After the real-estate bubble burst, China’s purchasing power disappeared with it, and all its industries fell into a vicious cycle of price competition. Due to insufficient domestic demand, China has had to rely on exports to boost its GDP. As a result, its exports have grown rapidly in the past few years, turning a domestic problem into an international one.
Since the US-China tariff dispute, first triggered by US President Donald Trump in 2018 during his first term in office, China has taken measures such as relocating production lines overseas, which has not prevented exports from falling, but has instead led to a rapid increase.
China’s exports have grown significantly since then by more than US$150 billion each year, but imports have only increased slightly by about US$15 billion. The trade surplus continued to rise.
If that trend continues, China’s manufacturing industry might account for 42 percent of the world’s total by 2030. That would not only be unbearable for the US, but would also considerably affect Europe and Japan.
That is the issue the Trump 2.0 tariff campaign aims to address — by forcing China to drop export subsidies and stop externalizing its domestic economic problems — to create a healthier global trade environment.
During Trump’s first term, the tariff dispute targeted only China. Although many problems arose during its implementation, it was quite effective in curbing China.
However, Trump’s current tariff efforts have spread too wide and involve too many countries, especially the global “reciprocal tariff” plan that is to be announced today.
That plan would be difficult to implement, because it is too complicated and losing focus, which would give China a break, further worsening the global economic and trade environment, and even worse, offending many US allies.
During his first term, Trump raised tariffs on China from 3 percent to 19 percent. His successor, former US president Joe Biden basically continued that policy.
In response, many companies have relocated their production lines to ASEAN members, India and Mexico to avoid high US tariffs.
As a result, Mexico has replaced China as the largest exporter to the US, and the share of Chinese goods in the US has also dropped from 21 percent to 13 percent.
Meanwhile, exports from ASEAN members and India to the US have increased rapidly, and the shift of the supply chain has also caused China to lose a huge number of jobs.
As soon as he returned to the White House, Trump raised tariffs on China by 20 percent, bringing the new tariffs to about 40 percent. That part of the policy is not a big problem.
The only thing that needs to be corrected is that the US should coordinate with Mexico, Canada and other countries to join the US in forming a customs alliance to jointly increase tariffs on China to prevent Chinese goods from taking advantage of the loopholes for origin washing via those countries to evade US tariffs.
All countries under the same defense umbrella as the US should adopt the economic and trade policies toward China that are consistent with the US and use their collective strength to force China to make economic system reforms. Higher tariffs should only be applicable to the countries that are unwilling to join the US camp.
Honda Chen is head of the sustainable finance office at the Taiwan Academy of Banking and Finance.
Translated by Lin Lee-kai
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