trade war reduces international trade.
A trade war starts when a nation attempts to protect its domestic industry and create jobs. In the short run, it may work. Tariffs are supposed to give a competitive advantage to domestic producers of that product. Their prices would be lower by comparison. As a result, they would receive more orders from local customers. As their businesses grow, they would add jobs.
But in the long run, a trade war costs jobs. It depresses economic growth for all countries involved. It also triggers inflation when tariffs increase the prices of imports.
The 1930 Smoot-Hawley Tariff was a trade war that worsened the Great Depression. It increased 900 import tariffs by an average of 40% to 48%.
Smoot-Hawley was designed to support U.S. farmers who had been ravaged by the Dust Bowl. But it also raised food prices for Americans who were already suffering from the Great Depression. Other countries retaliated with their own tariffs. The trade war reduced international trade by 65%. It turned a recession into a depression and contributed to the start of World War II.
Trump's Trade Wars
President Donald Trump wants to reduce the $621 billion U.S. trade deficit. It’s been the world’s largest since 1975. Reducing the deficit is part of Trump’s strategy to create more jobs.
Most of the U.S. deficit results from American enthusiasm for imported consumer products and automobiles. In 2018, the United States imported $648 billion in drugs, televisions, clothing, and other household items. It only exported $206 billion of these consumer goods. That alone added $442 billion to the deficit. America imported $372 billion worth of automobiles and parts, while only exporting $159 billion. That added another $214 billion to the deficit.
In early 2018, Trump said, "Trade wars are good and easy to win." He has initiated three: a global tariff on steel, a tariff on European autos, and tariffs on Chinese imports.
After Trump’s announcement, global stock markets tumbled in fear of a trade war between the world's three largest economies. In late 2018, several U.S. companies formed "Tariffs Hurt the Heartland.” They are hurt by the rising costs of imported materials.
Farmers suffer from retaliatory tariffs imposed by China and Europe on their exports. In the farm belt of Illinois, Indiana, and Wisconsin, bankruptcies have risen to their highest level in a decade. In 2017, those states produced half of all U.S. food. Nationally, farmers’ income fell by $11.8 billion between January and March 2019. That’s the most since 2016.
Other countries are forming trade agreements excluding the United States. In April 2018, the EU upgraded its agreement with Mexico, removing almost all tariffs. In July 2018, the EU signed an agreement with Japan that reduces or ends tariffs on almost all goods. It's the largest bilateral trade agreement in existence, covering $152 billion in goods.
The U.S. Congress is the only body authorized to impose tariffs. But in 1962, it allowed the president to curb imports that threaten national security. The World Trade Organization can only adjudicate trade disputes that don't involve security.
On March 8, 2018, Trump administration announced a 25% tariff on steel and a 10% tariff on aluminum imports. It said that dependence on imported metals threatens America’s ability to make weapons. The Aerospace Industry Council said Trump's tariffs would raise the military’s costs instead.
America is the world's largest steel importer, thanks to users like automakers. Steel importers employ 6.5 million workers compared to 147,000 workers in the U.S. steel industry. Tariffs lowered second-quarter profits for the big three automakers. To satisfy shareholders, they passed those costs onto consumers. Costs from tariffs have already outweighed any benefits of Trump's tax plan.
Eight countries filed complaints with the World Trade Organization. Six of them - Canada, India, and Mexico, the European Union, Norway, and Switzerland - pointed out they are allies. The other two complainants are China and Russia.
On March 26, 2018, Trump exempted South Korea, Argentina, Australia, and Brazil from the steel tariff. South Korea agreed to double its import quota for U.S. cars. It allowed the United States to keep its 25% tariff on pickup trucks for an additional 20 years.
After the June 11, 2018, G7 meeting, Canadian Prime Minister Justin Trudeau said Canada would retaliate with tariffs. Mexico announced tariffs on flat steel, lamps, and pork products.
