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Trump’s trade measures cannot sink China’s economy – Dean Baker

It is common to see stories that have China’s economy reeling as a result of the Trump tariffs. While it does seem that China’s economy is experiencing difficulties, it is hard to tell a story where Trump’s tariffs are a major factor.

Firstly, China’s trade surplus actually rose in 2018 compared to 2017. In the first 10 months of 2018, China’s surplus on goods trade rose by 11.5% from 2017. Perhaps the surplus would have risen even more without the tariffs, but it is a bit hard to believe that China’s economy is suffering too much because its surplus with the US only increased by 11.5%.

Another point is that China’s exports to the US are just not that large a share of its economy. If we assume that exports for November and December would be roughly comparable to the prior two months, then the total for 2018 would be $550 billion, which comes to 4.2% of its $13 trillion economy.

However, as we are endlessly reminded by supporters of recent trade deals, much of the value in these exports is generated elsewhere. For example, we count the full value of an iPhone manufactured in China as an export to the US even though the vast majority of the value-added comes from other countries. (This is offset by the fact that much of the value-added of goods imported from Japan, Germany, and elsewhere is produced in China. If any- one in this dispute actually cared about reducing the trade deficit, getting China to raise the value of its currency would help to reduce both the direct and indirect trade deficit with China. But in any case, this issue is irrelevant in this context.)

Let’s assume that 30% of the value- added in China’s exports comes from other countries. This means that its exports to the US are equal to 3.0% of its GDP.

Presidents Trump and Xi at a G20 meeting in 2017 (Source: Flickr cc)

Even if we assume a very large impact from the Trump tariffs – perhaps the US imports from China can be reduced by one third – this would be 1.0% of the GDP of China. That is hardly trivial, but not the sort of thing that would push China into a recession.

The long and short is that Trump’s trade measures can be a nuisance to China and can undoubtedly cause serious problems for the most affected industries, but anyone thinking that they can sink China’s economy in this way is seriously deluded.

Dr Dean Baker is an American macro- economist and the co-founder, with Mark Weisbrot, of the Center for Economic and Policy Research in Washington, D.C.

Source: Real World Econ Rev, 10 Jan 2019

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