Hypothesis of consumer effects on the commercial war.UU-China
The concept of commercial war, or economic war is a conflict between interventionist economic policies, which seeks to bring the amount of net exports to a positive level;by imposing taxes or tariffs on trade with an external nation. This, in response, imposes tariffs and taxes in quantities similar to the counterpart. These interventionist policies are those that frame the model of a protectionist economy, this being that in which the national industry is intended to boost at the expense of foreigners. On the other side of the balance, and opposed at all times to this protectionism, there is the possible position of a government to open up to the foreign market. The free market consists of ending tariffs and taxes on foreign goods, promoting global trade.
Today’s governments face this dilemma about which system adopt for its economy, either protectionist or open, under the context of one of the most important phenomena with which current man has to mediate: globalization. Globalization is a fact, which affects all the facets of the human being, especially the economy. In the context of the economy, it should be clear that in a globalized environment, such as today, markets tend to be more competitive, the most specialized local economies and local decisions affect worldwide directly or indirectly.
The foreign trade in the United States, especially since 2004, has had a tendency towards the commercial deficit, since its net commercial balance demonstrates that the country matters for amounts greater than 2,000.000 mm $;And exports less than 1’400.000 mm $. The main commercial allies of this country are (in this order) China, Canada, Mexico, Japan and Germany. However, the then candidate and now president Donald Trump considers that this policy is disadvantageous for the United States, accusing China to take advantage of the United States by manipulating currencies, so he promised to apply new “rules and regulations to China byIts unfair subsidiary behavior, intellectual robbery to the country, and for generating multiple job losses ”from China’s entry to the World Trade Organization. Among these regulations, Trump proposes to reassess its commercial policy, and rely on the current laws of the US.UU that would allow you to apply tariffs of up to 45% in products in which you consider useful or necessary. Its “America First” policy rejects internationalist policies and proposes to protect and promote national industry in the USA.UU. In his first speech on the state of the Union, Trump declared: “The era of economic surrender has ended.’
Making large America again, this is the objective that has accompanied President Trump since he broke into the political landscape and towards what affirms that all his policies are directed.
The policies that Trump poses are in a certain way, except a hoax for US citizenship, making them believe at all times that the economy is a war. One of the principles of the economy demonstrates that trade generates benefit to nations. For this reason, the economy is a game of increasing sum, the gain of some does not necessarily imply the loss of others. An economic environment favorable to trade (especially international, being a globalized environment) is enriching for all countries as freely. As we know firsthand in this country, economically autarkic periods do not necessarily bring economic prosperity or quality of life.
It is mainly because of all this that we can affirm that Trump and his related abuse a clearly populist speech, a speech based on economic confrontation, which joins words such as war and commerce, to attract voters and followers little informed. With its autarkic and protectionist measures it intends to close to the US to what is a reality, globalization. Trump’s presumption simply raises that he will attract industrial production to the United States with his policies, ignoring all the benefits that free trade gives to his country;as well as that his policies can scare investors and remove economic possibilities;decelerating its economy.
For its part, China finds its populist characteristics in its communist origins. However, it has gone from being a centralized and planned economy to one with lower regulations and a growing private sector participation in the different markets [Footnoteref: 5]. Sheng Bin [Footnoteref: 6] It also proposes to the Chinese communist government as one of the reasons for the growth of exports from 2001, the year in which the country entered the World Trade Organization. Bin states that the policies of the Chinese Communist Party encouraged this phenomenon. Chinese populism is sustained from the systematized practice of low cost production;with positive net consequences for the economy but with improvable social consequences at least. The Chinese government, with subsidiary policies, keeps a population with minimum wages of 22 yuan the hour. This situation is sustained exclusively by the net amount of Chinese production, but its fragility is easily identifiable.
