The USA started a trade war fearing economy collapse due to debt – Chinese expert

The trade war which erupted in March between the USA and China keeps getting worse. Donald Trump’s rigid politics made China impose 25% tariffs on some American goods; America’s response was symmetrical. And despite the fact that trade with the USA is very important for China, it may turn it to other countries in order to avoid US tariffs – argues Chinese independent commentator and specialist in Languages and Civilizations Li Dongmei. In an interview Ms. Li gave told “Eurasia.Expert” why the American president imposed tariffs on China’s goods, how China-US trade changed in the course of this trade war and which market could compete with American for Chinese high-tech goods.

- Ms. Li, what did the U.S. President Donald Trump want to achieve when he imposed tariffs on China’s goods?

- Trump’s current economic policy is not to sanction China, but to correct the economic problems of the United States itself. The economic problem is that the United States has no money and owes a lot of money. Many people understand from the GDP that the United States is the world's largest economy, and China is the world's second largest economy.

GDP consists of four parts:

1. Consumption (consumption): the expenditure of households for goods and services;

2. Investment (I) (investment): capital equipment that can produce more products;

3. Government purchase: government expenditure;

4. Net export: refers to exports minus imports.

We see that in the four components of GDP, 1, 2, and 3 are all spent, but the fourth net export is to make money.

Let's take a look at the major trading partners of the US in 2017: (Unit: billion US dollars)

We see that the United States has a trade deficit with almost all its trading partners, that is, in the US GDP calculation, the only net export of the United States is the secondary income. This is what Trump’s president, who is a businessman, really cares about.

The US’s consumption, investment, and government purchases have been built on the virtual economy and over-consumption, that is, on debt. That is the problem of the US economy facing collapse due to negative growth.

So why does Trump think that taxing Chinese imports can help the United States solve its fiscal problems? The reason is that US government revenue comes mainly from corporate taxes, personal income tax and consumption tax.

Adding taxes on imported goods can increase government revenues. In addition, prices will rise, national consumption will increase, and government consumption tax revenues will increase.

There is also the effect that Trump wants to achieve most, and the American companies that have moved overseas have returned to the United States to solve the problem of hollow manufacturing in the United States.

If these American overseas companies move back to the United States, first, if the products are produced in the United States, they can no longer be imported, and instead, they can reverse the negative growth of net exports. Second, American companies can hire American workers in the United States. These workers have jobs and can also pay income tax to the government.

If foreign companies move out of China, they will have some troubles for China, because workers in these low-end industries face a lot of unemployment problems. But the United States is now highly manpowered and itself lacks people. Therefore, if I have a problem-solving attitude, I suggest that the Sino-US consultations allow these foreign companies to return to the United States with their existing workers, because it takes a while to train skilled industrial workers. This is much better than the United States receiving a large number of refugees to do low-end labor.

- How has the trade turnover between China and the USA changed after Trump's sanctions?

- According to data from the General Administration of Customs of China, the total trade volume between China and the United States has grown from $33 billion in 1992 to $583.7 billion in 2017.

The trade volume between China and the United States in the first half of 2018 has risen, but the growth rate has decreased from last year.

The United States and China are the two largest economies in the world. Therefore, China still attaches great importance to trade relations with the United States. It also attaches great importance to Trump’s initial complaints about Sino-US trade deficits. For example, on November 25, 2017, when Trump visited China, China committed a huge amount of 253.5 billion US dollars in orders from the United States, which shocked the world, created a record of Sino-US economic and trade history cooperation, and also set a record of the history of world economic and trade cooperation, expressing the great sincerity of China's hope of cooperation with the United States. In March of this year, Trump initially proposed to impose trade sanctions on China, in May China sent a high-level delegation headed by Prime Minister Liu He to the United States for negotiations.

As I said in the first question, Trump added taxes to Chinese imports to increase the federal fiscal revenue, rather than requiring this part of the imported goods, so that the trade volume of the two countries will not change. On the contrary, because China is increasing US imports, the total trade between China and the United States is increasing.

- Will this trade war affect China’s Belt and Road initiative?

- President Xi Jinping proposed the “Silk Road Economic Belt” in September 2013, when he visited the Middle East and Kazakhstan.

Europe and Asia belong to the same continent, but because of their remoteness, they have long-term isolation and formed two completely different civilizations. Two thousand years ago, China tried to connect Asia and Europe through the Middle East through horses and land vehicles such as camels. In modern aircraft development, the exchanges between Europe and Asia have come closer, but the Middle East has been swept away and become a blank. Now China has developed a high-speed rail that is faster than the plane. In the era of high-speed rail, along with the China Belt and Road strategy, the Middle East will once again become the core area of ​​Eurasia.

The Sino-US trade war is reflected in the increase in tariffs in two countries, but the total trade demand of the two countries, especially China, is still increasing, which means that China will turn trade to other countries in order to avoid US tariffs.

A developed European economy may be a better substitute for the United States for China's high-tech exporters. If the freight high-speed rail can be opened in Eurasia, more trade in bulk products suitable for land transport will make the “Silk Road Economic Belt” particularly prosperous, and the role of the trade hub in the “Belt” will be even more important.

In addition, the "Silk Road Economic Belt" is different from the ancient Silk Road. This is not only a channel for China-Europe trade exchanges, but also a joint investment and investment zone for China's northwestern countries.

- What risks does a trade war with China pose for the USA?

Sino-US trade exchanges should be a win-win result for mutual benefit between China and the United States. The war has no winners, only loses, and so is the Sino-US trade war.

There are also serious trade deficits, and Trump now has trade friction problems with the EU, Canada, Mexico, Japan and South Korea. Therefore, China should not regard Trump’s tax on imports from China as a hostile act against China.

The trade deficit is an important reason for consuming GDP, and the United States can reduce its trade deficit by increasing exports to China. In addition, attracting overseas investment and overseas consumers is also an important way to increase GDP. Now, only China has a large amount of imports from the United States and injects foreign investment into the United States and contributes to the consumption of foreign tourists (including a large number of Chinese studying in American schools and traveling to the United States). Other US trading partners do not have this condition. Therefore, the relationship between the United States and China in a state of rigidity, especially hostility, is a major loss to the United States, and in particular will bring complete decline to the US economy.