Tilting at windmills (Donald Trump's trade war 2018)

Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!

Tilting at windmills (Donald Trump's trade war 2018)

---

Read more on - Polity | Economy | Schemes | S&T | Environment

---

• Imaginary enemies, great results guaranteed! President Trump is peddling the false narrative of “Making America Great Again” by the simplistic idea – slap tariffs on China / EU / Canada / Mexico, and reduce trade deficits. Also, bring jobs back to America. This argument has broad appeal with voters, but is technically wrong.
• The anger: The voters are angry with stagnation in average wages (in real terms) for over 40 years now.
• The numbers and the dynamic: China exported $505 b to US in 2017, and imported $130 b from it. Who was responsible for the deficit? Two reasons – the present structure of global supply chains, and problems in US’s own industrial structure over the years.
• Nature of US imports:

1. Non-Chinese owned companies made up 60% of Chinese exports to US. They export specialised parts to US makers. When they face the burden of tariffs, the customer will face the burden of price.
2. Largest share of Chinese imports into US is of computers and electronics. But 87% of that is parts and financing from others like Korea, Japan, and US itself! So tariffs make little impact, while harming other nations.
3. US merchandise exports from China is 3% of China’s manufacturing revenue. So applying tariffs on these is useless, and a falling 5. Chinese currency (by 7%) offsets its any way.

• Retaliation by China harms US: China put tariffs on US exports, thereby German carmakers in US (BMW, South Carolina) immediately suffered! Soybean and pork duties hurt Trump’s voters in Midwest. Tariffs on Mexico too have little impact (Mexico exports 90% of all steering wheels used in US).
• Mexican wage reality: Average wage is $4 per day in Mexico, and is $18 per hour in USA! Can tariffs harm? Not at all.
• Changes inside the US itself: Trump is focussing on trade only. But a lot more has changed.

1. US corporate structures in past 30 years have unleashed massive income inequalities (it started with Reagan’s attack on ATC union in 1981). In 1950s, 33% of private sector employees were unionised, not only 7% are. There is no bargaining power left.
2. Large monopolies are now the norm, with anti-Trust not working at all. Only 30 companies are earning 50% of all profits of public firms! Price rise are a norm, due to monopolies.
3. Anti-poaching agreements are weakening workers.

• The situation in Germany: Most mfg. firms are private (not publicly listed) and hence they invested their capital in boosting productivity (not share buybacks). Skills upgradation is high, while it is missing in USA. Apple moved to China precisely because of skill pool available. But Donald Trump is simply tilting at the windmills, instead of hitting at these real issues.    CONCEPT
• Summary : The entire approach of Trump in attacking trade partners ignores the fundamental changes that have happened in the US, and he is totally misplaced in his approach.

Read more on - Polity | Economy | Schemes | S&T | Environment

Join UPSC Self Prep course | Online Course (PT Gurukul)  | Covid Special Course | Join PT courses

* Content sourced from free internet sources (publications, PIB site, international sites, etc.). Take your own subscriptions. Copyrights acknowledged.