China tariffs won’t make America great again – Asia Times

China tariffs won't make America great again - Asia Times

Tokyo — It’s difficult to miss the time-warp active involving the US-China trade battle as it gets worse in real time.

Take US President Joe Biden’s new move to double taxes on China- made electric cars to 100 % and lever up import taxes on China’s developed batteries, solar cell, construction cranes, medical products, aluminum and steel.

These, Biden is reading from the Trumpian rulebook that dates back to the middle of the 1980s. And it’s a terrible tilt by a White House that started out pledging to increase America’s competitive activity and resist the protectionist policies that characterized Trump’s 2017- 2021 presidency.

The issue with both presidential candidates in November’s vote is that tariff-heavy responses to business problems attempt to revive an outdated financial system.

According to Morgan Stanley analyst Tim Hsiao,” We think isolationism from the West could be a near-term roof for Foreign EV/parts manufacturers aiming for rapid global growth.” However, we believe that it is unlikely to stop China’s long-term EV drive.

This trapped- in- 1985 issue can be found somewhere in Asia and above. The Japanese government’s focus for the past 13 years or so has generally been on restoring the Reagan administration’s trickle-down economy.

Shinzo Abe, the then-japanese prime minister, predicted that monetary easing may trigger a virtuous cycle by putting a gamble on the possibility of a boom in business profits.

The intention was to promote CEO fattening their wages, thereby accelerating economic growth and boosting stock prices.

The strategy for the property rally was properly executed by Japan. The Nikkei 225 Stock Average reached its peak earlier this year thanks to extreme Bank of Japan easing, a plunging renminbi, and some efforts to improve business management.

However, after decades of flat-line earnings, pay dropped for a second straight year in the fiscal year that ended in March, dropping 2.2 %. All” Abenomics” proved is that” Reaganomics” is even less effective in raising living standards now than 40 years ago.

Why, then, did South Korean President Yoon Suk Yeol’s government then been reading from Tokyo’s rulebook? Earlier this month, at Yoon’s two- time level in company, his federal went all- in on Abe’s returning- to- the- 80s strategy.

Without moves to loosen labor markets, level playing fields, boost innovation and empower women, a rallying Kospi index wo n’t enrich the vast majority of Korea’s 51 million people.

Trump had undoubtedly attempt to rewrite the 1980s-era plans in a subsequent term. His own plan to implement 60 % taxes on all Chinese products and remove Beijing of its “most popular state” position is as sentimental as they come.

Donald Trump claims that if elected, he will increase taxes on products made in China. Photo: X Screengrab

Trump may go much further, of training. A shift to undermine the US dollar is one of the many laws that could rule a Trump 2.0 White House.

In subsequent weeks, Western media outlets have detailed the desire among advisers like Robert Lighthizer, Trump’s former global trade representative, to hinge to a beggar- thine- neighbor crouch on trade.

The former president has long been fascinated by a 1985 currency agreement, which still stands today as history’s most significant realignment of exchange rates.

The Plaza Hotel, a landmark hotel in New York that Trump once owned, signed the deal to significantly raise the yen’s value against the dollar.

When Trump was first introduced, then-Treasury Secretary Steven Mnuchin and advisors like Peter Navarro discussed Trump’s desire for a new Plaza Accord, only this time significantly raising the Chinese yuan.

Surely, Chinese leader Xi Jinping would refuse in a Trump 2.0 era. Even at this point, Xi and Premier Li Qiang are aware of how the pact’s 1985 pact exacerbated Japan’s asset bubble, which burst forth five years later, and the decades that came afterward.

Today, as China’s property crisis fuels deflationary pressures, Xi’s team would be loath to repeat past mistakes made by Japan, the US or the broader Group of Seven nations.

Sadly, Biden’s administration is de- emphasizing its earlier commitment to prioritize increasing US innovation and productivity.

Moves to sign the$ 80 billion CHIPS and Science Act and other legislation in 2022 gave new life to the semiconductor industry and scientific research in America. It was a back-up to promises to lead to new high-tech jobs and put the US back in the game against China.

It also was a sign of economic realpolitik. In recent years, Xi has thrown trillions of dollars at leading the future of aerospace, artificial intelligence, biotechnology, chips, electric vehicles, green infrastructure, renewable energy and other hot sectors.

Trump barely tried. The massive$ 1.7 trillion tax cut that Trump’s Republican Party enacted in 2017 was more the stuff of 1985 than a strategy to reanimate American competitiveness. It did little to encourage corporate executives to compete with China in a natural way by improving the US economy.

