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Renewed Trade Uncertainty
U.S. economy is suffering more under weight of trade war with China
By Sherry Qin  ·  2019-12-10  ·   Source: Web Exclusive

Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, believes that the trade war will hurt the U.S. economy more severely than China'. He said so during a panel discussion hosted by the New York-based China Institute on December 5. "China is doing great in terms of trade; its share of global trade is growing," he said.

"If there is decoupling, it's going to be the decoupling of the United States from the rest of the world, because other countries are not decoupling from China," Lardy said."Thousands and thousands of new foreign firms are being established every month," he added.

In the first nine months of the year, the number of newly established foreign-invested companies in China was 30,871, and paid-in foreign investment in China's non-financial sectors totaled $100.7 billion, up 2.9 percent year on year, according to data from China’s Ministry of Commerce.

U.S. economists warned that a prolonged trade war would only hurt U.S. manufacturing workers and companies with investments in China.

President Donald Trump promised that tariffs on Chinese goods would bring back manufacturing jobs, but the truth is that they are on the decline, Lardy said.

Action needed

"Key electoral states like Ohio, Michigan and Pennsylvania have been losing factory jobs this year," Scott Paul, President of the Alliance of American Manufacturing, said in a press release on November 1. "These states and workers need congress and the President to complete a robust infrastructure bill and secure a real China trade deal."

China and the United States still have not reached concessions on the terms of or finalized a trade deal since Beijing and Washington signaled that a Phase 1 deal was on the way in October. Companies are uncertain and feel the pressure as the December 15 deadline to impose a new round of U.S. tariffs on Chinese consumer goods, including tablets, toys and other consumer products, looms.

On October 31, the U.S. Trade Representative opened the process for companies to request an exemption from the fourth round and $300-billion tariff action. As of early December, a total of 760 requests have been received and are under review. A number of Apple products including iMac, Apple Watch, AirPods and some iPhone parts are on the list.

About 44,000 requests for exclusion were submitted for Trump's first three rounds of tariffs on Chinese goods.

Decoupling woes

The United States has never been a big investor in China, said Lardy, noting that most of China's foreign investments come from other countries or regions.

Shang-Jin Wei, a professor of finance and economics at Columbia University, agreed that a U.S.-China economic decoupling is not beneficial to the United States.

Economic decoupling from China means that the United States would see an increase of costs and a loss in competitiveness, Wei said during the panel discussion. Wei is also former chief economist at the Asian Development Bank.

A survey by the American Chamber of Commerce in China showed that about 41 percent of U.S. companies are considering moving production lines out of China to avoid punitive tariffs, and Viet Nam is considered the top destination.

However, Wei said the shift by manufacturing industries to lower labor cost countries is inevitable. "Even without the trade war, manufacturers would be moving to Southeast Asian countries," Wei said.

However, there are many U.S. companies that are determined to stay in China even though they are suffering due to the trade war.

"Caterpillar, which makes construction equipment, is a major U.S. investor in China and is not leaving because of the trade war," Lardy said.

(Reporting from New York City)

Copyedited by Rebeca Toledo

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