The tit-for-tat trade dispute between China and the United States may do little to protect domestic producers in either country and could have “massive” implications on the global economy unless it is resolved, United Nations experts said on Monday.
Of the $250 billion in Chinese exports that are subject to US tariffs, only about six per cent will be picked up by firms in the United States, according to a report by the UN Conference on Trade and Development (UNCTAD).
And of the approximately $85 billion in US exports that are subject to China’s tariffs, only about five per cent of this will be taken up by Chinese firms, the UN research shows.
Trade in machinery, chemicals and precision instruments under threat
The study also cautions that the effects “are consistent across different sectors” including machinery, furniture, chemicals and precision instruments, noting that bilateral tariffs “would do little to help protect domestic firms in their respective markets”.
Unless the US and Chinese agree to drop their tariff dispute by 1 March, duty on each country’s products will rise to 25 per cent, up from the current 10 per cent level.
Tariffs ‘a gun that recoils on ourselves’
Quoting former US Secretary of State Cordell Hull, UNCTAD’s Pamela Coke-Hamilton repeated his description of protective tariffs as “a gun that recoils on ourselves”, which had also contributed to the Great Depression of the 1930s and the rise of extremism.
“I think that is a single lesson from what we have had here today,” Ms. Coke Hamilton said. “If – barring an agreement between US China on 1 March – tariffs will escalate to 25 per cent, which is a significant difference from the 10 per cent as it currently exists.”
The implications of such a development would be “massive”, the UNCTAD Director, Division on International Trade in Goods and Services, and Commodities, continued, adding that its effects would first of all involve “an economic downturn…due to instability in commodities and financial markets”.
Next, Ms. Coke-Hamilton said, there would be “increased pressure on global growth, as companies will have to impose adjustment costs which will affect productivity investment and profitability”.
Winners and losers from trade tensions
Countries that are expected to benefit the most from the trade war are European Union members; the UN study indicates that exports in the bloc are likely to grow by $70 billion. Japan and Canada, meanwhile, will see exports increase by more than $20 billion each.
Although these figures do not represent a large slice of global trade – which was worth $17 trillion in 2017 – for some countries, like Mexico, the increase in exports will amount to a six per cent rise in exports overall.
Other countries set to benefit from the trade tensions – which erupted in early 2018, when China and the US imposed tariffs worth around $50 billion on each other’s goods – include Australia, with 4.6 per cent export gains, Brazil (3.8) India (3.5), Philippines (3.2) and Viet Nam (5).
East Asian producers face export contraction
But the UNCTAD study also warns that the spat could hit East Asian producers the hardest, with a projected $160 billion contraction in the region’s exports unless discussions between China and the US are resolved before the March deadline.
The study also underlines the “common concern” that trade disputes have an unavoidable impact on the “still fragile” global economy, particularly on developing, commodity-rich countries that are dependent on exports.
“One major concern is the risk that trade tensions could spiral into currency wars, making dollar-denominated debt more difficult to service,” the report adds.
Promoting Innovation and Market Competition are key to China’s Future Growth
China needs to foster new drivers of growth to address productivity challenges, intensify reforms and promote greater innovation in the economy, according to a new report jointly released by China’s Development Research Center of the State Council (DRC), China’s Ministry of Finance and the World Bank Group (WBG).
China has experienced a remarkable period of high rates of growth over the past four decades. But the traditional drivers of growth are running out of steam. China is now at a crossroads, with declining returns to public investment and rapid aging. Developing new drivers of growth will require more efficient allocation of resources while reducing environmental impacts and continuously boosting productivity. Unlocking the new drivers will also require governance reforms to let market forces play a decisive role in allocating resources and a reorientation of China’s innovation system.
A joint research team of DRC, MOF, and the WBG analyzed China’s new development opportunities and challenges, resulting in the report, Innovative China: New Drivers of Growth.
“It is necessary for China to promote new drivers of growth to boost the country’s productivity. We need to carry out reforms to make the economy more efficient, competitive and productive. The report provides valuable insights and recommendations that will help us develop a reform agenda for a more innovative and productive economic system,” said Kun Liu, China’s Minister of Finance.
“China’s economy is shifting from high-speed growth to high-quality development. It needs to rely on deeper reform, higher level opening up and more integrated and efficient innovation to boost productivity and build a modern economic system. The joint research has yielded a series of important results, which are valuable for China to cultivate new growth drivers and promote a new round of reform and opening up,” said Jiantang Ma, Party Secretary and Vice President (Minister in charge), Development Research Center of the State Council, China.
“The report makes clear that investing in people, removing remaining distortions in the economy and reducing market barriers to competition will be critical as China works to boost its innovation capabilities”, said Victoria Kwakwa, World Bank Vice President for East Asia and the Pacific.
