The real losers from the U.S.-China trade war

The countries caught in the middle, as I argue in my latest Bloomberg column.  Excerpt:

n this setting, many Pakistani businesspeople work with both China and the U.S. Now President Donald Trump is essentially telling them to choose sides. Will they do business with Huawei or not? Will they work to open up the Chinese economy or not? And so on.

If you’re Pakistan, on the actual matters under consideration, you will side with China. Pakistan is not going to ban Huawei or push China to open its markets to major U.S. tech companies. China will get its way on those issues, and win some very public victories in the Pakistani public arena. Pakistani leaders and businesspeople who sided with the U.S., or expressed strong American loyalties, will feel burned. Their side just lost a very big debate, centered on a conflict that did Pakistan no good in the first place and was at least in the proximate sense started by Trump.

In other words, the U.S. is making it harder for many foreigners to be on its side, even partially. Over time, it is limiting its own soft power in the countries caught between America and China — and soft power is the one area in which America still has (or is it, already, had?) a big advantage over China.

There is much more at the link, including coverage of Singapore and South Korea.

Comments

Here is Malaysia's take on it: The current government has decided to lean China. https://www.cnbc.com/2019/05/30/mahathir-we-try-to-use-huawei-technology-as-much-as-possible.html

The headline is misleading. The real loser for the past 50 years is the U.S. and U.S. consumers. If China chooses to level the playing field and stop raping the U.S. consumer than we will all be winners. Personally I would prefer that 100% of imports currently from China will be made in the U.S. in the future.

Shouldn't we stop importing from everyone? Every import is another American job stolen.

Sure! Why not? But what I would really prefer is that imports pay a tax that levels the playing field. When an American company moves offshore and makes the same product to sell back into this country they avoid American taxes, SS taxes, unemployment taxes, property taxes, sales taxes and on and on. So calculate that lost value and put a tax on all imports. Let's say for the sake of the argument that number is 50%. Then put that income into the various pockets it was taken from when the company moved offshore. Since any foreign company selling products and services to the U.S. is essentially doing the same thing then they should also pay the 50% tax. Seems fair to me.

Again, why import anything at all?

Yeah, China has been "raping" US consumers by selling them inexpensive goods. What incredibly stupid Trumpist nonsense.

Mahathir? The guy who pushed for Malaysia to have its own car, the Proton and not import American or Japanese cars?

Wow, isn't that weird.

It wasn't 'their own' car

It was a rebadged Mitsubishi.

What pain will they feel if they snub the US? If none, then the decision is easy.

I can't think of anything that pushes Paksitan and U.S. closer outside of Islamic terrorism. That is a common interest and they'll work together on it regardless of the trade war., despite pakistan dragging its feet as much as possible in order to squeeze ever dollar out of the U.S. tax payer.

So yeah, I don't see any real pain endured by Pakistan.

"common interest"

Yes, very common, the US is interested in stopping Islamic terrorism and Pakistan is interested in sponsoring it.

Trade wars are so easy! Seriously though, it is time to impeach the incompetent buffoon. Reality TV is unable to function in the real world.

Even in a trade war, America still practices economic cuckoldry. Only a cuck would pay more money for cheap junk.

Here's a list of American companies full of middle class jobs that will be hurt by this ban:

https://finance.yahoo.com/news/trumps-huawei-ban-is-hurting-these-us-companies-stock-195316550.html

Trump's apparent desire to crush the teetering US auto industry with the Mexico tariffs.

Huawei -- world's largest producer of inverters. They also have something to do with mobile phones, but that's not an important product. We have enough of them to last for years. We need more inverters though, so if Trump remembers we exist we might some soothing noises and wait for him to go away. That may not take long.

Are they the sole producer of inverters?

There are a number of other manufacturers both inside and outside China.

Then we can just get inverters from the non Chinese manufacturers.

Ones that are not Chinese intelligence operations.

In the world of inverters you pay extra for a good monitoring system. (And I've heard nothing but good things about Huawei's.)

Facebook and Google are American intelligence operations. Are you okay with that?