U.S. - China Trade War Major Events Timeline
By far, the largest U.S. trade deficit by country is with China. In 2018, the U.S. trade deficit with China was $419 billion. The United States imported $540 billion, primarily in computers, cell phones, and apparel. Much of this is manufactured in China by U.S. companies but is still considered imports. The U.S. companies exported $120 billion to China. Most of this was commercial aircraft, soybeans, and autos.
In addition to reducing the trade deficit, Trump wants to limit U.S. technology transfers to Chinese companies. China requires foreign companies who want to sell products in China to share their trade secrets. The administration has also asked China to stop subsidizing the 10 industries prioritized in its "Made in China 2025" plan. These include robotics, aerospace, and software. China also plans to be the world's primary artificial intelligence center by 2030. China is unlikely to agree to those demands.
The Trump administration has imposed three tariffs on a total $250 billion in Chinese imports. On May 20, 2019, Trump imposed a fourth tariff. He raised tariffs to 25% on $200 billion worth of goods. He is increasing the pressure on trade talks that are underway. He mentioned he may expand that tariff to an additional $325 billion of Chinese imports. That would raise prices on basically all Chinese imports.
China will impose a 25% tariff on $60 billion of U.S. goods on June 1, 2019. Some investors are also worried China may sell some of its $1.13 trillion in U.S. debt. That would send interest rates higher and slow the U.S. economy.
Here are the most important events in the timeline. A detailed timeline is available in this article from Bloomberg.
On January 22, 2018, President Trump imposed tariffs and quotas on imported Chinese solar panels and washing machines. China is a world leader in solar equipment manufacturing.
On March 8, 2018, Trump asked China to develop a plan to reduce the trade deficit by $100 billion. China's economic reform plan includes reducing its reliance on exports. But it said it can’t stop Americans from demanding low-cost Chinese goods.
On March 22, 2018, the administration announced tariffs on $60 billion of Chinese imports. It said China uses cybertheft, espionage, and government pressure to obtain leading-edge technology. On March 23, China announced tariffs on $3 billion of U.S. fruit, pork, recycled aluminum, and steel pipes.
On March 26, 2018, the administration began negotiations with China. It asked China to reduce tariffs on U.S. automobiles, import more U.S. semiconductors, and grant greater access to its financial sector.
On April 3, 2018, the administration threatened a 25% tariff on $50 billion in Chinese electronics, aerospace, and machinery. Hours later, China announced 25% tariffs on 106 U.S. exports. On April 18, China penalized two other U.S. exports: sorghum and Boeing airplanes. It targeted industries located in states that supported Trump in the 2016 election. It lifted the sorghum tariffs on May 18.
On May 2, 2018, China canceled all U.S. soybean import contracts. China imported $12 billion in U.S. soybeans to feed pigs, its primary meat staple. It replaced U.S. beans with those from Brazil. U.S. farmers sold one-half of their crop to China. As that market disappeared, it hurt the United States more than China. In July 2018, soybean prices hit a 10-year low as analysts predicted oversupply.
On April 5, 2018, Trump threatened tariffs on $100 billion more of Chinese imports. It would cover just one-third of U.S. imports from China. If China retaliated in kind, it would slap levies on all U.S. exports to China.
On April 10, 2018, China announced it would reduce tariffs on imported vehicles. But most automakers find it’s cheaper to build in China, regardless of tariffs.
On May 4, 2018, the administration asked China to reduce the trade deficit by $200 billion and cut tariffs on U.S. goods by 2020. It asked China to end subsidies to tech companies, stop stealing U.S. intellectual property, and become open to more U.S. investment.
On May 15, 2018, China agreed to allow Qualcomm to acquire NXP. In exchange, the United States would remove tariffs on Chinese telecom company ZTE.
This agreement supports a mercantilist philosophy. It promotes specific industries that are important for the leaders' political purposes.
