Trade War Unlikely to Affect China's Momentum

Chinese manufacturing

By MarEx 2018-04-03 19:37:10

U.S. President Donald Trump is instigating a range of tariffs on Chinese goods aimed at penalizing China for alleged theft of intellectual property. The president’s actions follow the recent introduction of tariffs on steel and aluminum, sparking concerns of a global trade war - a war China sees as just another “unfavorable factor” it is capable of dealing with. 

The tariffs are expected to affect about $50 billion worth of Chinese goods including semiconductors, lithium batteries, communications satellites, television components, dishwashers and snow blowers.

U.S. officials identified items that “benefit from Chinese industrial policies, including Made in China 2025.” They also tried to choose products that would minimize the impact of the tariffs on U.S. consumers.

The National Retail Federation is less than enthusiastic. President and CEO Matthew Shay says: “As we’ve said all along, tariffs are taxes on consumers and a drag on the nation’s economy. While we are pleased that many everyday products such as clothing and shoes are not on the list, we remain concerned that other goods such as consumer electronics and home appliances are targets. And we believe that tariffs on certain machinery will make American-made products more expensive. 

“This entire process creates uncertainty and makes it difficult for retail companies that must rely on complicated global supply chains. Tariffs threaten to hurt consumers, jeopardize job creation and increase the cost of doing business here in the United States. Once again, we urge the administration to work with our trading partners to hold China accountable, advance targeted solutions and recognize the unintended consequences of protectionist trade policies.” 

China has imposed tariffs of its own in response to Trump’s actions and remains optimistic about its manufacturing potential. High-tech manufacturing contributes more than 10 percent of China’s economic growth, but around 80 percent comes from labor-intensive traditional industries like retail and refineries.

China announced on Tuesday that it aims to surpass Germany and Japan to become the world’s second-most-powerful manufacturing nation behind the U.S. by 2035, and by 2045 it plans to be a world manufacturing powerhouse on par with the U.S. 

According to the 2017 index on manufacturing development published by the Chinese Academy of Engineering on April 2, the top four manufacturing nations in 2016 were the U.S. with a score of 172.28, Germany with 121.31, Japan with 112.52 and China with 104.34.

Zhou Ji, president of the Academy, admits: “China is now the world’s largest manufacturer, but not necessarily the strongest.” In the 2012-16 period, the scale of China’s manufacturing industries grew rapidly, but the quality and value of its products, the optimization of industrial structures and its capacity for innovation and sustainability did not see major changes. In 2016, China saw a decline in its manufacturing development mainly due to a weak yuan, whose exchange rate against the dollar went from 6.09 in 2013 to 6.64 in 2016. The overall sluggish global economy also decreased China’s exports and further weakened its manufacturing industry, Zhou said.

“This shows that China’s manufacturing development still mostly relies on boosting its scale rather than improving quality or innovation,” Zhou said. “Chinese brands have become more popular and recognized in the world in the past few years, but our competitive trade advantage, especially in high-tech products, is losing its edge.”

Zhou said the fluctuation is normal, because other countries, like the United Kingdom and India, are catching up fast. The unpredictability of the U.S. government and its economic policies also adds uncertainty to the global economy and affects the manufacturing trends of China and the world, “but these unfavorable factors will not affect China’s overall growth momentum,” Zhou said.