Another possibility is that countries caught in the middle become more duplicitous in their relationship with China since China cares more about face than America does.

And all this assumes calling out and standing up to an authoritarian superpower earns no additional respect. Did the US have less soft power during the Cold War when other countries were forced to pick a side?

Given its history of treacherous duplicity (and relatively insignificant amount of direct trade with the U.S.), Pakistan should be at the bottom of the list of countries to be concerned about.

'at the bottom of the list of countries to be concerned about'

If it wasn't for the fact that Pakistan has more nuclear weapons than the UK or Israel.

(Yes, not a perfect comparison - one assumes that the UK arsenal is considerably more powerful per device and considerably more accurately delivered.)

They're going to nuke us because they're mad at Trump? Talk about a non sequitur.

Remember, prior is a troll. He tries to derail the discussion simply for the sake of doing so. Don't try to ascribe a substantive point to his comments.

This.

And also, Pakistan is more India's problem, in the sense that we have a potential ally nearby. Where we need to get involved is in Pakistan's export of technologies (and, potentially, bombs).

+1. American military forces entered Pakistan to take out OBL (speaking of Pakistan's treacherous duplicity) with little regard for Pakistan's reaction, so there is no good reason to have U.S. foreign policy held hostage to something so much less significant as the indirect effects on Pakistan of the U.S.-China trade war.

When you still have troops in neighboring Afghanistan and with more coming into the Middle East, you want more allies not less. Don't recklessly put American lives in danger.

Pakistan's interests are clearly not aligned with those of U.S. and the idea that Pakistan will suddenly become a major foe due to a minor trade disruption is absurd. India is an obvious better bet as an ally than Pakistan.

India would be a good ally for the US against China but Pakistan is better in matters related to Russia, the Middle East, Afghanistan, or the Muslim world. In geopolitics, nobody's interests are perfectly aligned, you work with what you got.

No one has yet provided any good reason to believe that U.S.-China trade policy should be held hostage to the possibility that Pakistan might be even less cooperative than it already has been in places like Afghanistan, the Middle East, etc. The U.S. tried sucking up to Pakistan for several administrations and it didn't work, so it's not going to work now, especially with something so minor as a trade.

'They're going to nuke us because they're mad at Trump?'

Um, the U.S. has slightly broader interests concerning nuclear conflict than whether Pakistan has any interest in lobbing warheads at the U.S. for any reason (not only one that is as laughable as saying 'Trump').

For example, how much would the Iranians be willing to pay for a couple of hole cards in any future conflict with the U.S., and what would Pakistan consider a reasonable price? Other easily comprehensible scenarios available upon request.

The issue raised was trade, not nuclear weapons.

And Pakistan's record is that it will do whatever it wants in pursuit of its foreign policy goals without much consideration of something as minor as trade with the U.S.

But without them it would be harder to do drone strikes against militants in Afghanistan. Which is apparently more pressing business than the US-China trade relationship?

If the terrorists in the tribal areas ever take over Pakistan, they will have a nice arsenal of nukes. In the control of religious fanatics. That will definitely be more pressing than deciding who puts 5G on my Android.

+1. Comments here are strangely ignorant of world affairs. I thought MR was supposed to be the smart set.

GMU isn't Ivy League. It shows.

China is still more important to the US than Pakistan, Pakistani nuclear program or no.

So, the next column, entitled something along the lines of 'The real losers from the U.S.-Iran trade(?) war,' is just waiting to be reworked lightly in a couple of months. Just drop in a few words about INSTEX, the replacement of the dollar through what is essentially an advanced barter system, and how India's need for oil fits into the picture.

Seems like if the US capitulates on Chinese trade practices, as it has been, then China even more so "will get its way on those issues, and win some very public victories in the Pakistani public arena" and those intermediate Pakistani businessmen who are relatively pro-US should be expected to lose even more face?

I can't see how the 'trade war' could weaken US 'soft power' (in the sense of these symbolic perceptions of US strength and so on that TC seems to be talking about) any more than the alternative, the US being 'weak' on China, already does.

