Don't Let The White House Trade War Tweet Storm Fool You. The U.S. Is Not "Winning"
BRAmble Daily: 5 news items, 2 comments from me and 1 random musing, book or quote
5 News Items
U.S. Official Says First-Phase China Trade Talks in Final Stages
China wants to make Greece’s main port the biggest in Europe
2 Comments
Tariffs are one thing FDI is another
You might be surprised to know that foreign direct investment into China rose nearly 3% in the first nine months of 2019 from a year earlier, according to the Ministry of Commerce, the same pace as 2018’s YOY increase. In the U.S. though, FDI has dropped off since Trump became president.
Nearly 75% of China’s inbound investment is now into services, utilities, and other sectors aimed at the domestic market. If anything, the trade war is encouraging companies to ensure they have a strong China base.
Now that’s the opposite of what President Trump expects: in August, the president tweeted that U.S. companies should “immediately start looking for an alternative to China.”
If you ask the researchers and business executives, you see that not many of them are actually heeding Trump’s “orders.”
Trade war or not, a market size of 1.4 billion consumers can’t be ignored, AstraZeneca Plc Chief Executive Officer Pascal Soriot said in a recent interview at the second annual China International Import Expo in Shanghai. “We have to invest more in China.”
“If you go to major U.S. companies and say, ‘well the politics in D.C. says we have to decouple so you are going to leave the China market,’ they would say ‘no we can’t because the prize is too big’,” Arthur Kroeber, head of research at Gavekal.
American companies are still being very much welcomed in China, according to Ker Gibbs, president of the American Chamber of Commerce in Shanghai. “At the provincial and municipal level, we sense an even heightened degree of enthusiasm for foreign investments,” he said. “They are very much courting us.” In stark contrast, Chinese investors have received a very cold reception in the U.S.
Young man! Don’t follow the trail of tweets, follow the shipping containers!
Just a month ago, President Trump announced that his administration had secured a “phase one” trade deal with China. Ever since, it has been a litany of declarations of “winning,” while saying the U.S. will agree to a deal only “if the terms are right.” Now we are at a place where basically nothing has changed. We are still in Trade War limbo.
Trying to follow the Trump tweetfest (as conveniently, visually condensed by Bloomberg Businessweek in the graphic below) to find out what is happening in real terms has turned to be a huge waste of time (surprise, surprise!) and actually very misleading (surprise again!).
So what is the bottom line? What would a trade deal accomplish at this time? The only way to sweep away the pile of broken promises and contradictory comments is to analyze the flow of maritime trade.
With 90% of all items used by an average household transported over water, it is the purest form of showing supply and demand. And what is more, the flow of trade is agnostic and non-partisan. It moves regardless of the rhetoric regarding who is “winning” or “losing.”
Yes. We should all be be monitoring the movement of shipping containers to see the real effects of this 18-month trade war. According to calculations based on the decrease in volumes of containers, cargo, and tankers that traveled into U.S. ports, any deal made by the end of this year would never make up for the losses sustained during the trade war so far.
To put the magnitude of the losses into perspective, look no further than the Port of Los Angeles, the largest port in America. U.S. exports to China from the Port of Los Angeles decreased for 12 consecutive months. The port suffered a 19.1% drop in export volume when comparing year over year between 2019 and 2018.
At a price tag of $19.9 billion, China’s retaliatory tariffs hit 96.6% of the purchases of U.S. exports that traveled through the L.A. port complex. If you add in the exports to other countries the Trump administration has recently levied tariffs on, the amount goes to $20.2 billion or 28.8% of all export value that travels through the L.A. port.
Taking into consideration that 95% of the world’s consumers are outside of the U.S., the tariffs imposed on American goods have priced them out of the global marketplace.
The list of losses is long and varied. Often called out in the news is the plight of U.S. agriculture, which is $11 billion in the red (and counting). Trump tweets of the $40 billion to $50 billion in agriculture purchases by the Chinese in phase one is a misleading piece of fake news about “winning.” If you actually do the calculations, the two years before the trade war, the U.S. agriculture business community made $49.8 billion from trade with China. So China would have to buy $50 billion over the course of two years to make it a real “win” now. But that doesn’t even begin to cover the upwards of $11 billion and counting U.S. agriculture lost since the trade wars began.
Agriculture is not the only sector trying to fill the hole that the Trump administration’s tariffs in the trade war with China have created. Before the trade war, U.S. LNG volumes made up 4.3% of Chinese imports, and China accounted for 16% on a trailing twelve-month basis (TTM) of U.S. LNG exports. Now, China is expanding its LNG relationships with Qatar and Australia while essentially shutting off the United States. Same story for American crude oil, which went from 20% to China (TTM) in January 2018 to only 1.2% (TTM) in August 2019.
Retail and technology have not been spared either with losses in the billions. According to the National Retail Federation, due to trade war tariffs, consumers and businesses have paid an additional $38 billion from the beginning of the trade war in February 2018 through September 2019. And the amount is rising quicker with each and every month.
All this makes China’s Belt and Road Initiative (BRI) seem incredibly precient. Every week that passes President Xi continues to press forward with BRI member countries and keeps inking trade deals creating new markets for Chinese goods and viable alternatives to the U.S. to supply China’s vast resource needs.
While the tweets keep coming from the White House with their promises of “winning” for America, we would all do well to keep an eye on the global flow of goods to understand the real impact of the Trump tariff war.
1 Book
Rising powers both shape global norms and selectively ignore and undermine them—much as the United States has done time and again. The United States has circumvented and violated World Trade Organization (WTO) rules with its unilateral tariffs, while China has undermined the same organization through its exemptions and noncompliance. - Khanna, Parag. The Future Is Asian (p. 323). Simon & Schuster.
The new book by my friend and colleague in the effort to understand how we make the most of an increasingly interconnected world, Parag Khanna’s new book is well worth your time. I spoke with him on the “Voices of the Belt and Road Podcast” recently. Have a listen as we do what amounts to a live book review!
Thanks for reading,
James