Robert C. Merton, winner of the 1997 Nobel Prize in economic sciences, on Friday said his biggest concern about the US-China trade dispute is that companies have to change their supply chains in an inefficient way to avoid tariffs.
At a conference held by UBS Group AG in Taipei, Merton — known for his work on finance theory, including a new method to determine the value of derivatives — said the US and China would eventually reach some kind of resolution.
However, while discussing the trade dispute’s effect on economic growth, Merton said he was more worried about how it would alter future global economic activities.
Photo: Lee Ching-hui, Taipei Times
There is no question that the trade spat has affected economic activities in the US and China, but supply chains have also relocated worldwide due to the tensions, as companies believe they need to build different supply systems in multiple countries to avoid conflicts, even though they might be redundant, he said.
“That is the sad part. People spend resources and protect against what they don’t want to see happen, but they need to do it for security,” Merton said.
“I cannot give you a number explaining how [the trade dispute] will cost us permanently, but it will cost everyone,” he said.
Asked if companies would return to their pre-trade-dispute supply chains after a trade settlement is reached, Merton said there might be multiple outcomes, and he hopes that people can think rationally.
The economist voiced his disapproval of cryptocurrencies as an investment target, saying he does not understand why the virtual coins are valuable, as they are not legal and do not have any stored value.
“Even though some people call cryptocurrencies ‘electronic gold,’ you do not really know where their value comes from,” Merton said, adding that a limited supply of a specific cryptocurrency does not make the virtual token reliable or valuable.
Moreover, no one will take responsibility if digital tokens are denied, while people can still use the US dollar even if the currency is not accepted in other countries, because it is a legal currency, he said.
He remains conservative about Facebook Inc’s Libra project, as the technology company has failed to explain how the virtual coin will work without being part of a government system, Merton said.
He said he also doubts whether it is appropriate for an entity to be able to see all of the transactions of a large population.
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