By Jon Dougherty
(NationalSentinel) As the trade war between the U.S. and China, the world’s biggest economies, continues, analysts and experts wonder if there will ever come a time when Beijing and Washington will see eye-to-eye.
But one analyst and noted economist believes as solution is at hand, but both sides will have to give a little. Most importantly, Milton Ezrati, chief economist for Vested, the New York-based communications firm argues, President Donald Trump will have to find a way for his Chinese counterpart, Xi Jinping, to make such a deal and save face with his people.
If he can do that, both sides could reach a deal “tomorrow,” Ezerati argues in a recent think piece at City Journal.
Reflection on China’s recent short-term yuan devaluation, among other moves, “bold and headline-grabbing as they are” nevertheless exposed “weakness” in China.
“Beijing can no longer play the tit-for-tat tariff game with which it once engaged the Trump White House. And because the devaluation has raised the risk of capital flight from China (and with it, longer-term economic difficulties), the currency move also hints at desperation to find immediate relief from the economic pain that the tariffs are inflicting,” he writes.
Ezerati says that the Chinese Communist Party “can ill-afford a trade war” because leaders have guaranteed the Chinese people 6-6.5 percent growth in year-over-year GDP. But as The National Sentinel reported Wednesday, Chinese growth, manufacturing output, and employment have all taken a hit thanks to the trade war with Washington.
And, The Wall Street Journal reported that the raft of bad economic news for China that likely explains why Beijing was so quick to end its currency manipulation a week ago after the president warned of further trade consequences:
The jobless rate in Chinese cities returned in July to its highest level since regular reporting on the data began, as employers turned cautious. Other key economic readings for the month, including factory production, consumption and property investment, came in much lower than expected.
While China earlier reported a surprise jump in exports in July, economists say the more-than-yearlong trade conflict with the U.S. has dented market confidence, forcing manufacturers to scale back production and investment, and prompting consumers to tighten purse strings.
Unemployment in China’s urban centers is far higher than it is in the United States, and it is rising: 5.3 percent, compared to the national unemployment rate in the U.S. under the Trump administration’s economic policies of 3.7 percent, a level most economists believe represents full employment.
China’s manufacturing sector alone, the WSJ noted, has shed more than 5 million jobs this year, with anywhere from 1.8-1.9 million of them – nearly 40 percent — due to the ongoing trade war with the U.S.
So, while China is shedding jobs in its manufacturing sector as a result of the trade war, the United States’ manufacturing sector has been adding jobs: 314,000 new manufacturing jobs since the president took office, or 170 percent more than his predecessor, President Obama, according to Forbes.
Ezerati noted further that the U.S. was always in a better position to withstand a trade war.
“Its export-dependent economy depends on overseas sales, which comprise one-fifth of its gross domestic product (GDP). More than one-quarter of those exports go to the United States, meaning that fully 5 percent of China’s economy is exposed in this trade dispute,” he wrote.
“By contrast, the United States counts on exports for about 12 percent of its GDP, and barely 8 percent of its total exports go to China—leaving just 1 percent of the U.S. economy exposed to retaliatory Chinese tariffs. Moreover, some 30 percent of U.S. goods sold in China are off limits to tariffs, as they constitute components, mostly to computer and iPhone assemblies, that support Chinese exports.”
The weaknesses showed early. U.S. firms began to move their operations out of China, while Chinese companies began relocating to other Asian nations not affected by the tariffs. The result has been slowed Chinese growth.
So — how can both countries come to terms on a trade deal? Here is where Ezerati discusses a ‘face-saving’ measure.
“Sovereignty issues matter a great deal to the Chinese. If the Americans were to relent on this point, Beijing would sign a deal quickly. But the White House has good reasons for insisting on changes in the law. American presidents since Bill Clinton have all complained, as does Trump, about Chinese trade practices, and Beijing has continually offered assurances—most recently in the much-touted agreement between Xi Jinping and President Barack Obama—that it always reneges on,” he says.
Trump’s hard line is a response to this past duplicity. And it is this aspect of the dispute that has made it so difficult for the two countries to come to agreement, despite powerful economic incentives,” the economist noted.
But Trump’s approach, he says, is the right one if the objective is to end Chinese theft of American intellectual property and strike a better trade balance. And both of those remain priorities for the president.
“The United States could have an agreement tomorrow if the White House were willing to accept China’s vague promises. But America doesn’t need to give in to the Chinese obstinacy. China’s economic challenges clearly make it eager to find some solution. When Trump showed exasperation earlier this year and announced a second wave of tariffs, Chinese president Xi quickly sent a conciliatory letter. Even now, talks continue,” he wrote.
“What’s needed is a diplomatic formula that gives the United States better guarantees but that also does not make China appear to be conceding on the sovereignty matter,” Ezerati continued. “China might yet succumb to economic pressure and yield to American demands—but the prospect of a deal would brighten considerably if the White House could offer Xi a means of saving face.”
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