US vs. China: in trade, the gloves are off

US vs. China: in trade, the gloves are off, by Alan Kohler.

Last week the Trump administration announced tariffs of 30 per cent on imported washing machines and solar panels. It was widely, and no doubt correctly, seen as the start of new trade offensive against China. …

[Trump’s Trade Representative Robert Lighthizer]: “On a purely intellectual level, how does allowing China to constantly rig trade in its favour advance the core conservative goal of making markets more efficient? Markets do not run better when manufacturing shifts to China largely because of the actions of its government. Nor do they become more efficient when Chinese companies are given special privileges in global markets, while American companies must struggle to compete with unfairly traded goods.” …

And then in Davos on Thursday, President Trump took a pretty clear swipe at China: “We support free trade but it needs to be fair and it needs to be reciprocal because in the end unfair trade undermines us all. The United States will no longer turn a blind eye to unfair economic practices including massive intellectual property theft, industrial subsidies, and pervasive state-led economic planning”.

Broadly, the US is now defining China as a strategic competitor, and a cheat at that, and the previous doctrine of “constructive engagement” is out the window. …

China’s resources imports have kept Australia out of recession for 26 years, and now the growth in China’s middle class consumers is underpinning a whole new export boom, in food, tourism and education. So it’s getting harder and harder for Australia to choose America over China if those two really do come to blows.

The other problem is the US dollar. In addition to using tariffs, the Trump administration seems to be on a mercantilist campaign to devalue the currency.

The US dollar has already declined 13 per cent, pushing the AUD from US71c a year ago to US81c today, and last week Treasury Steve Mnuchin let the cat out of the bag when he said a weaker currency was “good for America” (the first time a Treasury Secretary has said that for a long time, possibly ever). …

Weak exchange rate policy and protectionism go together. Just ask China.

hat-tip Stephen Neil