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China-US trade war no good for anyone

By Wang Jianhua, Li Yunlu (Xinhua)

16:47, October 13, 2011

Edited and translated by People's Daily Online

Economic and trade analysts say that if the United States passes into law a bill concerning the RMB exchange rates, long-held fears of a brewing trade war between the United States and China will become a horrible reality, hurtling the world economy into disorder and recession.

If the U.S. Senate passes the bill on Oct. 12 Beijing time, the bill still requires approval from the U.S. House. After the Senate and the House both pass the bill, it ultimately must be signed into law by the U.S. president.

According to the bill, if the exchange rates of major trade partners are considered undervalued, the United States will levy punitive tariffs on the goods imported from the trade partners. Furthermore, if the currency value of a trade partner is considered so low that it has become a means to subsidize their exports, the U.S. businesses can request the U.S. government to impose higher tariffs on overseas competitors.

Zhao Jinping, vice director of the Foreign Economic Department of the Development Research Center (DRC) of the State Council, said that the bill is mainly aimed at China. Given the situation concerning the U.S. presidential election in 2012, the possibility of turning the bill into a law is increasingly great because of the political motives of the U.S. side. Similarly, the risks that China will impose high penalty tariffs on the goods imported from the United States are also increasing.

"If the United States insists on doing what it wishes, a trade war between China and the United States will be inevitable," he said.

A trade war between the United States and China, each of which is the other's second largest trade partner, will lead to serious consequences, not only hurting both sides but also causing severe turbulence to the world economic system.

Analysts predicted that if the trade war erupts, many exporters of both countries will operate far under their designed production capacity and then go bankrupt. Hundreds of foreign trade-related industries may become sluggish, including the land and water freight industry and the settlement industry, and bad debts may increase substantially. The number of unemployed Americans may rise by tens of thousands even millions in a short time, and the country may face a record-breaking double figure unemployment rate. At the same time, tens of thousands of migrant workers in China may be forced to return home, and household consumption may drop sharply.

A trade war between the world's top two economies will exert a far-reaching impact on the global economy. The exports of Asia and Australia may drop significantly, and the mining industry may shrink rapidly in South America and Africa. The high-end manufacturing sectors of Japan, the European Union, and North America may suffer huge losses, and many Western multinational corporations may have to cut their operations abroad. Global financial markets may be plunged into prolonged turmoil, and the already severe European and U.S. debt crises may escalate rapidly. Furthermore, all countries may turn to protectionism to protect their domestic industries.

Zhao said that given the enormous size of the Chinese and U.S. economies and their tremendous trade volume, a China-U.S. trade war would cause a domino effect, and lead to a sharp drop in global trade. It could cause even more damage to the world economy than the global financial crisis.

The United States alone contributes about 23 percent to global economic growth, and its trade volume accounts for about 10 percent of the world's total. China's economy and trade volume both account for more than 9 percent of the world's total.

The two economies are each other's second largest trading partner. The U.S. exports to China amounted to 100 billion U.S. dollars last year, up 30 percent from the previous year, making China its second largest export destination. The Chinese exports to the United States reached 280 billion U.S. dollars last year, making the United States its second largest export destination. It should be pointed out that processing trade accounts for more than 50 percent of China's total exports, and almost 60 percent of China's exports are produced by foreign-invested enterprises.

"A trade war between the United States and China would be something that shakes the whole world and plunges it into disorder. If it occurs, there will be no safe bystanders in the world at all," said Ni Feng, Vice President of the Institute of American Studies under the Chinese Academy of Social Sciences.

Ni believes that, since the economies of the world are so closely bought, the influence brought by the trade war between the Untied States and China will be like a chain chemical reaction, which will definitely go beyond the borders of the two countries and break the global economic system.

In the 1930s, the severe trade protectionism once reduced the global trade volume by two-thirds and led to a great global economic depression. The Untied States was a main trade protection participator at that time. In 2010, affected by the international financial crisis, the global trade volume decreased by 12 percent, a new record after the Second World War ended.

"It has been proven by the history that the trade war between economic giants will be extremely disastrous. I hope that the U.S. politicians will not take the risk for their private interests of political election," said Ni.

Ni believes that if a trade war occurs between the United States and China, it will be much fiercer and destructive than the global economic depression starting in 1929 and will even lead to political and military confrontations in some sensitive regions.

"The Untied States should be a big responsible country and examine itself to look for the reasons for its gloomy economy, low employment rate and weakened competitiveness. That is the right way for solving its issues," said Ni.


Leave your comment4 comments

  1. Name

Adam at 2011-10-22184.97.182.*
I think the author is misunderstanding the affect of the upcoming election on electoral politics. Nothing gets passed in Washington these days. The election makes this gridlock even more apparent. Trade tariffs with any peaceful country are a horrible idea, they were proven to be in the 1920"s. Though I have little faith in Washington these days, I"m sure there are still a few people that understand basic macroeconomics. Even if there are not, there is one final safety net: these days, even if something is considered a good idea the opposing political party blocks it to make the majority party look bad. Therefore, I wouldn"t worry about it.
gIWdogQjdIMuvn at 2011-10-15109.230.216.*
I'm impressed! You've magnead the almost impossible.
delia ruhe at 2011-10-1564.201.209.*
Relax. I don't think that Obama would sign such a bill.
wende at 2011-10-1371.125.80.*
The likelihood of the bill being signed is great because its near election time and all these politicians are pitting all the tricks to get elected including Obama. I hope China would not use the axiom that one hand does not clap. Why should China be the only one suffering. Let there be trade wars!

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