The new report proposes that China address its productivity challenges by promoting the “three Ds” – removing distortions in the allocation of resources in the economy, accelerating diffusion of existing advanced technologies and innovations, and fostering discovery of new technologies, products, and processes so as to expand China’s productivity frontier. The report develops recommendations in seven areas to promote the “three Ds”: strengthening competition and creating a level playing field for all investors, recalibrating China’s innovation system, building human capital, allocating financial and human resources more efficiently, leveraging regional development and integration, promoting economic globalization and international competitiveness and adapting the model of regulation and governance to adjusting the balance between the state and the market.
To allocate resources more efficiently and remove distortions in the economy, the report recommends further improvements in the business climate – building on advances in recent years – faster progress in the reform of state-owned enterprises, and greater discipline on government support to specific industries. The report also suggests that the allocation of capital could be improved, mitigating the build-up of risks in the financial sector, enhancing oversight of the fintech industry, promoting the development of small and medium enterprises, and ensuring that venture capital and government guidance funds are commercially operated and professionally managed. Fair competition for the country’s huge pool of investable funds would make the economy both more competitive and adaptable. Further, the report suggests the need for more market-based mechanisms to leverage the potential of coordinated regional development and urbanization, including further relaxation of the hukou household registration system and the introduction of tradeable land quotas across regional jurisdictions to enhance the efficiency of public investments and increase the returns on existing public assets.
The promotion of market competition is also central to the diffusion of technologies. The report argues that China still has considerable scope to benefit from further opening of its economy to foreign investment and competition, including by speeding up development of the regulations and administrative review and licensing procedures needed to implement the country’s new Foreign Investment Law. In addition, the report points to the critical role of human capital, including managerial skills, in facilitating the diffusion of technologies. In this regard, a major priority is to address the remaining regional disparities in educational attainment. Curriculum reforms, pedagogical advancement to promote creativity and the cognitive skills of students and the establishment of a lifelong learning system would ensure that China’s workforce can adapt to the changing skill needs of its economy.
China has rapidly improved its innovation capabilities in recent years. Nonetheless, to foster further discovery of new products and processes, the report proposes a recalibration of China’s national innovation system. The objective of such recalibration should be to make it bottom-up, market-oriented and inclusive and to develop innovation support programs that are more demand-based. It also suggests reorienting a greater share of public R&D support to basic research, strengthening of intellectual property rights and improving the quality of patents. Robust market competition would incentivize enterprises to continuously innovate and upgrade.
The report argues that unlocking the new drivers of growth will require continuous reforms. To help boost innovation and productivity, the role of the state needs to evolve and focus on providing stable market expectations, a clear and fair business environment, strengthening the regulatory system and the rule of law, and reforming the management of civil service performance to further support the market system.
East Asian and Northern European countries are world leaders on idea creation and intensity
South Korea has been named the world’s most idea-intensive nation, with the top 20 dominated by East Asian and Northern European countries, according to PwC’s Global Economy Watch.
In particular, the Nordic countries punch above their weight in terms of patents granted per million population: Sweden, Finland and Denmark all appear in the top 10 while Norway is ranked 16th. European nations occupy 13 places among the top 20 with Germany and France ranked eighth and thirteenth respectively.
East Asia also performs strongly on the intensity index with Japan placed fourth and Singapore fourteenth. China appears in the top 20 for the first time and leads the way on the absolute number of patents granted.
The findings are based on PwC analysis of World Intellectual Property Organisation (WIPO) datasets regarding patents granted in 2017, with adjustments for population size. The analysis also demonstrates a strong correlation between idea intensity and R&D expenditure with the top 20 dominated by those nations spending the highest proportion of their GDP on research.
The UK has also broken into the top 20, with 311 patents granted per million population, but it still lags behind many European nations, including Ireland. In terms of absolute number of patents given it is ranked eighth in the world.
Jonathan Gillham, Director of Economic Modelling and Econometrics at PwC UK says,
‘Ideas power the global economy: generating innovative new products and services, strengthening competition, increasing productivity and raising living standards. Scoring highly on ideas intensity should be a source of considerable confidence in a country’s future economic growth prospects.
‘Our analysis highlights that there are a number of different factors that influence idea intensity. Specialisation and geography are important drivers: the prominence of Nordic countries is clearly linked to their investment in emerging fields of renewable technologies. Similarly, East Asian countries perform strongly across computer technology, electrical machinery and digital communication technologies.
‘Yet what is revealed so clearly here is the strong positive relationship between R&D expenditure and idea intensity. Over 100 countries were included in this analysis, and we estimate that around 70% of a change in a country’s idea intensity can be explained by a change in its research and development spending.
‘Our recommendation for governments is that combined public and private investment in R&D can deliver a real economic dividend and should be a key area of economic policy.’
