According to Mauro F. Guillén, professor of International Management at the Wharton School of the University of Pennsylvania, “bullying China now will just leave us with welts later”.
This is an opinion from the United States academic world, but it is not far from the general opinion of those who, as observers, see the awkward movements that the White House is making about it.
The European Union, the hemispheric partners, the country’s farmers and even the nations that could benefit from transforming themselves as substitutes for the Asian Giant in the framework of Trump’s trade war, are not very optimistic about the results of this challenge initiated by president Trump.
For the University of Pennsylvania scholar, it is perfectly legitimate for governments to use the tools at their disposal to achieve their goals in multilateral and bilateral negotiations. The United States has at its disposal a wide range of initiatives to promote its interests, especially when it comes to commercial matters.
Beyond the possible, what is invisible to the Wharton School scholar is the true end of these movements. The United States as a nation is obliged in the protection of its interests to restrict access to the consumer market, technology, military might and the power of argument itself. “However, in using that arsenal, we need to be conscious of the long-term implications”.
In an opinion article published by Mauro F. Guillén for the news network The Hill, the scholar said that “the current battle with China over the bilateral trade deficit and technological espionage and theft is a case in point. The administration is correct in arguing that intellectual property rights need to be respected.”
However, he said that there are serious problems associated with both the establishment of bilateral trade deficit reduction as the main goal of the negotiations and the specific tools used to achieve that goal.
“Bilateral trade deficits don’t really matter much. What´s relevant is the overall current account deficit with the rest of the world because it determines our capital needs in order to compensate for it.”
According to the Pennsylvania´s professor, the current account deficit includes merchandise trade, trade in services, the income from U.S. capital and labor employed abroad versus the income from foreign capital and labor employed in the United States and transfers, such as workers’ remittances and foreign aid.
“The United States has a sizable deficit only in merchandise trade, and not just with China, but with virtually every major economy.”
Mauro F. Guillén used an example to better understand his point of view: “Let´s focus, then, on merchandise trade. Much of our deficit with China refers to products that contain components made in other countries. Take the iPhone, for example, which is assembled in China. Less than 10 percent of its manufacturing value originates from China. The rest is components made elsewhere.”
So if all the assembled products that the United States imports from China are decomposed and each component is attributed to the country where it is manufactured, the bilateral trade deficit with China is reduced to about half of what usually is reported.
The other half is ultimately due to components made in Japan, Germany, South Korea and other manufacturing powerhouses. Thus, our merchandise trade deficit with China is not as large as everyone — including many in the Trump administration — claims it to be.
In this way the analyst concludes that it is very alarming that the administration is so focused on reducing the trade deficit with China, “when it is not the most important issue to begin with”.
The University of Pennsylvania professor suggests that the problem is aggravated by the use of tariffs as the main tool in the negotiations. Tariffs distort prices, hurt poor consumers and trigger retaliatory measures, as Chinese actions so far have demonstrated.
“But the more important problem with the using tariffs and other protectionist measures is that this may be the last time the United States can use its consumer market as leverage in trade negotiations.”
In the opinion of Mauro F. Guillén, in about 10 years, the Chinese consumer market will be significantly bigger than the US market. Twenty years later, the Indian consumer market will be the largest in the world, given the profile of its young population and the rate of economic growth. “Once we lose the No 1 spot, we will not be able to use that weapon anymore.”
“So should we use protectionism as a weapon now before it becomes ineffective? Absolutely not. All we are accomplishing in the long run is accelerating our own relative decline. The countries affected by our tariffs will look elsewhere in the world for growth.” Guillén said.
“Companies will develop a different approach to their manufacturing strategies and find new ways of being competitive that bypass the U.S. market. This trade war with China imposes hardship on the poorest Americans —whose purchases of foreign-made goods become more expensive — and it will ultimately turn the world against us.”
“But the most important reason not to use tariffs is that companies become lazy when they are protected. We should never provide incentives for American firms not to innovate. Unfortunately, every tariff is an invitation to take it easy and postpone necessary adjustments and improvements. It is bad policy, period.”
Translated by: José Espinoza
Noticias Newswire
