It's time to give up on the failed trade war strategy with China (Brookings)

Brookings Edu
By David Dollar,
June 24, 2019

It’s impossible to know how long the U.S.-China trade war may drag on, but let’s assume that we could still be in its early days. And already, we can see patterns in the data that reveal why the U.S. strategy is a poor one.

...With the growing U.S. protection aimed at China, U.S. imports from China are declining. In the most recent data, from January through April, the U.S. imported $20.6 billion less from China than in the same period of 2018 (see chart). But imports from other partners have gone up. Increased imports from Mexico, South Korea, and Taiwan partly reflect shifts in global value chains. China is at both the middle and end of many value chains. If final assembly shifts to Mexico (or Vietnam, or Bangladesh), then the U.S. tariffs can be avoided. China is still providing much of the value added; its exports to countries other than the U.S. are rising. Foxconn, the Taiwanese company that assembles phones for Apple, has said that it could service the U.S. market from non-Chinese plants that it already has. Meanwhile, it will still continue to produce in China, for the Chinese, European, and other non-U.S. markets. ...

...The evidence to date is consistent with the view that the trade war with China is not likely to reduce the U.S. trade deficit or bring manufacturing jobs back home. But what of the argument that this is a tactic meant to change China’s unfair trade practices? The problem with this approach is that changing China’s behavior requires cooperation with partners like the European Union and Japan. But none of our partners agrees with this tactic. While U.S.-China trade declines, their trade with China is increasing. China has reduced tariffs and trade barriers overall to encourage this trade, but U.S. firms are largely shut out because of the reciprocal tariffs in place. The U.S. could have brought a joint case at the WTO, with the EU and Japan, on technology transfer and IPR issues. And/or it could have stayed in the Trans-Pacific Partnership and built a community of like-minded economies. Instead we chose a bilateral trade war with China, and that seems to be failing in terms of all of the stated objectives.

https://www.brookings.edu/blog/order-from-chaos/2019/06/24/its-time-to-give-up-on-the-failed-trade-war-strategy-with-china/


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