The telecom industry is part of China's growth strategy, which is one reason Trump imposed tariffs. The other is that the company violated U.S. sanctions against Iran and North Korea. On June 12, the Senate blocked Trump's deal. Many countries seeTrump's removal of tariffs on ZTE as a weakness they could exploit. They will redouble efforts to find exceptions to Trump's tariffs. Many European countries want to avoid U.S. sanctions on Iran. They may threaten tariffs on U.S. imports as a bargaining tool.
On May 21, 2018, China agreed to cut tariffs on U.S. auto imports from 25% to 15%. It would go into effect July 1.
On May 29, 2018, the administration said it would target $50 billion in imports from China. It would also restrict Chinese acquisition of U.S. technology.
On July 6, 2018, U.S. tariffs went into effect for $34 billion of Chinese imports. China retaliated with a 40% tariff on U.S. autos. Tesla announced it will build a factory in Shanghai to avoid the tariff. China also announced tariffs on U.S. agricultural exports.
Midwest farmers have been stuck with excess produce and livestock. On July 24, 2018, Trump announced he would offer $12 billion in subsidies to American farmers. On August 27, the administration announced a $4.7 billion bailout. Corn growers alone said their costs top $6 billion.
On July 11, 2018, the administration announced 10% tariffs on another $200 billion of Chinese imports. They went into effect in mid-September 2018, weeks before the 2018 midterm elections. The U.S. also threatened 25% tariffs after January 1, 2019, on a variety of consumer goods, including fish, luggage, tires, handbags, furniture, apparel, and mattresses.
China threatened to retaliate by adding tariffs on $60 billion in U.S. exports. In response, Trump threatened to add tariffs until all $500 billion of Chinese imports are affected. That could have reduced economic growth by 0.75 points in 2018. It might have also threatened U.S. shale oil exports. China buys 20% of U.S. oil exports.
On August 2, 2018, the administration announced a 25% tariff on $16 billion worth of Chinese goods. It went into effect on August 23. It applied to industrial equipment like tractors, plastic tubes, and chemicals. In response, China announced a 25% tariff on $16 billion worth of U.S. goods, including autos and coal. It went into effect the same day.
On September 18, 2018, the administration announced tariffs on $200 billion of Chinese imports. A 10% tariff would launch on September 24, 2018. It would increase to 25% on January 1, 2019. The tariffs were imposed on 5,745 items. They encompassed a wide range of electronics, food, tools, and housewares.
On December 1, 2018, President Trump met with China's President Xi Jinping at the G-20 Conference. Trump agreed to delay the 25% tariff increase from January 1, 2019, to March 1, 2019. Negotiators planned to cover 142 issues. These included the protection of intellectual property, technology, and cybersecurity, as well as currency, agriculture, and energy.
On December 11, various federal agencies said they would condemn China for stealing U.S. trade secrets and technologies. The Justice Department would indict hackers who broke into U.S. networks. Later that day, China agreed to roll back some auto tariffs raised earlier in. It also agreed to reinstate some purchases of soybean imports and allow U.S. firms greater access to Chinese industries.
On January 18, 2019, China agreed to increase its purchases of U.S. exports and reduce the trade deficit.
On February 27, 2019, the administration dropped the threat of imposing the 25% tariff. It was originally scheduled to begin January 1, then moved to March 1, then dropped.
Causes of U.S. Trade War with China
U.S. politicians have long threatened a trade war with America's largest trading partner in goods. A trade deficit occurs when exports are less than imports.
In 2017, the United States exported $130 billion to China. The three largest export categories are aircraft at $16 billion; soybeans, $12 billion; and automobiles, $11 billion. U.S. imports from China were $506 billion. Most of it is electronics, clothing, and machinery.
Half of all Chinese imports are goods used by U.S. manufacturers to make other products. They send raw materials to China for low-cost assembly. Once shipped back to the United States, they are considered imports. The tariffs raise their costs, forcing them to either raise prices or lay off workers.
