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A contemplation on Washington-Beijing trade war

Mohammad Ghaderi

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The decision of the Trump’s government to start its research on the devastating effects of China’s measures on the American economy has led to a sharp reaction by the new generation of Beijing Communists. It is clear to everyone that Donald Trump and his companions at the White House have challenged the “open doors” policy of Mao’s sons.

What attracts the attention more than anything else amid this conflict, is the insistence of the US president on protectionist policies on one side, and Beijing’s resistance to these policies on the other side. In other words, Washington and Beijing are going to enter a full-fledged trade war during the presidency of Donald Trump. What has happened so far has only provided the basis for such a controversy. Here are some point that need to be taken into consideration:

Firstly, the withdrawal of the United States from multilateral trade rules in the international system, and the insistence on unilateral economic protectionism, is the result of a special outlook which is dominant at the White House ruling. Economic unilateralism and the pursuit of protectionist policies are two main indicators of Trump’s economic approach in the field of global trade and international economics. Obviously, Trump will firmly stand against the Chinese charges of unilateral protectionism. Beyond that, Trump knows well that if he can institutionalize his unilateral protectionist policies within the eight years of his possible presence at the White House, next American governments will have a very difficult job to change this irregular (but smart) structure. Therefore, the charge of “protectionism” can’t force Trump to retreat from its economic policies towards Beijing and other powerful international players.

The second point is that Trump has entered a new economic confrontation with Beijing which relies on the possible violation of intellectual property rights and other issues related to technology.  Pursuing his goals, Trump didn’t resort to changing exchange rates, creating administrative and bureaucratic barriers, anti-dumping laws, direct subsidies to US domestic companies, import quotas, and most importantly, customs tariffs. Rather, on his economic confrontation with Beijing, he focused on the least costly way which was intellectual property rights. This equation is somewhat complicated: The fact is that the President of the United States intends to use terms such as intellectual property in the field of invention and trade as a cover for applying nationalist protectionist policies. In order to complete this process, Trump will further strengthen bureaucratic administrative law in the near future as opposed to importing Chinese goods. In short, Trump’s short-term goal is to create bureaucratic obstacles so that it would be difficult for China to import goods and products to the US .

The third point is about the introduction of customs tariffs against Chinese goods. The Trump government has also increased tariffs on some of the imported goods from China. Trump also subsidizes American producers. However, it is not yet clear that granting industrial subsidies to domestic factories and manufacturers in the United States could lead to lower commodity prices, and more importantly, to increase the productions’ quality.

Basically, this is the critique that comes with protectionism. Accordingly, making barriers to imported goods and the introduction of punitive tariffs can endanger consumers and even the government in the long run. Due to lack of competition with imported goods, the owners of such industries practically have no incentive for increasing the quality of their manufactured goods, and the competition formed in the domestic market is also not usually a dynamic one. This rule also applies to the imposition of punitive tariffs on Chinese goods.

China is buying the most Treasurys at the US government auctions since 2011. It wasn’t without a reason that politicians like Hillary Clinton, the Democrat candidate in the 2016 presidential election, have warned against economic opposition with China. In such a situation, the United States full-fledged trade war with Beijing can be interpreted as a major business and economic mistake.

Undoubtedly, the open-door policy is against the approach taken by trump based on protectionist economy. Since 1899, China has been pursuing an open door policy for its economic development. The open-door policy would allow for a system of trade in China  open to all countries equally, and no country has particular privilege over other countries. This approach is in contrast to the monopolistic economic thinking (based on unilateral protectionism). Unilateral protectionism is not only opposed to the open door policy, but also directly targets the principles of liberal economics.

Finally, the adoption of unilateral protectionist policy by the Trump’s government will be followed by the Chinese retaliatory measures, which will further lead to a devastating trade war between Beijing and Washington. Many American economists warn against this economic confrontation. Many American economists have argued that Trump has embarked on an economic war with China, without creating the necessary requirements inside the country. Hence, Trump’s protectionist policies can’t improve the US domestic industry. Alan Tennyson, a well-known American businessman who has been supporting Trump during the presidential competitions, is now firmly opposing the imposition of punitive tariffs on Chinese goods, and believes that it would be an unplanned intervention in the US economy.