"Weak on China" = Trade as normal.
"Strong on China" = The US making itself and China poorer for no good reason.

When we foreigners see America acting stupidly we think, "America is stupid."

When we see America acting in its own interests and trading normally we think, "American isn't stupid and is acting in a predictable way."

Trust me, it's better to be seen an an engine rather than an enemy of prosperity.

I do not know if Trump's decisions will actually help in this situation, but the fact remains the same: the problem of "trade as normal" was apparent before him as well. If you trade with a country, pay them much more money than you get from them and every year you have to borrow money from the same country, this road leads nowhere. Wait for longer and you just make them even stronger, where no sanctions and no actions can be meaningful, because 20-30 years from now, if trade would continue "as normal", China would have owned USA.

China was already petering out as their infinite labor pool turned out to have limits and wages started to rise. Work was already farmed out to cheaper locales like Bangladesh, Vietnam, and even Mexico. There is no scenario where the US is owned by China. Japan not too long ago was supposed to own the US too and look at what happened. Trump hit the panic switch too early. He is not a steady hand.

Didn't I just hear China has bought 30 million acres of US farm land?

Seems US citizens neither want to work on farms or even own them.

"Japan not too long ago was supposed to own the US too and look at what happened"
Yeah, it was forced by USA to sign a number of laws (Plaza accord) that would hamper it's economy. This period is often called as America-Japan trade war. However this time, the "enemy" of USA in this war is both stronger (politically and military), has ideas that are quite different from USA and probably has more ways to counter USA sanctions. It might still be not enough (China might lose in this war), but waiting and doing nothing would have not won USA this war.

"the "enemy" of USA in this war is both stronger (politically and military),"

Delusional.

China is a Asian land power only. China has no strong allies.

People thought the USSR was stronger than the US too.

You might want to get the fuck out of Ohio

You might learn something

https://www.tabletmag.com/jewish-arts-and-culture/281731/chinas-plan-for-global-supremacy

"China was already petering out as their infinite labor pool turned out to have limits and wages started to rise. Work was already farmed out to cheaper locales like Bangladesh, Vietnam, and even Mexico. "

In that case, it seems like trade with China is less valuable than in the past, because we can trade directly with those countries. In which case the US would seem to have an advantage in any trade negotiations.

That's not how it works, Mr Roman. Let's say you are an American business man and you sell good American bulldozer. Australia is willing to pay $250,000 for it and China is willing to pay $200,000 for it. Who are you going to sell it to? You'd have to be an idiot to sell it to China for less money than you can get elsewhere. Trust me, Americans aren't that stupid. (But maybe one orange American is.)

The Brexiters and gilet jaunes view the "respectable", pro-trade globalists as the enemy of prosperty though. And for the emerging markets, they are equally likely to be exploited by China as America in the future. Not such a bad thing to signal you oppose the Beijing consensus.

The Brexiteers object that the EU inhibits global trade, being a protectionist economy.

'being a protectionist economy'

Boy, are you going to be surprised to discover that the EU is not the only major economy that can be accurately described that way.

Well, in its own interests - enjoy American trade negotiators lecturing about market access for American goods, whether you want them or not. And how opposing American interests is a clear example of British protectionism.

But then, the UK was a participant in erecting much of that EU trade framework, so maybe at least some people in the UK are actually aware of how the U.S. operates in this area.

"trade as normal" implying keeping the old status quo regarding everyone's relations with China has produced:
1) China's military bases in the south china sea
2) China forcing it's neighbors out of their traditional, and internationally recognized, fishing areas.
3) China continually lying about its failures to honor its prior agreements -- like what it needs to do in order to stay the WTO and keep it's most favored nation status or what it's doing regarding the production of CFC-11 (https://www.sciencenews.org/article/emissions-banned-ozone-destroying-chemical-have-been-traced-china?tgt=nr)
4) Its refusal to join weapons treaties like the medium range treaty the just fell apart (in part due to lack of participation by China)
5. The economic terrorism it practices -- ROK and Lotte stores in China and cancelling all the low cost chinese tours to ROK when THAAD were deployed. Similar threats again, was it Norway of all places

And I would add, though the case would be hard to document is more inference than deductive, North Korea's rapid advancement -- but Russia likely gets some credit here too.

