The escalating trade war between the US and China will pressure Irish exporters — already struggling with Brexit uncertainties — even further, writes Kyran Fitzgerald
IRISH exporters and food producers must be wondering whether a witch’s curse has landed on them.
The Brexit talks seem to be going nowhere. US president Donald Trump is stepping up the pressure on China, while the trade truce between Brussels and Washington DC looks fragile.
Last week, relations between the US and China dipped sharply, when the Trump administration announced 10% duties on $200bn worth of Chinese products. The Chinese government was quick to retaliate, with tariffs imposed on $60bn worth of US goods destined for China.
This brings forward a process commenced in March, when Trump first targeted the Chinese with tariffs. One half of Chinese exports to the US is now covered by tariffs of up to 25%, and consumers will be faced with an uptick in inflation on a wide variety of products.
Some US producers of basic goods are benefiting, but others are faced with higher input costs. This tit-for-tat behaviour does not take into account the reality of business in the 21st century. Many finished products, these days, are the result of complex cross-border production processes.
We are living in the era of the supply chain. We could soon be discovering this to our cost, if we end up with a hard Brexit.
Trump, however, adheres to traditional mercantilist principles, viewing trade in terms of winners and losers. The US has a big trade deficit with China. It is, accordingly, a big loser and it is something his predecessors have done nothing about. That, at least, is Trump’s world view, one that he has held for decades, as he is happy to point out.
He appears, at first sight, to be on a roll when it comes to trade tariffs. The US economy is still motoring along, benefiting from decisions made by the preceding administration, but also from the lift administered by Trump’s tax-cuts package.
His argument vis-a-vis the Chinese is not without its strengths. The Chinese have operated to a considerable degree with their own self-interest in mind. They have ripped off peoples’ ideas, exploiting joint ventures for their own ends.
It is often very difficult to secure a foothold in the Chinese market. There are parallels with the rising Japan of a generation ago.
US governments in the 1970s grew frustrated at the delaying tactics of the administration in Tokyo, when it came to opening up of their economy.
Earlier Japanese firms were condemned as rip-off merchants, yet, today, Japan is a respected member of the G-20 inner circle, even though much of its society and many of its markets remain impenetrable.
It can also be argued that the Chinese were allowed to get away with misbehaviour for far too long.
The Americans are relying on a Section of the 1974 Trade Act designed to “prevent unfair trade practices and theft of intellectual property.”
The problem is that the genie is out of the bottle. China looks to be on course to becoming the world’s largest economy, in absolute terms, by 2030. The US may be acting 20 years too late.
The Chinese now have plenty of firepower. President Xi has the wherewithal to boost domestic demand, which is precisely what he is doing.
Once the effects of the tax cuts wear off, Trump could find himself much more financially constrained, should the trade war turn out to be long-drawn-out, as many now fear.
Xi is building a huge network of commercial alliances, through his ‘belt and road’ initiative.
[quote]Meanwhile, the Trump administration’s belligerence appears to be pushing Moscow and Beijing into a closer alliance, albeit one based on convenience.[/quote]
The problem is that trade turbulence is helping to blow global growth off course. The US-Chinese trade conflict is not the only manifestation of Trump’s mercantilism. He is claiming a victory over Mexico, after a trade deal was reached between both countries. Tensions with China remain high.
The EU has also been in Trump’s crosshairs, with US tariffs imposed on steel, aluminium, and bizarrely, Spanish black olives.
In July, the EC president, Jean Claude Juncker, visited Washington DC. Trump has joked that Jean Claude — “a really tough guy” — came across the Atlantic so fast he did not know planes could travel that quickly, or words to that effect.
Presidential crowing aside, it seems that the US and European trade representatives are back in serious discussions. The Office of the US Trade representative, Robert Lighthizer, has indicated its hope for progress in the area of technical barriers to trade. However, it is the heads of government who will make the final decision.
Lighthizer is a veteran dealmaker, who once reportedly smoked an entire box of Cuban cigars during trade talks, in a windowless room, as part of an effort to confuse his Soviet counterparts.
French president Emmanuel Macron is also playing hardball, signalling that there will be no revival of the US-backed plan for the trade deal known as TTIP, which would require a wide opening of EU agri-food markets to US imports and would hand over a lot of power to lawyers acting for big corporations.
The Americans are keen to capitalise on splits between EU governments, but, so far, it would seem, the EU core is staying firm.
A big victory for populist parties in the EU Parliament elections, next year, could be exploited by Trump and his allies.
The Chinese, meanwhile, are biding their time, ahead of the US mid-term elections, which could produce a Democrat-led House of Representatives. However, the Democrat leader Nancy Pelosi has signalled backing for a hard line posture towards China.
All of which leaves exporters across much of the US, Europe, and Asia in something of a quandary and many investment plans on the drawing board. In truth, both the US and Chinese governments are engaging in “war by other means”, when it comes to their approach to commerce.
The Chinese are amassing influence and control over poorer, smaller countries with a need for capital. Ironically, the Trump administration — so keen to stand man-to-man with Beijing on trade — is happy to cede control over many regions, as it retreats into its ‘America First’-style isolation.
It may soon discover that these postures are contradictory and that if the spread of Chinese influence is to be countered, it has to be through a policy of active engagement with nations around the world.
Some Irish exporters, particularly in the food sector, stand to benefit by taking advantage of competitive openings. However, a clampdown on global trade, in general, is hardly good news for one of the most open, foreign-investment-led economies in the world.
Irish firms will be pushed to the pin of their collar coping with Brexit, assuming it goes ahead. They will not wish to have to cope with yet further distractions.