THE COMMERCIAL WAR EE.Uu-China began, properly speaking, on January 23 when President Trump announced 30% tariffs for solar panels produced in that country;In addition to 20% tax for the first million washing machines exported to the US.UU. China, then, responded with taxes to 128 products, including aluminum, airplanes, cars;and foods like pig or soy. In the first round of tariffs, on July 6 the USA.UU implemented tariffs on Chinese products worth 34.000 million dollars annually and China responded with tariffs of similar value in American products. On August 23 China and the USA.UU imposed the second round of 25% tariffs on different goods. On September 24 the third round of tariffs were held. I know.UU ordered the imposition of tariffs worth 200.000 million dollars to Chinese products, carrying the net amount of money to raise at US $ 250 mm. China announced taxes worth 60.000 million dollars with the total net of tariffs applied to the USA.UU exclusively at US $ 110 mm.
The economic analysis to be carried out, in the short term, will be based on certain Ceteris Paribus conditions. The first of these is, obviously, that tariffs will act as a negative incentive for companies in their foreign trade. For this reason, it will be attempt to determine the implications for the consumer if the economic relations between the two countries are stopped in the short term. The analysis will be developed in two markets in which a clear dependence between countries is demonstrated. In addition, import quotas will be understood as limitations in the offer of these goods in the markets.
The first of these situations of mutual dependence is the Chinese aviation market. At a global level, two companies have dominated the aviation market: Boeing (US) and Airbus (Europe). According to Bloomberg data, 47% of aircraft in China are American manufacturing. For this reason, a dependence on China is generated to support its air industry;and also.UU finds an important customer for your products.
In economic figures, EE.UU exports to China 12.6 mm of dollars in transport products (including airplanes, helicopters and rocket parts). Likewise, the most important national company in the sector, COMAC is so far in test phases for commercial air production aircraft, with orders for 815 aircraft but none produced so far. For this reason, China is far from being self-sufficient in this industry.
Second, the American textile industry demonstrates a dependence on imports. EE.UU produces only 1.3mm of dollars in this sector, and imports 40.2 mm dollars from China to meet your national demand. For this reason, the situation in which one of the countries is dependent on the other is repeated;But he can’t do without him.
The border of production possibilities is focused on comparing the productible amounts of a certain good (object or service) at the cost of the possible production of another. One of the characteristics of the current globalization process is the high specialization that a national industry can develop;since the products that do not generate within their own industry can be acquired through international trade. For this reason, it can be shown that, when comparing one of the Punta de China industries with one that is not so much, the curve of production possibilities takes an elongated form. This represents that the Chinese industry is highly specialized in, for example, computer products, and is not in aeronautical products. This happens since the Chinese trade balance exports a high amount of computer technology (computers, mobiles, among others) and therefore, specialize in those industrial sectors.
For its part, China does not specialize in the construction of airplanes, and it matters those that the market requests from the European Union and the United States. China, at this time, is in very little capacity to produce airplanes, with companies like Comac until now in the testing phase. For this reason, indistinctly that China (hypothetically) allocated all its resources to the manufacture of airplanes, would be able to produce very few airplanes (point B). With the c and d points of the graph, the great Chinese aeronautical production deficit versus the total aircraft requested in the market (Point C) is sought to demonstrate (Point C). Point D represents an approximation of US aircraft in the Chinese market.
The analysis we propose is developed as follows: the imposition of tariffs and import fees in China, in response to Trump America First, can have an impact in two ways:
In the short term, given the high cost that would imply importing from the US.UU and the limit in imposed quantity, China could decide to transfer the demand for airplanes exclusively to non -American producers, also generating a shortage of aviation products;And, the second is to end aeronautical trade (imports) to promote Chinese national production production. Indisty of the viability of one or another decision, what is analyzed is that Trump’s policies will contribute to a reduction in the supply of airplanes in China (and the subsequent decline in the demand for aircraft for Boeing).
For its part, the US production possibilities border.UU, although it shares the form of China, it has distinctions and clarifications that must be made. First, although American textile production is low compared to the importation of Chinese textiles, this is proportionally greater than aeronautical net exports among countries;that is, it does not produce as little as what matters, in proportion. So, EE.UU is relatively more prepared to give up importing products from China. However, as repeated in countries with highly specialized industries, the border of production possibilities demonstrates that no matter how much a large number of specialized products are given, in this case pharmacists;The lack of specific resources to meet the textile demand would imply that to stop trading with China;The United States would see a great deficit in the supply-demand relationship of clothing and other similar products.
