Trade war, day 76: Who will win as the Chinese and American economies ‘divorce’?

FILE - In this Saturday, July 8, 2017, file photo, U.S. President Donald Trump, left, and Chinese President Xi Jinping arrive for a meeting on the sidelines of the G-20 Summit in Hamburg, Germany. After a cordial meeting between Trump and Xi in April 2017, tensions are simmering again between the world’s two biggest economies. As U.S. and Chinese economic officials prepare to meet Wednesday, July 19, in Washington, the U.S. is weighing whether to slap tariffs on steel imports and risk setting off a trade war, a dicey option to deal with a problem caused largely by China’s massive overproduction of steel. (Saul Loeb/Pool Photo via AP, File)

In less than five days, the scope of the U.S.-China trade war is set to more than triple, from $100 billion in goods tariffed to $360 billion. Both sides continue to dig in to their trenches:

  • “Talk is cheap and actions are what matter,” Todd Rokita, a Republican congressman from Indiana said at the World Economic Forum in Tianjin, China, expressing a sense of grievance against Chinese economic policy that is by no means limited to one political party in the U.S.
  • Rokita was responding to a speech by Premier Li Keqiang in which he “reiterated promises to lower tariffs and improve the business environment for foreign companies,” the Wall Street Journal reports (paywall).
  • “We’ve heard this before,” Wendy Cutler, a former negotiator at the U.S. Trade Representative said separately, adding, “all the buzzwords were there but now the administration is looking for details, not just a general statement.”
  • “China will dig in its heels over US tariff pressure,” the Financial Times writes (paywall), pointing out that President Xi Jinping “could well benefit politically from attacks by an external enemy at a time when he faces mounting internal problems,” and that “the biggest impact from the tariffs will be felt by foreign and privately owned companies, not state-owned enterprises.”
  • The American Chamber of Commerce in China also expects China to stand firm: “Contrary to views in Washington, China can – and will – dig its heels in and we are not optimistic about the prospect for a resolution in the short term.”

In the last month, as tensions ramped up and negotiations sputtered out, predictions that the Chinese and American economies are headed for disengagement have become more common. “Divorce” is the term being adopted by Bloomberg, as it published a “roadmap for the great U.S.-China divorce” by economist Christopher Balding on September 16, and today reported this: “U.S.-China trade war spells divorce of world’s biggest economies.”

Many more pieces like this one will be publishing in the coming months, as the world grapples with the likely effects of the continuing trade war. Bloomberg reports:

  • Vietnam, Thailand, India, and Mexico may “win” from the U.S.-China economic decoupling, according to Michael Every, head of Asia financial markets research at Rabobank in Hong Kong.
  • “The U.S. will win geo-strategically by hollowing out China as it has been hollowed out, preventing the Made in China 2025 plan and fracturing the world into a China and U.S. camp with more limited economic connections. It’s a win for U.S. power,” Every added.
  • “A moderate trade conflict has no winner; in a serious one, the U.S. loses far less,” Derek Scissors, chief economist at the China Beige Book, clarified, because “there are more substitutes for Chinese supply than American demand.”
  • “One goal of U.S. officials is to use tariffs to incentivize U.S. firms to pull their supply chains outside of China, though this isn’t a uniform view within the administration,” Michael Hirson, Asia director at Eurasia Group, said, adding that “the ideal would be to bring production back to the U.S.”
  • But the trade war “will not result in bringing more business back to American soil: Just 6% of our member companies say this current US-China trade dispute would make them consider relocating operations back home,” William Zarit, Chairman of American Chamber of Commerce in China said in a statement.
  • Another winner: Japan, which is seeing rapidly warming relations with China as a result of the trade war, the SCMP reports, as the two countries are talking about cooperating on the Eastern Economic Corridor in Thailand, and “Chinese officials [have] become more open than in the past to discussing transparency, openness, economic viability and fiscal sustainability” regarding Belt and Road projects.
  • American soy farmers may lose big, Reuters says, because there is “a growing confidence within China’s soybean industry and government that the world’s largest pork-producing nation can wean itself off U.S. soy exports.”
  • “Cutting the soy ration for hogs from the typical 20 percent to 12 percent would equate to a demand reduction of up to 27 million tonnes of soybeans per year – an amount equal to 82 percent of Chinese soy imports from the United States last year. Chinese farmers could cut soymeal rations by nearly half without harming hogs’ growth, experts and academics said.”

More trade war and related news:

Previously in SupChina’s trade war coverage:

Trade war, day 75: Trump’s $200 billion to be met with $60 billion retaliation from China