An example is salmon caught in Alaska and sent to China for processing, then sent back to U.S. grocery shelves. If Trump imposes tariffs on seafood imports, it will raise prices by 25 cents to 50 cents a pound.
China is the world's No.1 exporter. Its comparative advantage is that it can produce consumer goods for lower costs than other countries can. China has a lower standard of living, which allows its companies to pay lower wages. American companies can't compete with China's low costs, so it loses U.S. manufacturing jobs. Americans, of course, want these goods for the lowest prices. Most are not willing to pay more for "Made in America."
Trade War With the EU
On March 7, 2018, the EU threatened a 25% tariff on U.S. exports such as cranberries, Harley Davidson motorcycles, blue jeans, and bourbon. Trump delayed the steel tariff until May 1, 2018.
On April 21, 2018, the EU upgraded its trade agreement with Mexico. Once signed, it will remove tariffs from almost all trade between the two areas.
On May 1, 2018, Trump announced he would delay the steel tariff against the EU until June 1, 2018. He wanted the U.S. ally to cut its 10% tariff on U.S. autos. He also asked the EU to set quotas on its steel exports.
But on May 31, 2018, Trump revoked the delay. He imposed the tariff on Canada, Mexico, and the EU. The U.S. Aluminum Association said the move will disrupt "supply chains that more than 97% of U.S. aluminum industry jobs rely upon.”
On June 21, Germany proposed to end the EU's 10% tax on U.S. auto imports if Trump forgot about imposing a 25% tax on European auto imports. There is already a 25% U.S. tariff on light trucks.
On June 22, the EU retaliated to the steel tariffs with tariffs on $3.2 billion of American products. It targeted imports that will impact Trump’s political base. Examples of these taxable imports are bourbon, motorcycles, and orange juice.
On July 17, 2018, the EU signed a trade agreement with Japan. It reduces or ends tariffs on almost all goods. It's the largest bilateral trade agreement, covering $152 billion in goods. It will come into force in 2019 after ratification.
On July 25, 2018, the EU and the United States agreed to hold off on any new tariffs, reassess the steel and aluminum tariffs, and work toward zero tariffs on non-auto industrial goods. The EU agreed to import more U.S. liquefied natural gas and soybeans. That would reduce its reliance on Russian LNG and help out American farmers who have lost the Chinese market due to the trade war. But Russia's LNG price is much lower than America's, so it's unlikely any big changes will be made there.
On April 15, 2019, the Trump administration announced it would impose tariffs on $11 billion in European imports. It wants to force the EU to end subsidies for aircraft manufacturer Airbus. The tariffs could raise prices on imported cheese, bicycles, and kitchen knives.
How It Affects You
The trade war has raised the prices of consumer goods that use steel and aluminum. Soda and beer suppliers were the first to raise prices. Costs have increased on imported clothes hangers, heavy-equipment materials, and computer chip and tool makers.
The Alliance of Automobile Manufacturers warned that U.S.-produced steel will cost more once cheap foreign imports are eliminated. The move is "threatening the industry’s global competitiveness and raising vehicle costs for our customers."
For example, Mid-Continent Nail in Missouri announced layoffs because steel prices became too high for them to remain profitable. Harley-Davidson announced it would move some production abroad to avoid retaliatory EU tariffs.
The Maine lobster industry will suffer from Chinese retaliatory tariffs on U.S. seafood. California cheese makers are already seeing their markets in China and Mexico disappear due to retaliatory tariffs. Wisconsin auto parts manufacturers and the U.S. bourbon industry are other industries being punished. Tariffs have also slowed U.S. timber and grain exports, according to The Wall Street Journal.
In October 2018, several companies forecast how much tariff-related costs will hurt in 2019:
- United Technologies: $200 billion.
- 3M: $100 million.
- Honeywell: "hundreds of millions."
- Ford: $1 billion.
