Today, Xi Jinping, (president of China) announced that his government would significantly lower tariffs on vehicle imports this year in a speech at the Boao Forum for Asia.
Xi didn't say anything about President Trump or the United States, however his announcement comes at a time where our president has made many remarks about a 25% tariff on vehicles sold in China and threatened to put tariffs on $50 billion of imports from China. Instead, he says that this is part of a ongoing plan to improve China's investment environment and increase acceptance of international free trade standards.
Recently, China has filed a WTO complaint against the United States in response to Trump's threats. This complaint can be seen as odd or hypocritical as China is generally protectionist, but it seems that Xi wants to be seen as a leader of the free trade movement telling investors at the forum: "Human society is facing a major choice to open or close, to go forward or backward... In today's world, the trend of peace and cooperation is moving forward and the Cold War mentality and zero-sum-game thinking are outdated."
Analysis:
As it's my opinion that trade benefits all countries involved, I'm happy to see steps taken to avoid a trade war between the two largest economies. The stock market seems to agree - the Dow went up 1.5% in response. However, given both China's and our president's historical liking of protectionism, I'm skeptical of Xi's claims that he wants to open up the country voluntarily.
Questions:
1.) China has had a plan to open up for a while, but the timing of Xi's announcement is suspicious. Did Trump's threats succeed in getting China to open up?
2.) Is trade with China beneficial to the United States? Should we worry about trade deficits?
3.) Will China keep its promises? Will Trump take back his threats?
Sources/Further Reading:
1.) http://money.cnn.com/2018/04/09/news/economy/china-xi-jinping-economy-trade/index.html
2.) https://www.npr.org/sections/thetwo-way/2018/04/10/601059471/xi-says-china-ready-to-lower-import-tariffs-and-trade-barriers
3.) https://www.marketwatch.com/story/us-stocks-primed-to-rally-hard-on-xis-promise-to-open-chinas-markets-2018-04-10
4.) https://twitter.com/realDonaldTrump/status/983284198046826496
2 comments:
I think that even though Trump is seen as a factor, I think it was China's plan all along to open up trade relations as ultimately, that is what they thrive on. Without relations with America, China productivity will go down. Trade with China is good as it keeps things cheap for the consumer which is us. China may keep their promises, and Trump will just never mention anything again about this ordeal.
The stock market never responded to Trump's threats in a way that would suggest that they took them seriously, so I'm not sure that Trump was the cause for China loosening up trade. If anything, Trump was the breaking point where China finally decided to put their trade plan into place. As to whether trade is beneficial between the United States and China, I would give a strong yes. I'm not sure exactly who benefits more, but I do know that we conduct a lot of trade with China and our consumers benefit from the low prices that China offers. They produce a great amount at a low input cost, which is a large reason as to why many of the products that we use now were made in China.
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