The Sino-US trade game is a protracted war. How can China formulate a response plan?

The suppression of China by China is a challenge that must be faced in the course of China's development. The future will be the norm. Of course, China should not limit its own reasonable development in order to avoid trade wars. This is tantamount to "disposing of food because of shackles." At the same time, China should plan ahead and design a retention plan.

Shao Yu

If the production of toothbrushes is China's comparative advantage, the production of toothpaste is a comparative advantage in the United States. Then, China will use toothbrushes for American toothpaste, and the welfare of both residents will improve. If technological advances make China's production of toothbrushes more efficient, then the cost of production will also decline, and the United States can use the same amount of toothpaste to switch to more toothbrushes in China. The professional saying is that the United States' terms of trade have improved because of China's technological progress, and the United States must be tolerant of this technological advancement of China. Of course, we can exchange traded products for different industries, such as China's production of socks, the United States to produce aircraft, and China's socks for US aircraft. This is the story of the theory of "comparative advantage", which is the foundation of free trade theory.

However, the prisoner's dilemma is the eternal theme of the big country game. Specialized production based on factor endowment is in line with the principle of economic efficiency, but it also enhances the national comprehensive risk. Therefore, the advantage strategy of the late-developing countries must be to develop the advantages of the latecomer, continue to learn and innovate, and hope that one day they can directly produce toothpaste or an airplane. This is the story of what happened in China. In the 1990s, especially since joining the WTO in 2001, China has learned to produce toothpaste through “market-for-technology”. When the United States discovered that the domestic toothpaste was "Made in China," he would naturally think that if one day, chips, airplanes, semiconductors, etc. were all labeled "Made in China," China became "United States." ". This is a new story described by Samuelson (2004). He pointed out that if one of the parties to the trade turns the original "comparatively disadvantaged" product into a comparative advantage, the other side of the trade will suffer. Professor Roderick of the Harvard Kennedy School of Government pointed out in the "Globalization Paradox" that international trade based on comparative advantage is similar to technological progress and will improve the welfare of both parties. Therefore, it is difficult to refute Ricardo in the original logic system. However, economic benefits are not the whole of national strategy, the imbalance of income distribution and the struggle for global discourse power are the reasons for the transformation of the United States, which advocated free trade, into trade protectionism. Therefore, this trade war between China and the United States is only somewhat difficult to grasp in rhythm, but it is not unexpected. Moreover, historically, the trade war is the normal state of the big country game, such as the United States and the United States, the United States and Japan and the virtues have had different levels and different areas of confrontation. The trade war is only a means and a bargaining chip. It must be recognized that the Sino-US trade war is a protracted war.

The old saying goes, "Know yourself and know each other, there is no war in the battle." Therefore, this article intends to take a long-term plan and hopes to build a reservation plan for China to deal with the US trade war. From Trump's list of 60 billion yuan products, it can be seen that its target area is "Made in China 2025", which corresponds to Samuelson's "area that has no comparative advantage." Then, China’s “anti-sanctions” measures should

Which industries or products are you? This paper analyzes from the two dimensions of politics and economy. On the political front, Trump launched a dialogue and trade war, on the one hand to fulfill the promises of the election period, and on the other hand, the pressure on the mid-term elections in November this year. Therefore, if you carry out targeted "anti-sanctions" on Trump's "tickets", you may get twice the result with half the effort; applying political pressure is the goal, but if the means are effective, you need to analyze it economically. Only those areas where China can counterattack and be able to effectively counterattack are feasible. Therefore, in terms of economics, it is possible to set tariff barriers to the United States, compare their effects on the micro- to macro-levels of the Sino-US economy, and select those that have a higher sensitivity to China’s tariffs and have less negative impact on China. Industry and products. In this way, it is the strategy of two birds and one stone. Of course, what I have to emphasize here is that, as the Deputy Foreign Minister said, "China does not want to fight trade, but it is not afraid to fight trade." If the United States really wants to fight a trade war, China has to take countermeasures.

political

Trump won support from 30 states and was selected as the 45th president of the United States with an advantage of 304 to 227. Figure 1 shows the distribution of votes for the 2016 US election. In the picture on the left, pink indicates the state where Trump wins, and blue is the state of Hillary's victory. The picture on the right compares the votes of Trump's winning state. Of the 30 states, 23 win by absolute advantage (greater than 50%), and the other seven states – North Carolina, Florida, Arizona, Pennsylvania, Michigan, Wisconsin and Utah won by comparative advantage.