Foreign tariffs on U.S. exports will make them more expensive. U.S. exporters may have to cut costs and lay off workers to remain competitively priced. If they fail, they may cuts costs further or even go out of business.
In the long term, trade wars slow economic growth. They create more layoffs, not fewer, as foreign countries retaliate. The 12 million U.S. workers who owe their jobs to exports could get laid off.
Consultant Oxford Economics predicted the trade war could cost the global economy $800 billion in reduced trade.
That could slow growth by 0.4 percent. It's occurring at the same time that oil prices and interest rates are rising.
Over time, trade wars weaken the protected domestic industry. Without foreign competition, companies within the industry don't need to innovate. Eventually, the local product would decline in quality compared to foreign-made goods.
The Bottom Line
A trade war may improve a nation’s trade deficit in the short run but it could cost warring nations their economic growth in the long term. The United States is currently engaged in a trade war with China, the EU, Mexico, and Canada. Because of this, the affected countries have signed new trade agreements with other countries and have left America out of the loop.
President Trump’s attempts at trade protectionism have already hurt the U.S. economy. They raised the prices of automobiles, computer chips, soda and beer, and heavy equipment. Companies have cut jobs because the cost of production with local materials is prohibitive. U.S. exporters of agricultural products, bourbon, cheese, and auto parts are suffering as foreign markets disappear under retaliatory tariffs. Trump must resolve the trade war soon before it wreaks serious damage on the U.S. economy.
A quick guide to the US-China trade war - The US and China are locked in an escalating trade battle.
US President Donald Trump has complained about China's trading practices since before he took office in 2016.
The US launched an investigation into Chinese trade policies in 2017. It imposed tariffs on billions of dollars worth of Chinese products last year, and Beijing retaliated in kind.
After months of hostilities, both countries agreed to halt new trade tariffs in December to allow for talks.
Optimism had grown over the prospect of a deal, but that faded, and now the US has more than doubled tariffs on $200bn (£153.7bn) worth of Chinese products.
Beijing retaliated three days later with tariff hikes on $60bn of US goods.
What tariffs are in place?
The duties of up to 25% cover a wide range of industrial and consumer items - from handbags to railway equipment.
Beijing hit back with tariffs on $110bn of US goods, accusing the US of starting "the largest trade war in economic history".
China has targeted products including chemicals, coal and medical equipment with levies that range from 5% to 25%.
It has also targeted products made in US districts with strong support for the Republicans, and goods that can be purchased elsewhere, such as soybeans.
After agreeing a truce in December, both sides began to talk.
But on Friday the US raised tariffs on $200bn of Chinese products to 25% from 10%. China retaliated but officials say the countries are still talking.
The US has also started the process for hitting an additional $300bn of Chinese goods with tariffs.
Tariffs imposed on Chinese goods, in theory, make US-made products cheaper than imported ones, and encourage consumers to buy American. They are also increasingly seen as a negotiation tactic in the trade war.
What is the impact so far?
Both US and international firms have said they are being harmed.
Fears about a further escalation have rattled investors and hit stock markets.
The IMF warned a full-blown trade war would weaken the global economy.
JP Morgan: The US-China tariff battle is just the start of a global trade reordering
- As the relationships between countries shift over the next few decades, expect trade to remain a hot button issue, according to one analyst.
- “As we start to move toward a multi-polar world, I think we have to recognize that these trade conversations are not fits and starts,” said James Sullivan, head of Asia ex-Japan equity research at J.P. Morgan.
- Sullivan’s prediction comes as the U.S. and China continue to square off in a trade war that has roiled global markets. Last week, U.S. President Donald Trump hiked tariffs on billions of dollars worth of Chinese goods, and China threatened to retaliate.
As the relationships between countries shift over the next few decades, expect trade to remain a hot button issue, according to one analyst.