In the short term, we consider that the EE.UU would be forced to try to transfer the demand for textiles to another commercial partner. However, and unlike China, the European Union has demonstrated against the economic intervention proposed by Trump, and it is less viable that they simply access this. At that time, other commercial partners such as Canada or Mexico could enter to play in favor of the US.UU, but it is not possible to determine if the United States can meet all the national demand for textiles, and thus hypothesize that there would be a shortage of these goods in the local economy of the US.UU.
From the analysis of the borders of production possibilities, it was determined that in any case, the economic policies of a commercial war have a short term reducing the offer in the local market of the internationally traded product. In this way, the dilemma generated in the markets is reduced to assuming the rise in prices (which will be explained later) or directly abandon the economic sector in question. In the case of fundamental sectors for the consumption of people (which are inelastic demand goods), society will not be able to do without them, while in luxury goods (elastic demand), it is most likely that societyStop consuming them.
The rise in prices is explained as follows: both the imposition of import fees, and tariffs (which increase production cost) reduce the amount of good to be marketed. This reduces the supply of the good in the market, moving from a equilibrium point E1 to one E2 with a equilibrium (Q2) less than the initial. This increases the equilibrium price to which consumers must pay to access the good.
Analyzing the Chinese example, an increase in aircraft prices might seem that it does not directly affect consumers per se. However, the reduction of aeronautical inputs could reduce both the number of flights made day by day and the number of days that can fly;In addition to increasing each. For this reason, the amount of seats available for these flights would be reduced;and consequently increase the price of these. In this way, the elasticity of the demand for Chinese airplanes (and that of flights, of course) enters into consideration, of course).
In the case of the United States;Price increase in the textile industry would imply a more direct blow to citizens’ consumption. Objects such as clothing have an inelastic demand since they are essential goods that are not easily replaced by other substitutes. For this reason, families in the US.UU would be forced to pay a greater proportion of their income in clothing, and they must probably reduce the amount of this they consume.
In the light of the increasingly interconnected global economy, it is true that the commercial war between the USA.UU. And China will end up positively affecting some economies and negatively to others, that is, generating winners and losers. As a consequence of the aggressive measures adopted, both countries have to face the new terms of agreement and work to reconfigure their commercial relations.
Based on recent economic data, it is clear that China is already feeling a slowdown in the economy. Chinese economic growth was delayed in the third quarter at its lowest level in 10 years, with slowdown registered in car sales, property and consumer electronics. According to the Canalizans research firm, in the third Chinese quarter produced 100.6 million smartphones, 15.2 % less than in the same period one previous year. The uncertainty engendered by the commercial war reaches the consumers themselves, and is manifested in its consumption.
The expense has decreased and consumers begin to opt for savings. China also faces challenges in its internal economy;In addition to being struggling with the increase in their credit breaches and with a property sector that has been showing clear signs of cooling. The Chinese Central Bank has cut the proportion of reserve requirements – the amount of money that banks must maintain in the Central Bank – at a percentage point to stimulate the flow of money in the economy. The government has also implemented a series of measures to reactivate the economy, such as reducing individual taxes, accelerating infrastructure spending and expanding additional financing options to help smaller companies. However, it is still clear that the Chinese economy is slowing down and that exports data is in decline. To protect themselves from the absence of US demand, China dependent on exports will have to look towards expansion to markets in regions such as Southeast Asia and Europe.
