Gaming the Sino-American Trade-War

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Gaming the Sino-American Trade-War

The United states and China are the world’s largest economies.

Since the early 20th century, the United States has been by far the world’s largest economy.  Since the end of the Cold War, it has been the world’s sole military superpower.  And it has recently recaptured the role of the world’s largest energy producer.  Most global institutions including the IMF, World Bank, and United Nations rely disproportionately on support from the United States.

However, China is clearly the country with the momentum.  From abject poverty and isolation in the late 1970s, China’s economic growth has been unparalleled.  In fact, since 1987 its real GDP per capita has grown over 2600%.  Today, China has the world’s largest population, the second largest economy, and a military typically rated as “the third most powerful.”  It’s also the world’s biggest producer of many strategic minerals. 

Its unprecedented economic growth has relied upon manufactured exports.  And that success has depended heavily on what other countries call “unfair trade practices.”  These practices include tariffs, as well as non-tariff barriers such as currency manipulation, subsidies, punitive health & safety regulations and the theft of intellectual property.  

This unprecedented export-driven growth enabled China to rack up a cumulative trade surplus of around $5 trillion with the United States since 1987.  In the process, it’s estimated that the United States lost 3.6 million jobs to China since China joined the World Trade Organization in 2001.  About 36% of those jobs were in computers and electronics, while the rest were spread about evenly between apparel, services, appliances, metal products and furniture.

U.S. consumers have unquestionably reaped a windfall as China has steadily improved the relative price-performance of consumer products ranging from smart phones, to toys, to computers.  For this reason, U.S. Presidents from Carter to Obama refused to retaliate aggressively for China’s violation of commercial norms. 

More significantly, Americans have assumed that we could trust the fundamental principles of “free trade” based on comparative advantage...

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