Trump’s significant tariffs on Chinese goods, steel, and aluminum did nothing to lower US households ‘ costs or protect businesses from global risks.

Without Team Biden’s swift response to its new China tariffs, they are destined to fail. Or cause more problems than they solve, including a possible new spike of inflation.

US inflation might be declining rather than ingraining itself if Biden’s White House had introduced a CHIPS and Science Act 2.0 sooner.

Joe Biden wants more American chip production. Image: X Screengrab

The Federal Reserve, it follows, might’ve long since eased rates by now. Instead, Fed Chairman Jerome Powell’s team is grappling with consumer prices expanding at a 3.4 % rate year- on- year.

Though a galaxy removed from the 9.1 % peak in 2022, prices are still quite a distance away from the Fed’s 2 % target.

Global markets are sort of going into a holding pattern with the 162 days between now and the US election on November 5. Investors are n’t sure what to expect from Xi’s government in terms of retaliation despite tight polls and Biden and Trump trying to out-stay their positions on being tough on China.

As trade tensions escalate between Washington and Brussels, Beijing warned last week that it might levy taxes as high as 25 % on imported vehicles with large engines. Whether European Union officials will impose their own new restrictions on Chinese-made imports is a big question now.

Analysts at Eurasia Group claim that China’s retaliatory trade investigations and warnings do not dissuade the EU. With its EV investigation, Brussels is eager to send a clear message to Beijing that the EU will stop Chinese subsidies and overcapacity.

According to Andrew Kenningham of Capital Economics,” Europe will raise barriers to trade and investment with China in the upcoming months and years.” However, policymakers will try to strike a balance between opposing goals, which could lead to a gradual rise in protectionism with measures targeted at particular goods.

The EU, he adds, could follow Washington’s lead and ratchet up import taxes on Chinese autos. However, Brussels may be cautious out of concern that China might stifle mainland investment in Europe.

According to Kenningham,” Europe is set to increase tariffs and use other… instruments to de-risk its economy from China.” ” But we think it will do so gradually and with carefully targeted measures” .&nbsp,

Tobin Marcus, head of US politics at Wolfe Research, advises investors to expect” some Chinese response, but that Beijing will aim for proportionality, which means the US fallout should be limited”.

In fact, Xi and Li may choose to remain more focused on fixing China’s fundamental financial flaws rather than engage in a destabilizing tit-for-tat trade war on the global stage.

The biggest is a property crisis, which stifles growth and turns away foreign direct investment. As a growing number of businesses decoupled their operations from the mainland, FDI last year was the lowest since 1993 at just$ 33 billion.

Although Beijing has a long way to go to get real estate back, recent policy changes have left economists more confident in the prospect of stronger growth. These include lowering down payment parameters.

According to Hui Shan, chief China economist at Goldman Sachs, some of these measures are unprecedented: the minimum downpayment requirement was never ever below 20 % before. However, they are still insufficient in comparison to the estimated$ 1 trillion ( US$ 38 billion ) funding needed to start digesting excess inventory and allow new home prices to find a bottom within a year.

Even so, there’s a growing sense that Xi’s government is finally moving more decisively in the right direction.

Beijing has already switched from building public housing to ensuring the delivery of numerous pre-sold homes to rebuild buyers ‘ confidence, according to Ting Lu, chief China economist at Nomura Holdings.” This is a significant step in the direction of cleaning up the big mess,” says Ting Lu.

” However, this is proving to be a daunting task, and we think markets need to exercise more patience when awaiting more draconian measures”, Lu added.

Overall, though, Lu says,” we believe Beijing is headed in the right direction with regard to ending the epic housing crisis”.

A porter walks on a bridge in Chongqing, China with new residential buildings in the background. Photo: CNBC Screengrab

China’s efforts to stabilize its underlying financial system will require a lot of multitasking from Xi’s government to address the ways that the 1980s are making a wrong-timed comeback in the West.

Then, as now, such blunt- force trade clashes are as much about politics as they are about economics. But at least they were still effective some time later.

Four decades on, Team Biden seems to be forgetting the lessons of Reagan, Abe, Trump and others. The biggest is that the best way to combat China right now is to develop new domestic economic muscle.

Biden and Trump are making a pivot down memory lane as the liberal trading order-fueled global economy cannot afford.

Follow William Pesek on X at @WilliamPesek