Oil Market Report: Taking a breather
The oil market focus recently has been on demand as growth weakens amidst uncertainty around the global economy, and particularly trade. In this month’s OMR, we maintain our growth estimate for 2019 at 1.1 mb/d, even though June data show that demand increased year-on-year by less than 0.2 mb/d. For the second half of 2019 we retain the view that with oil prices currently about 20% lower than a year ago there will be support for consumers. Early data for July suggest that global demand grew by 1.3 mb/d year on year.
In recent weeks, tensions in the Middle East Gulf have eased and oil industry operations appear to be normal. The major political event that has taken place is a personnel change in Saudi Arabia with the appointment as energy minister of Prince Abdulaziz bin Salman, who is a well-known and experienced figure. An early event for him is a meeting of the OPEC+ agreement monitoring committee that takes place in Abu Dhabi as we publish this Report. To date, support for the agreement rate has been high, but ahead of the meeting data for August show the compliance rate slipping to 116 per cent. In August, three major countries Russia, Nigeria and Iraq, produced 0.6 mb/d more than their allocations. Saudi Arabia, on the other hand, produced 0.6 mb/d less than allowed, and it is clearly the lynchpin of the whole deal. A reminder to the producers that competition for market share is getting tougher comes from preliminary data showing that in June the US momentarily overtook Saudi Arabia and Russia as the world’s number one gross oil exporter.
Our balances for 2H19 imply a stock draw of 0.8 mb/d, based on the assumption of flat OPEC production, stronger demand growth and weaker non-OPEC supply growth. However, this is only really a breather: the 2H19 non-OPEC growth, although modest by recent standards at “only” 1.3 mb/d, is measured against the high base set by the enormous production surge seen this time last year. So far in 2019, US crude oil production growth has stalled with June output only 45 kb/d higher than in December. Even so, output is still growing strongly on an annual basis, rising this year by 1.25 mb/d, with 1 mb/d of growth to come in 2020. In Norway, long-awaited projects are coming on stream earlier than expected and may ramp up to peak production ahead of schedule. Oil production in Brazil is growing fast, reaching 3 mb/d in August, 0.4 mb/d higher than just two months earlier.
While the relentless stock builds we have seen since early 2018 have halted, this is temporary. Soon, the OPEC+ producers will once again see surging non-OPEC oil production with the implied market balance returning to a signifcant surplus and placing pressure on prices. The challenge of market management remains a daunting one well into 2020.
Finally, in January the International Maritime Organisation’s new marine fuel regulations are being introduced. In Oil 2019, published in March, we concluded that markets will be generally prepared for the shift, assuming a certain initial level of non-compliance. In this Report, we have looked at the latest developments in demand and refining and we reaffirm our view of a relatively smooth start for the new rules. In line with this view, markets are not currently signalling significant increases in diesel prices, but this is an issue that will be monitored closely.
New Study Offers Pathways to Climate-Smart Transport
A two-volume study laying out a pathway to a low-carbon and climate-resilient transport sector in Vietnam was released at a...
Digitally shaping a greener world
Women were not allowed on map-making ship voyages until the 1960s—it was believed that they would bring bad luck. Spanish...
Promoting Innovation and Market Competition are key to China’s Future Growth
China needs to foster new drivers of growth to address productivity challenges, intensify reforms and promote greater innovation in the...
Politics as Reflection: Even in an Election Year, Real Change Must Come From “Below”
“What is the good of passing from one untenable position to another, of seeking justification always on the same plane?”-Samuel...
New intrigue over nuclear deal
The Islamic Republic of Iran (IRI) demonstrated unprecedented foreign policy activity in August as Iranian Foreign Minister Mohammad Javad Zarif...
Pakistan’s peace-loving gestures are considered its weakness, unfortunately
Pakistan is a peace-loving nation and a responsible state. The leadership, civil and military. Both are visionary and rational very...
National Mobilization of Entrepreneurialism; Skills gaps strategy
Uplifting midsize business economy, nation by nation Although neglected, the revival of midsize business economy is extremely critical, as...
Defense3 days ago
India Amidst the Follies of a Winnable Nuclear War
Middle East3 days ago
How Syria Defeated the 2012-2019 Invasion by U.S. & Al-Qaeda
Economy1 day ago
Stagnation or recession: What threatens the banking system of Germany and the eurozone in 2020
Newsdesk2 days ago
A Recipe for Africa: Tolerance, Trade and Youth Opportunity
African Renaissance3 days ago
The African Renaissance- poets
Middle East2 days ago
Netanyahu wants another meeting with Putin
South Asia3 days ago
Webinar: Kashmir Outside the Crosshairs- Does Anyone Care about Kashmir?
Reports2 days ago
The US shale revolution has reshaped the energy landscape at home and abroad