That prediction comes as the U.S. and China continue to square off in a trade war that has roiled global markets. Last week, U.S. President Donald Trump hiked tariffs on billions of dollars worth of Chinese goods, and China threatened to retaliate.
Those developments — which followed speculation that the world’s top two economies had been close to inking a trade agreement — sent shockwaves through global markets. As countries, including China, accrue more power on the global stage, investors should expect more trade arguments ahead, according to James Sullivan, head of Asia ex-Japan equity research at J.P. Morgan.
“As we start to move toward a multi-polar world, I think we have to recognize that these trade conversations are not fits and starts,” Sullivan told CNBC’s “Squawk Box” on Monday. “I think we have to recognize as equity investors, in particular, this is now the new normal.”
“These trade conversations are now part of the backdrop of global markets for the next ... 10 to 20 years as these countries and economies work out their relative place in the world and how we reorder the overall global structure to account for the rise of China, to account for a multi-polar environment,” he said.Top of Form
UPDATE ON TOP ETF TRENDS
Last Friday, Washington raised tariffs from 10% to 25% on $200 billion worth of Chinese goods. Beijing responded immediately after the deadline that it would take countermeasures against the move, but has yet to provide specifics on what those might entail.Bottom of Form
Major markets across the globe, however, appeared to shrug that off as shares mostly advanced.
In an interview with Fox News on Sunday, White House Economic Advisor Larry Kudlow said U.S. President Donald Trump and Chinese President Xi Jinping are likely to meet at the upcoming June G-20 summit in Japan.
Kudlow said the chances of such a meeting “were pretty good,” but he said there are “no concrete, definite plans” for when U.S. and Chinese negotiators will meet again.
The White House economic advisor also told Fox News that China needs to agree to “very strong” enforcement provisions for an eventual deal, with the sticking point being Beijing’s reluctance to put into law changes that had been agreed upon, Reuters reported.
For its part, Beijing responded in a commentary on Monday in the People’s Daily: “At no time will China forfeit the country’s respect, and no one should expect China to swallow bitter fruit that harms its core interests.” The publication is controlled by China’s ruling Communist Party.
— CNBC’s Spencer Kimball, and Reuters contributed to this report.
(Article by Orit Frenkel, Opinion contributor Published 3:30 a.m. ET May 13, 2019 | Updated 6:47 p.m. ET May 13, 2019)
China is ahead of the US in the race to establish global trade rules on digital commerce. We need investment, diplomacy and a Digital Marshall Plan.
President Donald Trump’s tariffs-by-tweet tendencies and brinkmanship on both sides of the negotiating table have led to a breakdown in talks with China, an escalating trade war, and no doubt many sleepless nights in Beijing and in American boardrooms. But for the United States, the unease is misdirected.
What should keep American businesses and politicians up at night has little to do with levies on specific commodities or Chinese products. While Washington is targeting Beijing with tariffs over individual trade grievances, China has been laying the foundation to direct and influence digital trade — the booming engine of global commerce — unopposed, with deep pockets and grand ambitions.
This should be our strategic and diplomatic focus, because what China is doing globally in this sphere has serious economic and national security implications for the United States today and well into the future. To the question of who will write the digital trade rules for the 21st century, the answer must be the United States. If the answer is China, we will have ceded the global digital future to Beijing.
No global rules govern digital trade, which covers everything from e-commerce to bank transfers to data collection. Today there are almost 4.4 billion internet users around the world, up more than 1,000% since 2000, with global e-commerce sales topping $2.8 trillion in 2018. Digital trade is the backbone of today’s business — when a customer in Japan orders a book from Amazon, when a bank transfers data from one country to another, or when an in-flight aircraft engine beams GPS information to a global data collection center. The fact that the global regulatory environment is still a free-for-all is astounding, given all that is at stake.