So yes, lets just keep on letting China lie and cheat its way forward in support of the economic miracle that is socialism a la the Chinese way.

Let's let them build some bases on the moon too. Then we will all be safe.

If you dislike China, why would you want to stop them doing any of those things?

"Oh look! The country we dislike is pissing everyone off! Let's stop them doing that!"

How does that make any sense?

Of course, if you like China, you might want to try to discourage them from doing stupid things.

Crikey: It's hard to imagine that anyone who understands the issues simply sees the status quo as "trade as normal", rather than a fairly artificial and arbitrary set of protectionist restrictions and IP breaching practices by China.

But if the nations of the world are ignorant in that manner, then doing foolish things to earn the respect of fools is still not really a great idea for the United States.

You're concerned about IP issues and China? Canada, Germany, and quite a few other countries are as well. I expect the United States has been working hard at building a united front on that issue. It seems to have totally fallen off the table here though. Your President was really twisting our arm on that one but then the whole issue just kind of disappeared.

Pakistani businessmen or any businessmen for that matter don't care about "face" but profit. If losing profit makes you more money, then let's lose some face. Do you think shameless corporate America that sold out the middle class care about face? The only person weak here is Trump who fails as a negotiator. His TV personality can fool the American public but has no effect on Asians like Xi or Kim. We wouldn't be in a trade war if his Mr Art of the Deal lived up to his name.

Coercive US tactics, not only against China but also other countries like Iran, will leave many countries thinking that they could be next, and this will spur them to reduce their dependence on the US. They may not like China, but strengthening economic ties with China is the most realistic way to diversify their economy from US dependence. People in other countries also resent the US telling them who they can do business with and forcing them to choose, when they are rightly focused on their own development and could care less about superpower rivalry—this is why nearly all developing countries joined the Non-Aligned Movement during the Cold War. Trade with China has also been massively profitable for the developing world, for example causing higher prices for commodities they export and lower prices for manufactured goods they import, and is partly responsible for the acceleration in GDP growth in developing countries after 2000. They aren’t going to give that up to preserve US hegemony.

What do you mean by "coercive tactics" here? It's not clear what Tyler means to begin with by "now President Donald Trump is essentially telling them to choose sides" (how? why? what exactly is the mechanism used to "tell them to choose sides"?) and less clear how that translates into "coercion" of any sort.

Correct me if I am wrong, but isn't "soft power" entirely about getting nations to agree on your positions even when it is not easy and already in their best interests?

How exactly are we supposed to use "soft power" if we cannot manage something simple like going after a company which appears to be violating sanctions against Iran. At some point "soft power" has to have some actual power, otherwise it is nothing more than just simple cooperation or capitulation.

Maybe Mr. Cowen thinks that soft power is utterly unable to induce countries to sacrifice their own interests. Okay, then I would submit that "soft power" is not going to make the US any stronger.

And lest we forget, China is actively persecuting the kinsmen and coreligionists of many Pakistanis. If Pakistan is willing to tolerate concentration camps but not increase the price of its cellphones … I suspect we may as well start writing down the relationship now.

Soft power is a fake concept that pundits perpetuate to make themselves look like experts. The world doesn't work like that. Pakistan puts up with China's concentration camps and human trafficking for one very simple reason. India. You can't "soft power" that one away.

So if China ever decides to cultivate ties with India then Pakistan will get nuked?

I suppose that's likely enough.

Sure,

Of course our sanctions against Iran themselves are a violation of international law. We are the criminals on that one. Trump should be in jail, not the daughter of the Huawei CEO.

