When giants fight the grass suffers


THE US and China are engaged in a trade war while Russia and the UK are having a diplomatic spat which is spilling over.
The ramifications of some of the world’s major political and economic powers being in conflict is that the developing world is forced to choose sides, much like during the Cold War.
During his election campaign, President Donald Trump threatened to impose 35 to 45 percent tariffs on Chinese imports to force China into renegotiating its trade balance with the US.
In December 2017, President Trump threatened to withhold ‘billions’ of dollars of US aid from countries which vote in favour of a UN resolution rejecting his recognition of Jerusalem as the capital of Israel.
In May 2017, President Trump said he would consider leaving the North Atlantic Treaty Organisation if member-states do not follow through with pledges to increase their annual contributions to the Alliance.
A few days ago, President Trump  threatened negotiations over the North American Free Trade Association (NAFTA), as well as foreign aid to Honduras – one of the poorest countries in Latin America – over a ‘caravan’ containing roughly 1 000 migrants supposedly headed for the US border.
President Trump routinely threatens to tear up the US trade agreements with Mexico and raise tariffs.
In March 2018, President Trump signed an executive memorandum that imposed retaliatory tariffs on up to US$60 billion in Chinese imports. ‘This is the first of many’ trade actions, President Trump said as he signed the memo.
The new measures are designed to penalise China for trade practices that the Trump administration says involve stealing American companies’ intellectual property.
They primarily target certain products in the technology sector where China holds an advantage over the US.
President Trump has entered uncharted waters. He has already demonstrated his ignorance of Asian affairs when he publicly accepted a phone call from Taiwan’s President Tsai Ing-wen in December and shortly afterwards announced that he did not understand the ‘One China’ policy, or why he should respect it.
His abandonment of the Trans-Pacific Partnership (TPP) simply accelerated China’s displacement of the US as the world’s leading economic power.
President Trump has a tendency of issuing threats before getting to the negotiating table. This tactic might have worked in his business empire, but in global politics that tactic is not going to work. He probably thought imposing tariffs on Chinese products and goods would be a disaster for China, but the reverse is true as the US needs China more than vice versa. 
Twenty years ago, the situation might have been different. China was dramatically underdeveloped and it wanted access to Western technology and manufacturing techniques. China has most of what it needs now, and what it does not have it can easily obtain from vendors outside the US.
While the American market looked enticing a few decades ago, it is relatively mature and today, the newer emerging market countries have become much more interesting to Beijing.
The fastest growing markets for the best items China produces, like laptop computers and cell phones, are in developing regions such as India, Latin America and Africa. In contrast, China itself is a market that the US can hardly ignore.
By the end of 2015, Chinese consumers had bought 131 million iPhones. The total sales to US customers during the same period stood at only 110 million. And iPhones are only a small part of US exports. Boeing, which employs 150 000 workers in the US, estimates that China will buy some 6 810 airplanes over the next 20 years and that market alone will be worth more than US$1 trillion.
The importance of the US-China relationship is already being challenged by other players.
Apple’s iPhone sales in China are running into competition from local Chinese manufacturers and Samsung is more than happy to fill any void that the Chinese can’t deal with.
Likewise, the Chinese would happily shift their trillion dollars in future aircraft purchases to Airbus, a European firm that is already building a plant in China to finish assembly of large, twin-aisle jets. As for automobiles, most Chinese would just as soon drive a Mercedes, BMW or Lexus as a Ford.
US economic experts are saying that by shielding consumers, President Trump has put American manufacturers — a group he has championed — in the cross hairs of a potential global trade war. If the measures stand, along with China’s retaliatory tariffs, they could snuff out a manufacturing recovery just beginning to gain steam.
An intricate supply chain runs directly between the two countries, sometimes in both directions.
Chinese factories make wing panels and doors for Boeing’s Next Generation 737 planes, which are assembled by union workers in Renton, Washington, DC.
General Motors makes its Buick Envision, a sport-utility vehicle, in Shandong Province, and sells it to American consumers. Construction workers in Denver use building materials manufactured in China, made in part from ethane gas produced in Texas.
A central aim of President Trump’s ‘America First’ agenda is to bring back pieces of the supply chain lying outside the country. The tariffs announced this week are just a bargaining point in a broader negotiation between the United States and China over trade.
Unlike smaller countries in Latin America, President Trump cannot bully the Chinese, as China’s foreign currency reserves now stand at more than US$3 trillion.
In contrast, the US has foreign exchange reserves that hover at around US$120 billion.
China could very well emerge out of this better placed than the US, thus further strengthening its position as a global power house.


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