Costs of U.S. inaction include suppression
Global regulations have not kept pace with this rapid growth, and American businesses are forced to operate through a spider’s web of regulatory environments, hobbling trade and challenging our national security. Rep. Suzan DelBene, D-Wash., chair of the Digital Trade Caucus, warned recently that it's critical for Americans to "reassert ourselves on the world stage" now and make sure "we're helping shape global digital governance.”
Clearly, she’s right, and we’re seeing the costs of American inaction in real time.
With legitimate concerns over privacy and cybersecurity, many countries have moved to restrict digital trade, threatening American companies’ ability to do business while undermining U.S. national security. Because of the regulatory vacuum, countries have put in place a wide variety of restrictions. Nigeria, Turkey and others have data localization requirements mandating that companies doing business in their borders must keep data in country on local servers, among other restrictions, rendering digital trade impractical.
Of greater concern to policymakers and businesses are countries like China and Vietnam, which use digital restrictions to censor the internet and monitor citizens. China provides its internet regulatory principles to developing countries, essentially exporting these tools of suppression.
How U.S. can counter China's expansion
With more people on the web than any other country, China has aspirations to be the global internet leader, remaking cyberspace in its own image. As part of this initiative, Beijing launched the Digital Silk Road in 2015, investing $200 billion in a global digital infrastructure. This effort is a subset of China’s larger Belt and Road Initiative, a government global infrastructure initiative with $340 billion invested to date. How Beijing’s digital playbook looks in practice: When developing countries buy Chinese equipment, they receive the tools to censor and control their internet while leaving their networks vulnerable to Chinese government cybertheft and interference.
Washington can and must act to counter Beijing’s well-funded and deliberate technological march across the planet, and action should begin with a two-pronged approach.
First, the United States must lead the negotiation of an international agreement laying out global digital rules of the road. It should be based on American values with the goal of securing an internet future of free, open and secure trade — not the Chinese model of limited access, censorship and government manipulation. Seventy-six countries have launched negotiations for a digital e-commerce agreement under the auspices of the World Trade Organization. At the Group of 20 major economies summit in June, host Japan will highlight the need for global digital regulations. But with China in these negotiations, the level of ambition of such an agreement will, necessarily, be quite low. That’s Beijing’s modus operandi.
The United States should work with a subset of like-minded countries (Canada, the European Union, Japan, Australia and others) to lead the negotiation of a separate, high-standard agreement outside of the WTO. Like the Trans-Pacific Partnership agreement, participants could agree on regulations to keep the internet both open and secure. This agreement would be one other countries could aspire to and join over time.
A U.S. Digital Marshall Plan for developing world
Second, the United States must launch a major foreign assistance initiative to allow countries in the developing world to purchase U.S. internet and information and communications technology equipment, countering China’s aggressive and cheap financing of equipment. This “Digital Marshall Plan” would make the financing of a digital infrastructure in the developing world a strategic priority.
America would also need to provide technical assistance to develop internet regulations that allow open commerce, respect for privacy and protection of human rights. Such an initiative echoes the original post-World War II Marshall Plan, which had dual goals of modernizing European industry to promote economic development and creating a market for U.S. goods, while also preventing the spread of communism.
Beijing is well ahead of Washington in the race to establish the trade rules that tame — or rather maim — digital commerce. Playing the long game, Beijing surely understands that though today’s tariff battles must be fought, the trade wars of tomorrow will be waged on a digital battleground.
If the United States doesn’t commit to urgent, strategic investments and diplomacy to counter China on digital trade today, Beijing will have a clear path to digital dominance that could undermine our national security and undercut the U.S. economy for generations.
Orit Frenkel, former senior manager for international trade and investment for General Electric, is executive director of the American Leadership Initiative and president of Frenkel Strategies.
(Amiti Sen New Delhi | Updated on May 14, 2019 Published on May 14, 2019)
As Washington delays GSP decision, New Delhi is looking at pushing back tariffs by a month
The government on Tuesday extended the deadline to impose retaliatory import tariffs on 29 US products till June 16.