Here is Neil Irwin on the sum of the parts that is the threat to the whole global economy: https://www.nytimes.com/2019/05/29/upshot/the-bond-market-is-giving-ominous-warnings-about-the-global-economy.html And here is Farhad Manjoo reminding us that Fox News propaganda is a far greater threat to America's unity than Facebook in the event of a crisis: https://www.nytimes.com/2019/05/29/opinion/fox-news-facebook-pelosi.html It is in this context that Cowen's latest Bloomberg column should be read: Trump (with help from Fox News) first succeeded in dividing America and is now set on repeating that success by dividing the world.

rayward, the grownups are talking. If you want to make the point that the great threat to America is conservatives expressing their opinions in public, go on Facebook.

Actually, Tom, look at yourself. He is offering a cogent argument, citing other material, and you are not. You may be offended by his reference to conservatism, but taking offense doesn't give you privilege.

Rayward seems more of the grownup than you.

Do better.

That’s cool Billy, but what does that have to do with the sanctions?

So rayward's usual knee jerk linking to the predictably anti-conservative New York Times constitutes a cogent argument? Yes, I'll agree that it is, uh "other material" all right (sarcasm intended). Tom's point stands: rayward and the New York Times typically have one goal. This is to discredit Fox and it is manifestly not to have a discussion that matters. The complaint is the usual one that conservatives have a strong media presence in the form of Fox.

If you actively misinform your own citizens you could end up with a serious situation. No different than information warfare, psyops, or propaganda.

Tyler, it's your own blog now, not a column limited by space. Give us some examples of steps taken by Pakistani businessmen in the past to "push China to open its markets to major U.S. tech companies." Otherwise one might conclude that you're attacking a strawman.

Given the fact that Pakistan--home to any number of Islamist terrorists, safe haven for Osama bin Laden, conniver at funneling our aid to the Afghan Resistance to the most radical (and in many cases, least effectual) groups during the Cold War--can barely be considered an ally, who cares what they think?

Furthermore, Pakistan has always been in bed with the Chinese to some extent, largely because "the enemy of my enemy [in their case, India] is my friend."

Given the choice of India or Pakistan, who do you like? The long era when we could get by with keeping them both on board is ending, along with so many other calcified relics of the Cold War. So I say, if putting the pinch on the Pakis in our protracted struggle with China is part of the price we pay, fine.

Tyler, you are omitting the countries around Asia that stand to benefit from the trade war. As production of thousands of different goods move back to SE Asia (Malaysia, newly Cambodia, Bangladesh, Vietnam, etc) Singapore is at the financial core of that area. Trading with China means never more than a little brother role for Singapore. Singapore plays big brother within Asia when brokering the trade with the US. Which role do you think Singaporeans prefer?

And...when reading about this topic always remember ethnic blindness... thus details matter. When Cambodians complain about the Chinese running factories... do not think PRC... think Malaysians of Chinese decent. This is a big problem when analysing SE Asia. Within SE Asia itself people generalise. PRC has spread their tentacles far less than the generalising public perceives. PRC companies are mostly trading raw resources. For example the beginnings of palm oil from Malaysia. The big money is in electronics from Penang.
For decades China has been stealing business from SE Asia by offering up cheaper alternatives for components to include in OEM products. The trade war is a chance for ASEAN to reverse that process.
And yes, I wrote the beginnings of palm oil. Because China insists on doing the value add process of refining in China. Malaysians are farmers. But wait? Didn't Malaysia produce sophisticated electronics in Penang? But that is not proper. Malaysia is the little brother. Farmers. Sophisticated manufacturing belongs in big brothers house. Obviously I am being sarcastic to make a point.
Do not think SE Asia is in any way happy about the rise of China...

Tyler, it seems to me that if Pakistan leans more towards China then India will lean more towards the US. And frankly, India, being a large, vibrant, Democracy is a far better match than Pakistan.

This looks like and advantage to the US, not a disadvantage.

Possibly. But China likewise has interests in better relationships with India and could be willing to help moderate the conflict between India and Pakistan -- in the sense of working to prevent outright war.

That is also in India's interest.

So it's not a foregone conclusion that alienating Pakistan would bring India closer to the USA.

To me the bottom line is Trump needs to learn to prioritize and not sweat the "small" stuff (small being a relative term here). He has 3 BIG issues to address and one pretty big one.

