The impact of the China-US tariff war on China and China’s countermeasures

A FORWARD-LOOKING _________ UNITED STATES TRADE POLICY Clayton Yeutter U,NTiL recently, international trade was not a subject that attracted much interest in the United States. Rich in natural resources, endowed with the world's largest economy, and generally isolated from the rest of the industrialized nations, America produced within its own borders most of the goods it needed. Indeed, as recently as 1960, its combined export-import trade totaled only $35 billion. As the United States usually had a trade surplus, the effects of trade, when they were considered at all, were typically viewed as benign. All that has now changed. Imports and exports today amount to $550 billion, accounting for 21 percent of the U.S. gross national product. One-eighth of all manufacturingjobs depend upon exports and 40 percent of U.S. farm production is sold abroad. As international trade has become vastly more important to the American economy, trade policy has developed into a political issue of considerable controversy. The bipartisan consensus that once existed for the principle of open markets has dissolved into partisan wrangling and posturing. The advantages of open markets were obvious in the postwar period when America consistently ran trade surpluses; exports meantjobs and imports did not seem threatening. Now that the United States is running trade deficits, however, some want to abandon traditional U.S. trade policies in favor of protectionism. There is no question that the trade deficit—$123 billion in 1984 and projected higher for 1985—is troubling and could lead to serious economic dislocations. A long-term trade imbalance of this size would Clayton Yeutter is the U.S. Trade Representative. 2 SAIS REVIEW erode the United States' industrial base, reverse recent employment gains, and shackle U.S. exporters. Yet such protectionist measures as surcharges, quotas, and higher tariffs would be classic examples of cures worse than the disease. The best way to right the trade imbalance is to convince foreign countries to open their markets and accept more U.S. goods. Protectionism would do nothing to open markets; in fact, it would result in higher trade barriers around the world and fewer opportunities for American exporters. Those who favor protectionism forget that as the world's biggest trading nation, the United States would suffer most from a global trade war. A better way to reduce the trade imbalance would be to emphasize freer and fairer trade among all nations. We want other nations to buy more of our goods; we do not want to deny American citizens the right to buy products from our trading partners. President Reagan's trade policy, as articulated on 23 September 1985, recognizes that free and fair trade produces more jobs, results in a more productive use of the nation's resources, stimulates rapid innovation, and leads to a higher standard of living. Open markets also improve national security by strengthening the economic and political systems of U.S. allies. Since World War II the United States has been the world's leading advocate of an open trading system—a system that has helped bring about unparalleled prosperity for the American people. This leadership role is one we cannot now abandon without bringing about the collapse ofthe international trading system as we know it. It is not hard to imagine a scenario in which an American wave of protectionism sets off a worldwide trade war, with one nation after another acting to protect its own domestic industries. In fact, this is exactly what happened in the 1930s, when the United States imposed the restrictive Smoot-Hawley tariffs. Ofcourse, America's role as the leading advocate of an open trading system does not absolve its trading partners of their obligation to support more open markets. Free trade must be reciprocal if it is to survive politically; no democracy can stand by and see jobs lost to a nation that erects trade barriers, subsidizes its industries, or engages in other unfair trade practices. Protectionism in other countries undermines support in America for the international trading system built since World War II. It is incumbent upon all nations to join the United States in working to improve this system and prevent its collapse. To...

