Trade War - Who Really Wins

May 31, 2019 | Samuel Gorenstein


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  • The real beneficiaries from Trump’s tariffs on Chinese goods are China’s neighbors, according to a report from the Wall Street Journal. The two key takeaways from the article:
    • “A new report from New York Federal Reserve economists, together with U.S. import data, suggests a preliminary verdict: Both sides will pay. China won’t export as much, while U.S. buyers will face higher prices. The Federal Reserve economists, based on a previous study that looked at the impact of the 2018 tariffs, find that the new, higher tariff rate of 25% will cost each U.S. household about $831 a year.”
    • “The real winners are China’s competitors in Asia: South Korea, Taiwan and Southeast Asia (see chart below). Since the third round of U.S. tariffs on China went into effect in late September, U.S. imports from China have faltered. An 8% growth rate in October turned to an 18% decline on the year in March. Yet import growth from Taiwan has risen from 12% to 21% over the same period. Imports from Vietnam grew 34% in March, up from a 15% rate in October. And imports from South Korea also surged in the first quarter: They were up 18% on the year, against just 9% in the fourth quarter of 2018.”
  • Using the trade deficit to defend tariffs on China is misguided because it misses the point of a persistent shortfall in U.S. domestic savings (i.e., investment exceeding savings), which results in chronic current-account and trade deficits. A recent op-ed from Stephen Roach, entitled Japan Then, China Now, aptly describes this dynamic.