In the US.UU, it is very clear that the heaviest charges of the commercial war will be left on the shoulders of consumers. Due to the drop in imports, consumer prices are likely to increase. The National Retail Federation estimated that a 25% rate on the furniture would cost Americans US $ 4.5 more billion per year, while a 25% tax on travel items such as luggage and bags would cost an additional $ 1.2 billion. American companies such as Walmart and Target should choose between absorbing the highest costs of tariffs (therefore, hitting their profit margins) or delegating price increases to their customers. Walmart, the largest retailer in the United States, declared that of the $ 500 mm obtained in sales last year, US $ 50 mm were related to Chinese imports or investments in Chinese companies. Walmart’s US suppliers trust China’s manufactures to mount;And they end production in the United States. In addition, it is extremely difficult to change the complex global supply chains of China, at least in the short term. American companies will fight to try to increase profits without hurting the American consumer too much, but it is unknown what their real capacity to absorb the cost of the commercial war.
Other countries will also be affected by the EE commercial war.Uu-china. The conflict has already begun to uproot global supply chains, and the countries that benefit are those that can provide low -cost production, and can fill the gaps of what would have been EE.Uu-china. Together, several countries in Southeast Asia are expected to arise as winners of the commercial war. The Association of Southeast Asian Nations (ASEAN), formed by 10 countries in the region, has been considered an attractive and legitimate supply chain base. A country that has already benefited from the bilateral conflict is Malaysia. China, previously depended on the American biofuel for its lack of capacity to produce it in the country. Since then, world superpower has resorted to Malaysia to receive help, and in just two months, Malaysia is now the largest supplier of these fuels for China. During August and September China bought a total of 88 million liters of Ethanol from Malaysia, a totalized purchase of US $ 49 million. In addition, Malaysia has bought unprecedented amounts of the United States – 97 million liters of ethanol worth US $ 35 million in the last year. By mixing at least 40% fuel produced locally with that of the USA. UU., Malaysia can act in line with tariff standards and resell the fuel to China, benefiting from the war between super economies.
This is an interesting development in Malaysia’s economy. Last year, there was no significant production or use of fuel ethanol in Malaysia. Therefore, the recent measures that Malaysia has taken reflects its willingness to capitalize on the EE conflict.Uu-china, and from now on it continues to do so. However, it is not clear if in the long term Malaysia will have enough ethanol production to meet China’s needs and maintain trade. This in general calls into question the sustainability of low production countries with the aim of replacing the United States or China as exporters in the global supply chain. However, Malaysia’s perspective is still positive. According to an evaluation carried out by Nomura Holdings, a financial services company, it is expected that Malaysia benefits more as an alternative source of imports, particular.
Another example of a country benefited by this commercial war is Vietnam. According to the study by Nomura, Vietnam is an attractive place for direct foreign investment and will probably benefit from the relocation of manufacturing companies. Numerous firms have already begun to move production to Vietnam, and the country is positioned to rival the China technology sector. In October, Goertek – the Shandong -based manufacturer of Apple Airpods helme.
However, neighboring countries will also have negative consequences of this commercial war, they will be clear losers. In the short term, it is very likely that countries that depend on shipments will be losing, as is the case of Japan or South Korea. What is clear is that in the long term they will be forced to reduce the dependence of Chinese exports.
For its part, the clearly losers of this conflict will be the United States and China. Not only because of the impact that tariff policies will have in these countries, but for the cost of opportunity that would imply for both nations the reduction and loss of trade opportunities. Trump, mainly, when developing his populist speech, he is leaving aside commercial opportunities of very high value, in preference to increase his voters and followers.
For this reason, your personal policies will cost the US.Uu billions of dollars in missed economic opportunities, in addition to the impact on consumer pocket. Most likely, economic losses are higher than the money that Trump hopes to raise taxes. China will also lose in opportunity costs, seeing as a very important buyer of its products abandons them. In addition to consumer cost, China will enter into economic slowdown and shortage so far that its commercial allies can supply;both imports and goods exports.
In short, the only real winners of the economic war will be those who do not participate in it;and know how to see the economic possibilities that implies that one of the greatest economies decides not to trade. The most benefited country will then be the one who magnifies its production to replace the role that the US.UU has had in the world economy. For this reason, Malaysia and Vietnam have on the immediate horizon a great chance to replace China with the assets that EE.Uu refuses to provide them.
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