Tag Archives: Trade War

Trade wars won’t fix globalization. Here’s why


The Trump Administration’s announcement in February of new steel and aluminium tariffs on national security grounds, including on imports from allies like the EU, have set the stage for escalating trade tensions. The EU recently imposed retaliatory tariffs on products ranging from bourbon whiskey to motorcycles. The US President hit back with a tweet threatening a 20% import tariff on autos and auto parts, telling manufacturers: “Build them here!”

A number of US-based firms have voiced concerns over supply chain disruptions from trade wars. Harley Davidson stated that it would be shifting production aimed at the EU market outside the US to avoid the additional tariff burden, exemplifying the unintended consequences of this approach.

Earlier this month, the US announced a 25% duty on around $50 billion worth of Chinese imports on the grounds that they utilize intellectual property obtained from US firms through forced technology transfers or theft. China’s Made in China 2025 plan was named and scrutinised in the report. UNCTAD estimates that, like China, more than 100 countries have formal industrial policy strategies, many of which involve joining and benefitting from global value chains (GVCs). Tariff wars undermine growth models that rely on the benefits and efficiencies of globalization.

We asked policy experts and business leaders: how can countries really reap the economic and social benefits of GVCs, while avoiding inequality and environmental damage?

Don’t neglect services : Much of the recent talk of bilateral trade deficits has overlooked the importance of services to the global and national economies. Factors affecting services competitiveness have become important for economic growth and development more generally. Investment in human capital, digital infrastructure (including reliable mobile broadband), efficient and flexible domestic regulation and connectedness with international markets (including open cross-border flow of data, visa facilitation and mutual recognition agreements) are key. The services sector has strong inclusiveness dimensions: it is more SME-intensive than the goods sector is and has more women workers, owners and managers.

Co-operate on competition policy : Various anti-competitive activities by firms impede the efficient operation of value chains. Today, there are over 100 jurisdictions administering competition law. In the absence of global rules on competition, each jurisdiction applies its own system. Firms can find themselves facing conflicting decisions from different authorities with respect to the same merger or other activity. This leads to the most interventionist ruling of a major economy being enforced. In the case of digital products, questions of jurisdiction and enforcement are all the more challenging. Greater cooperation between agencies would improve clarity and reduce gaps in enforcement.

Prioritise tax certainty over incentives : In an attempt to attract GVC-linked foreign direct investment (FDI), many countries engage in harmful tax competition to woo multinational enterprises (MNEs). However, for the most part, FDI tends to be more sensitive to tax certainty than to tax incentives. Enhanced consistency in tax rules, interpretation and enforcement across economies and better cooperation between authorities help foster certainty. That being said, tax credits for education and training could help build a workforce suited for high-demand tasks through public-private partnerships. These and other programmes would need to be designed and monitored carefully to avoid tax evasion or aggressive tax planning by MNEs.

Incentivise sustainability : MNEs play a key role in coordinating activities and actors along the value chain. They set private standards that suppliers and affiliates have to meet. An increasing number (over 550) of these standards are sustainability-related. As these can be difficult for small producers to navigate and meet, coherent standards and simplified procedures are needed. Many big, consumer-facing brands are seeing greater demand for sustainably-sourced products from their customers. Others are finding ways to raise capital by tapping into investor appetite for sustainable business operations.

Implement doing-business reforms : Since MNEs play such an important role in GVCs, creating an enabling environment that attracts and sustains FDI is crucial. This involves reforms that cut red tape and corruption, improve infrastructure, provide quality education to the workforce to enable them to work in modern production chains and ensure that companies operating in the country have access to foreign exchange so that they can pay suppliers and repatriate profits.

So far, the tariff war has been just that: a tariff war, limited to the use of import duties on goods. Soon, though, the US is expected to release details of how it plans to restrict Chinese investment in US companies where it deems it a threat to national security. Meanwhile, the Chinese government could make things difficult for US companies operating in China – by imposing regulatory burdens or encouraging consumer boycotts. It could choose to block mergers , such as the one proposed between the US firm Qualcomm and Dutch firm NPX. The EU could consider retaliating against US banking and insurance companies and taxing digital services, hurting US tech companies.

Short-sighted, protectionist measures ignore and erode the opportunities that GVCs provide for driving inclusive and sustainable growth and do nothing to optimize outcomes.

SOURCE: World Economic Forum

By Aditi Verghese and Sean Doherty

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​China to Trump: We are ready for trade war



China replies Trump on new steel and Aluminium tariffs: says it’s ready for trade war
China, the world’s second biggest economy fuelled fears of a trade war when it warned Sunday that it is ready to hit back at the United States if it harms its economic interests.

It was China’s first response since President Donald Trump unveiled steel and aluminium tariffs.

Trump’s announcement on Thursday sparked a flurry of counter-threats from other nations but its main trade rival, China, had avoided any overt warnings of potential retaliation until now.

“China doesn’t want a trade war with the United States,” Zhang Yesui, spokesman for the National People’s Congress, told a news conference on Sunday, the eve of the rubber-stamp parliament’s annual session.

“But if the US takes actions that hurt Chinese interests, China will not sit idly by and will take necessary measures.”

Zhang warned that “policies informed by misjudgement or wrong perceptions will hurt relations and bring consequences no side wants to see”.

Trump’s announcement came as President Xi Jinping’s top economic aide, Liu He, met with US officials at the White House this week to discuss the fraught economic relationship.

During his visit, according to the official Xinhua news agency, Liu and his hosts “agreed that the two countries should settle their trade disputes by cooperation rather than confrontation”.

Since announcing plans to impose a 25 percent tariff on steel imports and 10 percent on aluminium, Trump has shrugged off threats from other nations, boasting on Friday that “trade wars are good, and easy to win”.

China has been the main target of Trump’s ire over the US trade deficit since his presidential campaign, but its steel and aluminium exports to the United States are minimal.

While China is the world’s largest steel producer, it accounts for less than one percent of US imports and sells only 10 percent of its wrought aluminium abroad.

Steel producers in Canada, Brazil, Mexico, South Korea and Turkey rely far more heavily on the US market.

“The American action to put sanctions on other countries’ reasonable steel and aluminium exports in the name of harming national security is groundless,” Chinese Foreign Minister Wang Yi said on Saturday.

Some US allies, like Canada and Australia, had hoped to be spared the tariffs. A US official said Friday no countries will be exempt, but added that possible exemptions to the measures would be considered on a case-by-case basis.

Australia warned that a trade conflict could put the brakes on global economic growth.

“That’s what concerns me, if we continue to see an escalation of rhetoric and, ultimately, action around tariffs applying for imports and exports across multiple economies… this will lead to a slow-down in growth,” trade minister Steve Ciobo told Sky News Australia Sunday.

Trump ratched up the rhetoric on Saturday, threatening a tax on cars from the European Union if it enacts retaliatory measures.

On Friday, European Commission chief Jean-Claude Juncker said the EU was drawing up measures against leading US brands such as Levi’s and Harley-Davidson.

Source: nan.ng