A Finance Ministry notification said the duties, which were to come into effect from May 16, have been postponed by a month.
The move comes as New Delhi hopes to sort out trade issues with Washington after the general elections are over and a new government is in place. The duties, which were to come into effect from May 16, are now likely to be applicable from mid-June.
“The Commerce Department is recommending to the Finance Ministry that the retaliatory duties against the US should be put off further by a month. This is being done taking into account the fact that the US has not yet withdrawn the Generalised System of Preferences schemes for India,” a government official told Business Line.
The Finance Ministry had issued a notification earlier this month postponing the date of imposing retaliatory duties on the US from May 2 to May 16.
India had announced retaliatory tariffs worth $230 million on about 29 American goods in June last year in response to imposition of penal tariffs of 25 per cent on steel and 10 per cent on aluminium from the country by the US.
New Delhi has since been postponing implementation of these duties hoping to resolve trade concerns, including the proposed withdrawal of the Generalised System of Preferences (GSP) by the US. The GSP offered duty-free access to the American market for more than 3,000 items from India.
“The US was supposed to withdraw the GSP in the beginning of May. Since it did not happen, India postponed the retaliatory duty till May 16 hoping that it would be clear by then what was playing on the US’ mind. During US Secretary for Commerce Wilbur Ross’ visit last week, it became clear that Washington did not want to withdraw the GSP scheme till it gave an opportunity to the new government formed after the general elections to sort out its concerns. That is why India is planning to postpone the retaliatory duties till the mid of next month,” the official explained.
While the US seems to be dilly-dallying on GSP withdrawal, it has not given any indication yet on whether it was willing to take back the penal duties imposed on Indian steel and aluminium.
The US wants India to address the price cap issue for medical devices, provide greater market access for dairy and agricultural products and also reduce high import tariffs for mobile phones.
In 2018, bilateral trade in goods and services registered a growth of 12.6 per cent to $142 billion, from $126 billion in 2017.
Source: Business Line -Published on May 14, 2019
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In a move that will hit the common man, the government slashed interest rates payable on small savings including PPF and Kisan Vikas Patra (KVP) on 18th March 2016, in a bid to align them closer to market rates. As a part of its February 16 decision to revise interest rates on small savings every quarter, the interest rate on Public Provident Fund (PPF) scheme will be cut to 8.1 per cent for the period April 1 to June 30, from 8.7 per cent, at present. Similarly, the interest rate on KVP will be cut to 7.8 per cent from 8.7 per cent, according to a Finance Ministry order. While the interest rate on Post Office savings has been retained at 4 per cent, the same for term deposits of one to five years has been cut. The popular five-Year National Savings Certificates will earn an interest rate of 8.1 per cent from April 1 as against 8.5 per cent, at present. A five-year Monthly Income Account will fetch 7.8 per cent as opposed to 8.4 per cent now. Girl-child saving scheme, Sukanya Samriddhi Account will see interest rate of 8.6 per cent as against 9.2 per cent. Senior citizen savings scheme of five-year would earn 8.6 per cent interest compared with 9.3 per cent. “On the basis of the decisions of the government, interest rates for small savings schemes are to be notified on quarterly basis,” the order said announcing the rates for the first quarter of fiscal 2016-17. Post Office term deposits of one, two and three years command an interest rate of 8.4 per cent but from April 1, a 1-year Time Deposit will get 7.1 per cent, 2-year Time Deposit will earn 7.2 per cent and 3-Year Time Deposit will attract interest of 7.4 per cent. Five-year time deposit will fetch 7.9 per cent interest in the first quarter as against 8.5 per cent while the same on five-year recurring deposit has been slashed to 7.4 per cent from 8.4 per cent. The government had on February 16 announced moving small saving interest rates closer to market rates. On that day, rates on short-term post office deposits was cut by 0.25 per cent but long-term instruments such as MIS, PPF, senior citizen and girl child schemes were left untouched.