Many American economists are criticizing of Donald Trump’s protectionist approach in this equation: all these economists are warning about a major economic war between the United States and China. The conflict between Washington and Beijing, based on Trump’s unilateralist policies, can redefine the economic ideas of both countries. “The emergence of modern protectionism” or “redefining open door policy” can be the objective outcome of this conflict. On the other hand, China and the United States will probably both use the tools and methods in the economic conflict, which contradicts their economic red lines in recent years.

In such a situation, we will witness a lot of changes in the economic and business structure of both countries. It should not be forgotten that in the field of economics and commerce, many revisions occurred during international disputes, and not in the stabilized international markets. It should be acknowledged that this conflict isn’t going to be limited to Washington and Beijing, and their trading partners, voluntarily or involuntarily, will enter this war.

First published in our partner MNA

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Economy

Côte d’Ivoire: Robust growth under the looming threat of climate change impacts

MD Staff

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According to the Economic Update for Côte d’Ivoire, published today, the short- and medium-term outlook for the Ivorian economy remains positive. The economy is expected to maintain a steady trajectory, with GDP growth of 7 to 7.5% in the coming years. Titled “So Tomorrow Never Dies: Côte d’Ivoire and Climate Change,” the report highlights the urgent need to implement measures to ensure that climate change impacts do not imperil this economic progress and plunge millions of Ivorians into poverty.

“The solid performance of the Ivorian economy, which registered growth of almost 8% in 2017, is essentially due to the agricultural sector, which experienced positive climate conditions. The economy also benefited from a period of calm after the political and social instability of the first half of 2017 and from more favorable conditions on international markets,” said Jacques Morisset, Program Leader for Côte d’Ivoire and Lead Author of the report. “The Government also successfully managed its accounts, with a lower-than-expected deficit of 4.2% of GDP, while continuing its ambitious investment policy, partly financed by a judicious debt policy on financial markets.

However, the report notes that private sector activity slowed in 2017 compared with 2016 and especially 2015, which may curb the pace of growth of the Ivorian economy in the coming years. Against the backdrop of fiscal adjustment projected for 2018 and 2019, it is critical that the private sector remain dynamic and become the main driver of growth. This is particularly important in light of the uncertainty associated with the upcoming elections in 2020, which could prompt investors to adopt a wait-and-see approach.

As economic growth in Côte d’Ivoire relies in part on use of its natural resource base, the authors of the report devote a chapter to the impact of climate change on the economy. They raise an alarming point: the stock of natural resources is believed to have diminished by 26% between 1990 and 2014. Several visible phenomena attest to this degradation, such as deforestation, the depletion of water reserves, and coastal erosion. According to the Intergovernmental Panel on Climate Change (IPCC), climate change could reduce GDP across Africa by 2% to 4% by 2040 and by 10% to 25% by 2100. For Côte d’Ivoire, this would correspond to a loss of some CFAF 380 billion to 770 billion in 2040.

This report sounds an alarm in order to spark a rapid and collective wake-up call,” said Pierre Laporte, World Bank Country Director for Côte d’Ivoire. “Combating climate change will require prompt decisions and must become a priority for the country to maintain accelerated and sustainable growth over time.”

The report pays special attention to coastal erosion and to the cocoa sector, which represents one third of the country’s exports and directly affects over 5 million people. With 566 km of coast, Côte d’Ivoire now boasts a coastal population of almost 7.5 million people, who produce close to 80% of the national GDP. Two thirds of this coast is affected by coastal erosion, with severe consequences for the communities and the country’s economy.

The Ivorian Government, which is already aware of this challenge and has prepared a strategy to confront it, must expedite its implementation. This would have the two-fold effect of developing a “green” economy and creating new jobs.

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A future of work based on sustainable production and employment

Simel Esim

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On the first Saturday of July each year, the international community celebrates the International Day of Cooperatives. This year’s theme, Sustainable consumption and production of goods and services is timely, as the ILO works towards a future of work that is based on sustainable production and employment models.

As head of the ILO’s Cooperative Unit, I have witnessed firsthand the positive impact of cooperatives’ commitment to sustainable consumption and production.

In Northern Sri Lanka, for instance, after years of civil war, I saw how cooperatives helped build the resilience of local communities.