Denuclearizing north korea and addressing China new imperialist tendencies are two. Russia and Iran are the others -- I'm just not sure which is BIG and which is less so.

Wish there was an edit option, at least for some period of time....

I should add that I don't think that is a skill or trait Trump has and has no interest in developing either -- so we do have some problem and he may fail miserably even if he's found his way to some critical playing fields.

"So it's not a foregone conclusion that alienating Pakistan would bring India closer to the USA."

Sure it's not a foregone conclusion, but it's hard to see how America placing tariffs on Chinese trade goods and China placing tariffs on American trade goods really pushes Pakistan towards China in any case. Isn't it more likely that Pakistan business men try to pick up extra trade to both sides?

Frankly, I find this one of the weakest arguments Tyler has ever made.

Tyler is not talking about business but the government. Pakistan isn't going to ban Huawei because Trump says so. That makes US's soft power look even more soft.

Swings and roundabouts for S Korea.
In the short term, for example, Samsung ought to benefit considerably from the restrictions on Huawei.

Samsung doesn't make carrier-grade telecom gear so they don't benefit. In fact they will stand to lose from the trade wars as they sell chips that do go into Huawei's products.

Oh noes, Pakistan will side with China.

Pakistan already sides with China.

Total trade is 6.6 billion. We have a 20 trillion economy. I think we will survive.

Tyler, some of these arguments seem exceedingly weak:

"If you’re Pakistan, on the actual matters under consideration, you will side with China. Pakistan is not going to ban Huawei or push China to open its markets to major U.S. tech companies. "

Sure, but it seems unlikely that Pakistan is going to push America to open its markets to major Chinese tech companies either. So exactly why would Pakistan side with China versus just playing it neutral and trying to become a bigger supplier to both China and America. The current tariffs make Pakistani goods more competitive in both China and America. Are Pakistani businessmen going to leave those dollars on the side walk?

"Pakistani leaders and businesspeople who sided with the U.S., or expressed strong American loyalties, will feel burned. "

How did you come to that conclusion? What mechanism is uniquely affecting one side and not the other? Why would pro-American Pakistan's be burned, but pro-Chinese Pakistani's are not? This is a strongly emotive piece without the strong reasoning most of your columns evidence.

Of course its weak. I wonder if he even knows how business is done in Pakistan.

First, its not like there is a Pakistani "businessman" who's deciding between Huawei and Cysco in some rational way.

There will be government pressure.

There will be bribes.

US firms can't pay bribes, so our firms there have "local agents." Huawei probably has local agents, too.

So, instead of some battle royale among Americans and Chinese, its two super rich families who are the agents who try to get contracts.

Cost, bribes, and government pressure probably favor Huawei a lot.

Although...doesn't China OCCUPY parts of Pakistan?

I guess Pakistan doesn't mind that.

Pakistan is having a series of anti-China attacks at the moment.

Its not obvious to me that China will be as beloved a replacement to the Americans as Tyler assumes.

If you are located in Pakistan, Vietnam, Malaysia or elsewhere where wages are low, perhaps you will welcome the re-direction of US outsourcing away from China:

https://www.nytimes.com/2019/05/30/business/economy/trump-tariff-manufacturer.html?action=click&module=Top%20Stories&pgtype=Homepage

How many jobs is China going to outsource to those countries? It strikes me that the re-configuration of the supply chain hurts China much more than the United States. These are long-term consequences. I think they (China) also know that. But, this apparently doesn't figure in Cowen's analysis.

More nonsense. This is a geo-political struggle. Why won't the Chinese on Taiwan go back to mainland China? Why don't academics move to Cuba?

Now that Trump raised tariffs on Mexico, you can remove them from the winner list in this newly expanded front of the US-China trade war.

I find it interesting that the deep state and the mainstream media, who claim to support "free trade"(not my word for it) and scream whenever it is threatened(such as by Brexit) are relatively apathetic to this issue. Makes me suspect there's something deeper going on here. Yeah, I'd like to believe the orange idiot in the White House has actually accomplished something for once, but be realistic.

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