Liberalists has declared that economic trade brings about political cooperation and peace between two countries through enhancing the economic benefits, promoting conversation, and removing misunderstanding. On the basis of this declaration, the policy on North Korea has been pushed ahead by the Korean government which tries to transform the relationship with North Korea from mistrust and hostility to reconciliation and cooperation. It has been twenty three years since the economic trade between South and North Korea began in January, 1989 under President Noh Taewoo which was triggered by the Declaration of July 7 and the North-South Korean Economic Relation Measure of October in 1988. The total turnover between South and North Korea was about 15.9 billion USD during the period from the beginning of January, 1989 to the end of September, 2011, out of which 13.2 billion USD is for commercial trade and 2.6 billion USD is for economic aid. However, the controversy is being aroused in South Korea about the policy on North Korea because North Korea tends to keep hostility towards South Korea through nuclear experiment, blowing up the Cheonan ship, shooting a South Korean tourist in Keumkang Mountain, and shelling of Yeonpyeong Island. It seems to the realists that the economic trade between South and North Korea brings about reinforcing the North Korean military power and weakening the security in South Korea, which results in hindering the peace in Korean Peninsular. From the point of this issue, this paper aims to analyse the effect of trade and economic aid on easing conflicts between South and North Korea empirically. The result of this study can be summarized as follows. First of all, the increase of total turnover is significantly effective on creating the cooperative relationship between South and North Korea, which means that the increase of total turnover will decrease the conflict index. Secondly, the increase of commercial trade does not significantly affect the conflict index. Thirdly, the increase of non-commercial trade is significantly effective on the conflict index, which means that the increase of non-commercial trade will bring about creating the cooperative relationship between South and North Korea. Finally, the multi-variable analysis shows that rate of change in non-commercial trade is significantly effective on the conflict index, but rate of change in commercial trade is not. To sum up the results of the empirical analysis, the increase of total turnover and/or non-commercial trade is significantly effective on creating the cooperative relationship between South and North Korea, but not in the case of the increase of commercial trade. In other words, the economic trade between South and North Korea does not necessarily reduce the conflict in Korean Peninsular. In fact, it has been happening in the real world since fifty years ago. Social welfare in North Korea should be enhanced to reduce the conflict in Korean Peninsular through the economic support and trade from South Korea. The amount of social welfare increase in North Korea should be enough to offset the amount of social welfare decrease due to the cessation of the economic support and trade. Therefore, the economic trade between South and North Korea needs to be vitalized more and more so that North Korea be economically dependent upon South Korea. Limits of this paper, which are left to be studied in the future, are as follows. First of all, it needs to be analyzed how much social welfare has been enhanced in North Korea through the economic trade between South and North Korea for the past twenty three years. Secondly, it also needs to be studied what is the level of dependence of North Korea on South Korea, and whether the economic sanction toward the North Korea of the Lee Myung-bak administration is significantly effective or not.

Can joining the World Trade Organization (WTO) bring us tangible short-term benefits? If this question had been posed two years ago, the answer that we would have gotten from our folks in economic and trade circles would most likely have been a largely positive and affirmative one. At that time, China's competitive strength in terms of its exports was strong: the volume of our exports was rising with each day, and, in particular, our trade surplus with regard to trade with the United States was growing in a major way—even though a significant part of that trade was entrepôt trade. At that time, the United States even resorted to repeatedly threatening us with withdrawing its "most-favored-nation" trade relations with China as a way of demanding that China reduce its trade surplus with the United States. If we had joined the WTO (or, at that time, General Agreement on Trade and Tariffs [GATT] then, we at least would have been able to avoid this threat on the part of the United States and there would have been less interference in Sino-U.S. trade relations. Today's situation, however, is somewhat different. Because of the enormous impact of the Southeast Asian financial storm, and because the Chinese government, considering the larger picture, has decided to maintain the value of the renminbi, there is already a considerable loss on the part of China's export competitiveness in an objective way; furthermore, from the perspective of the statistical data for the first quarter in 1999, the extent of this damage is likely to continue to expand. If China continued to maintain the value of the renminbi and keep it from devaluation, then the pressure of China's trade surplus with the United States would be alleviated and this trade surplus, in terms U.S. interests, would most likely be gradually replaced by a trade surplus on the part of the countries of Southeast Asia and Latin America in their trade with the United States. At the same time, the trade-related friction between China and the United States will gradually be lessened. In that sense, the significance to the United States of China's joining the WTO—in terms of "alleviating" [China's] so-called threat to the United States as a most-favored nation—is already no longer as great as it once was. Furthermore, along with the eruption of financial crises in many regions and locations in the world one after another, the world economy has already lapsed into a rather long-term state of stagnation. Although China may still need to continue to take hold of "both markets"—that is, both the overseas market and the domestic market—it must also discern that we cannot continue to adhere to a "lopsided" strategy of relying on exports to pull along the growth of the economy, and that, instead, we must turn more of our attention to relying on the domestic demand.