A rapid assessment at the start of the ILO’s Local Empowerment through Economic Development project (LEED) indicated that cooperatives were the only “stable” structures present in Northern Sri Lanka before, during, and after the conflict. Since 2010, the project has been supporting agriculture and fishery cooperatives by securing fair trade certification for their products and helping them establish market links.

I’ve also listened to inspiring stories from other parts of the world of how cooperatives have joined forces to contribute to sustainable consumption, production and decent work – often through cooperative-to-cooperative trade.

Some of these stories were shared at a recent meeting in Geneva of cooperative and ethical trade movements.

We heard how Kenyan producer cooperatives’ coffee has found its way on the shelves of Coop Denmark and how biological pineapples from a Togolese youth cooperative are being sold in retail cooperatives across Italy. We heard how consumer cooperatives in East Asia have developed organic and ecolabel products, while educating their members about the working conditions of producers and workers, as well as on reducing food waste and plastic consumption. We also shared ILO experiences in supporting constituents in the field.

The emerging consensus from the meeting was that cooperative-to-cooperative trade can help lower the costs of trade, while ensuring fairer prices and better incomes for cooperative members and their communities. Opportunities exist not only in agricultural supply chains, but also in ready-made garments and other sectors.

Cooperatives at both ends of the supply chain have been joining forces to shorten value chains, improve product traceability and adopt environmentally-friendly practices. At the ILO we have been working with our constituents to improve the social and environmental footprint of cooperatives around the world.

As the ILO continues to promote a future of work that is based on sustainable production and employment models, a priority for us in the coming years is to facilitate the development of linkages between ILO constituents and cooperatives. The aim is to encourage joint action towards responsible production and consumption practices, the advancement of green and circular economies and the promotion of decent work across supply chains.

Source: ILO

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Mongolia’s Growth Prospects Remain Positive but More Efficient Public Investment Needed

MD Staff

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Mongolia’s economic performance has improved dramatically with GDP growth increasing from 1.2 percent in 2016 to 5.1 percent in 2017 and 6.1 percent in the first quarter of 2018. While short- and medium-term economic prospects remain positive, Mongolia faces core structural vulnerabilities that hinder its potential, according to Mongolia Economic Update, the latest World Bank report on Mongolia’s economy launched here today. The report also highlights the importance of improving efficiency of its public investment programs given extensive consequences from the overambitious and unrealistic investment programs implemented in the past.

“Last year was a good year for Mongolia with favorable commodities prices and the successful implementation of the government’s economic recovery program,” said Dr. Jean-Pascal N. Nganou, World Bank Senior Economist for Mongolia and Team Leader of the report. “This resulted in improved fiscal and external balances, triggering a slight decline of the country’s public debt.

The recovery is expected to accelerate with a GDP growth rate averaging more than 6 percent between 2019 and 2020, driven by large foreign direct investments in mining. Other than agriculture, which was severely affected by harsh weather conditions during the winter, most major sectors including manufacturing, trade, and transport are expected to expand significantly. On the back of increasing exports and higher commodity prices, economic growth will continue to have a strong positive impact on government revenue, contributing to the reduction of the fiscal deficit.

The unemployment rate dropped to 7.3 percent in the last quarter of 2017, compared to 8.6 percent a year earlier. Still, it increased to 9.7 percent in the first quarter of this year, reflecting Mongolia’s highly seasonal employment patterns due to difficult working conditions in the winter, especially in construction, agriculture, and mining.

The report highlights possible short- and medium-term risks including political risks, regional instability, climate shocks, and natural disasters. The most critical risk identified is a sudden relaxation of the government’s commitment to full implementation of its economic adjustment program supported by development partners.

In addition, the economy remains vulnerable to fluctuations in global commodity prices and a productivity gap. The best long-term protection against these two vulnerabilities is the diversification of the Mongolian economy.

To create a strong buffer against economic vulnerabilities, the government and donors should give a high priority to economic diversification that helps counter the ups and downs of the mining sector. Investing in human capital and strengthening the country’s institutions are the best way to support diversification, together with sound investments in crucial infrastructure,” said James Anderson, World Bank Country Manager for Mongolia.

The report takes a closer look at public investment programs implemented over the past five years, which surged until 2015, contributing to large increases in public finance deficits and the public debt. Mongolia needs to review and reshape its public investment policies and decision-making processes to improve efficiency of public spending, including clear project selection and prioritization criteria, as well as proper maintenance of existing assets.

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