AMERICA'S DREAM
1. The US-China trade war may seem to revolve around the United States’ colossal trade deficit with China, but it actually hinges on investment.
2. Trump wants China to lower its tariffs on US imports: American firms won’t have to channel direct investment into China in order to enjoy the Chinese market, if exporting to China does the same trick.
3. the overwhelming amount of American direct investment in China, which hollows out the American manufacturing heart as China develops a full spectrum of manufacturing capability and overtakes the US in technological innovation. The US trade deficit in part reflects the benefits that American firms enjoy in China, in the form of lower production costs. Chinese currency appreciation is generally bad news for foreign multinationals, as their production costs go up.
CHINA TODAY
1. Banking on the appeal of China as other economies contracted during the global recession, the Chinese government offered multinationals a deal: share your technology in exchange for having Chinese government contracts. This technology-for-market-access strategy has worked extremely well, as evidenced by China’s rise in key industries including high-speed rail, aviation, automobiles and wind turbines.
2. China has moved away from labour-intensive products to capital-intensive products, paving its way to world dominance in manufacturing.
3. American firms benefit from the rise of China in the short term in the form of lower costs, but will ultimately suffer in the long run as China becomes more competitive. This is why Trump wants to bring manufacturing back to the US.
VIEWS
1. What should China do? The best bet is to prevent Trump from taking manufacturing back to the US. How? By making it difficult for the American firms to access the Chinese market unless they invest in China.
2. So long as the American firms realise the importance of the China market and know that exports to China may face uncertain tariffs, they will choose to continue investing in China.
3. Tesla, which has reached an agreement with the Chinese authorities to build a car plant in Shanghai, is the perfect example. China will need to embrace and invite more such foreign investors to thwart Trump in the continuing trade war.
Source:
https://www.scmp.com/comment/insight-opinion/united-states/article/2160342/why-donald-trumps-trade-war-aimed-foreign