Iran and the GCC countries (Saudi Arabia, Oman, Qatar, Kuwait, the United Arab Emirates and Bahrain) as the most important economic and political pillars in the oil-rich Persian Gulf region are among the most important oil exporters in Are global markets that their economy relies on oil revenues. Each of these countries, based on their economic structure, market requirements, domestic institutions and different business conditions, have used a diverse combination of sources of income to reduce the effects of oil shocks in different sectors of the economy. Therefore, the study of the effects of oil shocks on the macroeconomic variables of these countries separately and with a thematic comparative approach is significant. This paper aims to analyze the effect of oil revenue shocks on the variables of economic growth, trade balance and inflation of Iran and GCC countries and during the period 1980 to 2017 using the impact response functions of the Structural Vector Auto regression model (SVAR) it has studied and compared the effect of oil revenue shocks on macroeconomic variables of each of the mentioned countries separately.The results show that oil revenue shocks affect economic growth, trade balance and inflation in Iran and the GCC countries. Comparing the effect of oil shock on Saudi and Iranian economy, it can be said that the positive effect of oil shock on Saudi economic growth and trade balance is shorter than Iran in terms of duration, but the effect of shock on inflation in Iran is significant for more periods than Saudi Arabia. Also, the positive effect of the oil shock on Bahrain's economic growth and trade balance is greater than that of Iran in terms of duration of effect, but the effect of the oil revenue shock on Bahrain's inflation is significantly greater than that of Iran for shorter periods. In Kuwait, the effect of oil revenue shocks on economic growth and trade balance is more stable and longer than in Iran, Saudi Arabia and Bahrain, but the intensity of the impact of oil shocks on inflation in Kuwait is much less compared to Iran, Saudi Arabia and Bahrain. In Oman, the effect of the oil revenue shock on the country's economic growth and trade balance has been more stable for longer periods compared to Iran, Saudi Arabia, Bahrain and Kuwait, and the shock effect on Oman inflation has had little effect. Comparing the effect of the oil shock on economic growth, the UAE's trade balance with other countries, it can be said that the effect of the shock is somewhat similar to Saudi Arabia and the positive reaction of UAE inflation to oil revenue shocks is different from the inflation reaction of other countries except Bahrain. Qatar's economy has not been relatively affected by oil revenue shocks compared to other countries surveyed. In Qatar, oil revenue shocks have no significant effect on economic growth, trade balance and inflation and behave differently from other countries studied. In terms of behavioral comparisons between these economic variables, Iran's inflation response to oil revenue shocks is significantly different from other GCC countries. As Iran's inflation has shown a positive response to the oil revenue shock, the shock effect has not disappeared in the long run, but in most GCC countries, inflation has shown a slight reaction to the oil revenue shock (except Saudi Arabia) that the shock effect in Long gone. In conclusion, a major heterogeneity due to the different degrees of dependence of the economies of these countries on oil revenues and the specific features of their economic structure is observed, which causes significant differences in the response of their economies to oil shocks in terms of duration. Time and intensity are affected.

Noor Aini Khalifah, Universiti Kebangsaan Malaysia: With the backdrop of the decreasing hegemony of the United States and the emerging of two Asian giants, China and India, the article “Trump's Trade War: An Indian Perspective” succinctly captures the current scenario with references to history and the possibilities that the future may hold. From the perspective of leaders and domestic politics, it is always “better” to blame foreigners (“others”) for one's lack of competitiveness.The article highlights Trump's trade war and India's protectionist sentiment via the “Make in India” strategy, which does not bode well for either a liberalized world trading system or a liberalized FDI environment. The asymmetry of capital flows and labor flows between developed and developing countries is another source of contention in Trump's trade war. Both India and China's trade surplus with the United States led Trump to think that there exists “unfair trade practices” in these relationships. The U.S. trade deficit with China is about 20 times that of India in 2018.This article also addresses concern about China's growing geopolitical ambitions whereby both the United States and India aligned their interests in combatting the rise of China. Prior to Trump's tariffs, the strategic partnership between the United States and India was in tandem with Trump's vision of a “Free and Open Indo-Pacific” region. India's prior concern of “cheap” Chinese imports has gained momentum following Trump's trade war against China. India's allegation of “unfair competition” from “cheap” Chinese imports led India to resort to antidumping provisions under the auspices of WTO with the recent imposition of antidumping duties on imports of Chinese steel products. China in turn was the sole or one of the complainants of over two-thirds of the Indian antidumping cases (839 cases) brought to the WTO during 1995–2016, out of a total of 5,286 cases reported to the WTO.The United States is an important export destination for India with about double the amount of exports (US$ 42.2 billion) compared to source of imports (US$ 22.3). On the other hand, India's imports from China were US$ 62.3 billion and exports were US$ 10.2 billion, making India's trading relation with China more significant than that with the United States. It is difficult, however, to estimate the amount of China's trade with India that is conducted by U.S. affiliates domiciled in China.The chronology of events relating to U.S.–India trade by Prema-chandra Athukorala was quoted from many sources including Prime Minister Modi's article in the Wall Street Journal (2017), U.S. Department of State, U.S. Trade Representative (2018; 2019) as well as WTO reports. Data exhibited in the tables were mainly from USITC databases. The commodity composition of U.S. imports from India include semiprecious stones and jewellery (20.5 percent), chemical products (18.28 percent), cut and polished diamonds (16.48 percent), textiles and textile products (15.05 percent), machinery and mechanical appliances (9.31 percent), and mineral products (6.04 percent) amounting to 86 percent of imports in 2018. Overall, U.S. imports from India are based on India's comparative advantage in the production of final goods portraying minimal involvement in production networks. However, Foxconn Technologies’ and Wistron's plans of opening plants in Chennai amid Trump's trade war with China could help India regain missed opportunities from global production sharing. Hence, Trump's trade war with one Asian giant has a spillover effect on another Asian giant.

