trade war

How Not to Win a Trade War

Arbitrary or capricious rule changes are a significant danger for foreign firms looking to diversify out of China into other markets in Asia.  It certainly does no good to open a new warehouse or building, only to have a regulatory change that renders it unusable or be saddled with new requirements on staffing that drive costs into the red. Most of the markets in the region that are currently expecting to capitalize on the trade war struggle with at least some—and usually all—of these problems.  An honest assessment of market conditions in hopeful “winners” could bring about some necessary changes.  There is certainly an opportunity for many markets to capture new gains from trade in areas that have not been “in play” for years.  But absent some significant improvements in the ease of doing business in a remarkably short period of time, many of the locations that expect a windfall from relocations are likely to be bitterly disappointed.

Another One-Sided Move on Last Mile Delivery

Another One-Sided Move on Last Mile Delivery

The United States, of course, is not Australia and has a customer base that is hard to ignore.  Marketplaces will likely continue to deliver, despite higher costs, but will pass along these higher postal rates to customers who will pay more. In the meantime, firms will search for alternative markets outside the US to continue to grow their businesses. Governments outside the United States may follow suit and withdraw from the UPU as well, leaving US exporters, including many of the most vibrant global e-commerce vendors, at risk of failing to reach their own customers in fast-growing overseas markets where last mile delivery is always the most challenging part of e-commerce for firms. Withdrawing the United States from the UPU may seem like a small victory for Trump, but the implications and collateral damage it could cause to American consumers and companies alike may be significantly more than the relatively minor amount Trump claims the US Postal service is currently forgoing.

Singapore’s prime minister: Nobody wants a trade war

Although most Asia-Pacific countries continue to pursue trade and economic liberalization — for example, through the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership — these initiatives will not compensate for the damage caused by a trade war.  Beyond the economic loss, strained ties between the United States and China will make it harder for them to cooperate on other pressing issues such as the denuclearization of the Korean Peninsula, regional security, nonproliferation and climate change. None of these issues can be solved without the full participation of both countries. If any of these disputes escalates and destabilizes relations between the United States and China, the consequences for the world would be disastrous.  Competition between the United States and China is to be expected. But whether this competition takes place within a framework of interdependence and generally accepted international rules makes all the difference. Ultimately, what is at stake is war and peace, and the security and stability of the world. The United States, China and the rest of the world have too much at stake.

The Challenges of Fighting--and Winning--a Trade War

Second, is the “punishment” appropriate for the “crime?”  The penalties are all found in tariffs to be imposed on American firms and American consumers.  How will tariffs on goods result in changes in IP policies inside Chinese companies?  Or how will tariffs imposed on US consumers alter decisions in China about technology transfer?  Third, the original use of Section 301 was meant to be about negotiation, not about punishment.  But the Trump team discontinued the primary mechanism for US-China talks more than 8 months ago and has not resumed negotiations under any other pathway.  Hence, even if China had wanted to head off these tariffs through a negotiated solution, there would have been no way to do so.  Now, the Trump team has gotten 301 entirely the wrong way round—punishment first and talk later.