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(What’s Left of) Our Economy: Where China Trade Retaliation Could Really Hurt

17 Monday Sep 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ 4 Comments

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China, import penetration, imports, intermediate goods, manufacturing, The Wall Street Journal, Trade, U.S. Department of Commerce, {What's Left of) Our Economy

According to a Wall Street Journal news report this weekend, China is considering an escalation in its trade conflict with the United States that could cause real problems for the American economy: restricting its “sales of materials, equipment and other parts key to U.S. manufacturers’ supply chain.”

There’s no significant statistical evidence that the U.S. tariffs imposed on Chinese-made steel under the Obama administration have harmed domestic American manufacturing, and as I’ve shown in several posts (e.g., here, here, and here) as of now, there’s no such evidence either that the Trump administration’s more sweeping, worldwide tariffs on aluminum as well as steel have inflicted any harm on those American industries that are significant users of these metals.

But Chinese limits on exports of the parts and components that go into a wide variety of goods manufactured in the United States could produce a very different story. The U.S. government hasn’t officially tracked this development. Indeed, the share of various American manufacturing markets captured by imports from anywhere, or the global total, hasn’t been monitored since 1995, when the Commerce Department’s annual U.S. Industrial Outlook report was discontinued.

So for more than twenty years, there’s been none of the kind of government-generated information that President Trump and his aides can consult in order to assess the possible damage to domestic industry. This information vacuum – which of course predates the current administration – speaks volumes about how cavalierly Washington has taken the responsibility of safeguarding crucial American economic interests against predatory foreign competition

Yet unofficial data is available, in the form of China import penetration rates for dozens of advanced manufacturing sectors that I calculated for several years through 2011. (Here’s the latest.) I haven’t published any follow-ups since 2013’s edition (which presented the 2011 data – the latest then available) because each year, more and more of the raw output or trade figures I needed to perform the calculations seemed unreliable. Specifically, they would produce results that were mathematically impossible (e.g., imports accounting for more than 100 percent of the entire U.S. market for various sectors, or results that exhibited wildly excessive swings year-to-year).

The 2011 results, however, are worrisome because they revealed that products from China had grabbed noteworthy shares of American markets for large numbers of high value industrial parts and components, as well as industrial machinery categories (including much of the equipment used by U.S. industry to produce a wide range of intermediate and final goods). Further, in many instances, Chinese market shares had increased at jaw-dropping rates.

Even more important, in the seven intervening years, most of these Chinese import penetration rates have surely risen to greater heights still.

China’s capture of these markets and the leverage it undoubtedly creates reflects one of the most crucial failures of America’s trade policies in recent decades. The very magnitude of China’s success might prevent Beijing from pulling the trigger on the proposal reported by The Journal – i.e., that the domestic U.S. industry has simply become too big a market for China to exit. Satisfactory substitutes from other countries, or from domestic sources, might also be available. But it’s also possible that in many key manufacturing sectors, Beijing has the U.S. economy over a barrel.

What is certain is that knowledge is power, and that if the United States doesn’t study more carefully its vulnerabilities to foreign retaliation to more assertive trade policies such as the Trump administration seems determined to pursue, its chances of prevailing in the ensuring showdowns won’t look promising. And voters’ ability to judge campaign promises to this effect will be almost nil.

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  • In the News
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  • The Snide World of Sports
  • Those Stubborn Facts
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The Snide World of Sports

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

Guest Posts

  • (What's Left of) Our Economy
  • Following Up
  • Glad I Didn't Say That!
  • Golden Oldies
  • Guest Posts
  • Housekeeping
  • Housekeeping
  • Im-Politic
  • In the News
  • Making News
  • Our So-Called Foreign Policy
  • The Snide World of Sports
  • Those Stubborn Facts
  • Uncategorized

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Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

New Economic Populist

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

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