Graph 1.1 Consumer Price Index a/b/ (annual change; end-of-period) a/ This graph presents the forecast probability distribution on an eight-quarter time horizon. Density characterizes the prospective balance of risks with areas of 30%, 60%, and 90% probability surrounding the central forecast (mode), through a combination of densities from the Patacon and the 4GM monetary policy models. b/ The probability distribution corresponds to the forecast exercise from the January report. Source: DANE -calculations and projections by Banco de la República.

Over the past decades, there have been significant changes in the functional income distribution. The decreasing wage share in national income, the causes and consequences of this phenomenon have become the subject of both research and political debate. Over the past decade, research in the most developed countries has shown that economic growth has been influenced by wage share rather than a profit share. The decline in the wage share in countries’ incomes may have been the cause of slowing economic growth or a sluggish post- crisis recovery (Blecker, 2016). The decline in the wage share is one of the key aspects of changes in income change, which also includes an increase in personal income inequality (Hein, 2015). Although much research has been done on changes in the distribution of personal income, the problem of the functional income distribution has not been sufficiently explored.
 The concepts of income distribution and functional income distribution seem similar at first glance, but this is not the case. The distribution of income is described as the income earned in a country’s economy distributed among the total population. This indicator is usually calculated at the household level (i.e. the total income of all household members is calculated), taking into account the number of household members and their age. Meanwhile, the functional distribution of income is described as the distribution of national income between the two factors of production – labour and capital. This means that income is distributed between employees and capital owners. Theoretically, it is stated that 2/3 of income goes to labour and 1/3 to capital. The impact of changes in wage and profit shares on aggregate demand is quite complex and depends, among other things, on the country specification, data sources and coverage, the measurement of different variables and the statistical methods used in the surveys. Bhaduri and Marglin (1990) analyzed the impact of changes in the functional distribution of income on consumption, investment, exports, and imports. The essence of the model is that wage share has a dual effect on the economy, at the same time it is business expenditures and the main factor of private household consumption (Storm andNaastepad, 2017). As the effects of changes in the functional distribution of income impact the components of aggregate demand in national income differently, the ultimate impact on aggregate demand is not clear. If the decline in the wage share has a positive effect on aggregate demand, it is considered to be profit- led aggregate demand, if it has a negative effect, demand is wage-led.
 In the macroeconomic field, aggregate demand is understood as the total amount of final products and services produced in a country over a period of time that buyers can and want to purchase at a certain price level. Gross demand consists of 4 components: consumption, investment, exports and imports. This is the demand for the country’s gross domestic product (Basu and Gautham, 2019). By way of analysis, the main determinants of aggregate demand included in the researches can be identified. The most frequently included factors in the investment function are income, wage, profit, less frequently used factors are inequality of personal income and marginal propensity of employees to consume. In investment functions, the main factors are income, profit and wage income. Factors such as capacity utilization and business expectations are less frequently included in investment functions. The rest of the world’s income and export prices are usually included factors in the export function. However, less frequently included factors in the export function are housing assets. On the other hand, import prices and unit labor costs are the most commonly influenced factors in the import function. Less commonly used factors in the import function are investment costs.
 Based on the Bhaduri and Marglin model, a number of studies have been conducted to assess the impact on consumption, investment, import, export and to determine whether the economy is wage-led or profit-led (Naastepad and Storm, 2006; Hein and Vogel, 2008; Stockhammer and Ederer, 2007; Stockhammer and Stehrer, 2011; Onaran and Galanis, 2014). In their research, the authors make a clear distinction in which countries aggregate demand is profit-led and which is wage-led. In empirical studies, economic growth is stimulated either by exports or domestic demand. In the post-war period, most studies found wage-led domestic demand in almost all countries, but net exports can turn a particular economy into a profit-led one. Some researchers have studied the impact of changes in the functional income distribution on aggregate demand in individual countries, while others in groups of countries. In most of the countries (UK, Italy, Netherlands, Austria, Norway, Sweden, Denmark) analyzed in the empirical studies, domestic and aggregate demand was wage-led. Also, economic growth in most countries was driven more by domestic demand than by export. One of the worst examples of increasing economic growth is noticeable in Spain. The aim was to do this through internal devaluation – by reducing unit labor costs. However, the increase in net exports was smaller than the decrease in domestic demand, which had a negative impact on economic growth.

Monetary Policy Report - October 2022

U.S. President Donald Trump has a misguided, mercantilist view of international trade. He believes that an external (or “trade”) deficit is a “problem,” and that this deficit is caused by foreigners engaging in unfair trade practices. Accordingly, the president and his followers feel that the U.S. is being—and has long been—victimized by foreigners.The reality, however, is that the negative external balance in the U.S. is neither a “problem” nor is it attributable to foreigners engaging in nefarious activities. The U.S.'s negative external balance, which the country has registered every year since 1975, is “made in the USA.” External balances are always and everywhere homegrown; they are the reflection and the result of the relationship between domestic savings and domestic investment. And it is the gap between a country's savings and domestic investment that is the fundamental driver and determinant of its external balance.Specifically, the current account balance, or “trade deficit,” is the sum of the private savings‐investment gap and the public savings‐investment gap, or what is known as the “fiscal balance.” From 1972 until the end of 2018, for example, the cumulative private sector savings‐investment gap in the U.S. was a positive $12.8 trillion; that is, U.S. companies and individuals collectively saved—that is, earned and retained—some $12.8 trillion more than they consumed and invested domestically. But this positive balance was completely overshadowed by the cumulative negative government gap—or cumulative fiscal deficits—of $24.2 trillion during this 47‐year period. And thus the U.S. as a whole experienced a savings‐investment gap of negative $11.4 trillion that is entirely attributable to the country's fiscal deficits.What's more, the fact that the U.S. recorded a cumulative current account deficit of $11.5 trillion during this period confirms that the U.S. external deficits simply mirror what is happening in the U.S. domestic economy, just as the savings‐investment identity suggests. And, of course, the savings‐investment identity holds true for all countries, even those with significant external surpluses. Japan and China have both long experienced savings surpluses, and both have run current account surpluses that have mirrored their positive savings‐investment gaps.If the U.S. mercantilists understood what causes trade and current account deficits, they would direct their ire at profligate government spending rather than at foreigners. But they don't understand. And the leader of the mercantilists, President Trump, is flying blind and presiding over ever‐expanding fiscal deficits—which will only ensure that the current account deficits not just continue, but get bigger.

The Euro Crisis: Mission Accomplished?

Domestic demand, capacity constraints and exporting dynamics: Empirical evidence for vulnerable euro area countries

The present study investigates the impact of demand factors on Gross Domestic Product (GDP) in Indian context. The study is undertaken based on the theoretical framework of aggregate demand model developed by J.M. Keynes. According to Keynes GDP is generated from the sum of all domestic and foreign effective demand for national goods. Domestic demand comprises government expenditure (G), household expenditure (C), and domestic investment (I). While, foreign demand for national goods emerges from foreign buyers and will be registered in exports account (E). Domestic demand envelopes not only national goods but also foreign goods and this forms imports (M). The aggregate demand is the aggregation of elements of C, I, G and net exports (X-M). The rise and fall in consumption expenditure, investment expenditure, government spending or net exports effect the country‘s GDP. The study is effectively employing this model of growth and tries to test empirically whether demand factors viz. C, I, G and X-M have any impact on GDP in Indian context. It also aims atmeasuring the strength and direction of relationship between independent and dependent variables. For this purpose econometric tools like ADF unit root test to investigate the stationarity of time series data and multiple linear regression model are employed. Results reveal that aggregate demand forces explain 99.5 percent variation in Gross Domestic Product. Investment, government expenditure and net exports are found positively influencing the national income. This underlines the theoretical predictions. However, household consumption expenditure impacts the GDP negatively. This result contradicts with Keynesian prediction of positive relationship between consumption expenditure and GDP. From the results it appears that the impact of investment, government expenditure and net exports on GDP is statistically significant. Though, consumption expenditure has profound influence on GDP, this impact is tested not statistically significant.

This paper argues that the System of National Accounts (SNA) is the most appropriate framework for comparable economic measures of national transportation, and shows that within the SNA transportation can be represented as an industry, as a component of Gross Domestic Product (GDP) measured from the demand side and as a component of Gross Domestic Demand (GDD). Two measures of transportation comparable to GDP and one comparable to GDD are presented. Transportation-related final demand is the measure of transportation as a component of GDP, which includes the value of all goods and services delivered to final users for transportation purposes regardless of which industry produced them. In contrast, transportation industry GDP is the measure of transportation as an industry, which comprises value-added created in the provision of transportation services by the industry. Transportation domestic demand measures the U.S. domestic final demand for transportation regardless of who supplies the demand, domestic production or imports. It differs from transportation-related final demand in that it excludes the balance of trade in transportation goods and services.

Monetary Policy Report - January 2022

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