Second, the industry and product mix of the 30 states need to be analyzed. Figure 2 shows the results. The picture on the left shows the industrial structure of all 30 states. It can be seen that except for the public sector, the manufacturing industry and the real estate industry are the two pillar industries, followed by the service industry, and the rankings of agriculture, forestry, animal husbandry and fishery are relatively low. In order to analyze the structure of these 30 states in detail, the author divides them into three categories: Top10, Top11-23, Top24-30. TOP1-23 is a state that wins with absolute advantage. It is further divided into Top10 and Top11-23, and the rest is the comparative advantage state. The results on the right show that the group with the highest support rate is the lowest total output value, the total output value of 10 states is only 15%; the second group contains 13 states, the total output value accounts for 50%; the last 7 The state's total output value accounted for 34%. The total output value of the 30 states accounted for 48.7% of the national GDP. Therefore, it can be basically judged that Trump's electorate base is the middle class and the following people in the United States. They are mainly distributed in the central region, and the industrial structure is dominated by manufacturing, real estate, and financial services.

However, within each state, there are trade and non-trade industries, trade and non-trade companies. For China, trade barriers such as tariffs can only affect the attitude of voters in Sino-US bilateral trade-related industries. To this end, it is necessary to further examine the product structure of bilateral trade between China and the United States. According to the US Department of Commerce, in the whole year of 2017, US exports to China reached US$130.37 billion, an increase of 12.8%, accounting for 8.4% of total US exports, up 0.5 percentage points; Figure 3 shows the 30 states that Trump wins against China. The total amount and structure of the exported products. The total amount is 68.87 billion US dollars, accounting for 52.8% of China's total exports. Among them, transportation equipment, chemical products, agricultural products 000061, diagnostic stocks , oil and gas and electronic products ranked top. Among the transportation equipment, the aerospace export was 16.27 billion US dollars, up 11.6%; the export of vehicles and its accessories was 13.18 billion US dollars, up 19.4%. The picture on the right also reveals an important message that these important exports are mainly distributed in the second category of states, especially chemical products, agricultural products and oil and gas. This "centralized" feature has another meaning. For example, the taxation of agricultural products, the affected voters are mainly distributed in the second group, then the 17 states of the first group and the third group will not be significantly affected, which deviates from the original intention. At the same time, West Virginia and Wyoming, which have the highest support rates, have very small populations, with the former being 1.81 million and the latter only 580,000. And North Carolina, Florida and Pennsylvania, the three largest states with a population of tens of millions, Trump has already won the comparative advantage, this "swinging state" and populous state should be the key areas.

It should be emphasized that comparing Figure 3 with Figure 2, it can be found that although agricultural products account for a small proportion of GDP in each state (the third last), they occupy a very important position in bilateral trade between China and the United States. In the product structure exported to China, its importance is second only to transportation tools and chemical products. It also shows that the depth of the industrial structure of each state is not enough. Therefore, it is necessary to stand on the perspective of the number and distribution of voters and reposition products and industries. To this end, we construct the following indicators as the voter coverage index for each product.

In keeping with the previous article, the situation in the 30 states where Trump wins is still being examined, that is, the possibility of other states turning over is not considered. The indicator consists of three parts, the first part portraying the relative importance of product i in each state. In general, the higher the ratio, the more important the product is, and the higher its market dependence on China. The second indicator is the total population of each state, and the product of the third indicator, which indicates the number of states that support the Trump. (We also looked at the total number of votes (not the total number of people in the state) to calculate the indicators, the results are highly consistent (the law of large numbers), and we believe that the total number of people is more comprehensive, as long as it is a potential voter, Can generate election pressure.)

In contrast, the results in Figure 3 of Figure 3 are relatively consistent. The most widely covered products of voters are still transportation vehicles, chemical products, agricultural products and oil and gas. Further subdivided into secondary products, it can be found that voters such as cars, vehicle parts, aircraft, spacecraft and parts and seeds have the highest coverage index. Also available from each state,

Targeted anti-sanction measures were imposed on Trump's “iron ticket warehouse” because tariffs on steel and aluminum products in China (basic exemptions from tariffs in other regions) were also intended to honor their election commitments. Taking cars as an example, because the proportion of car exports is relatively high, the three states of Michigan, South Carolina and Alabama bear the brunt.

The above analysis from the industrial structure of each state, the voter coverage index of products, etc., found that Trump's winning transportation, chemical products, oil and other agricultural products and machinery products have a high dependence on the Chinese market. Therefore, targeted anti-sanction measures for these types of products may be exerted or pressure on their elections. However, there are still two issues to consider. First, trade is always interdependent. American exporters rely on the Chinese market. It also means that Chinese residents rely on American products. If the price elasticity of China's domestic demand is small, the government's tariffs are likely to be passed on to consumers. . In this way, not only can not achieve the purpose of "anti-sanctions", but it will harm the interests of the residents of the country; the second problem is that the trade war between the big countries often ends with "double loss", if it can affect the added value of the relevant industries in the United States or other What is the impact of macroeconomic variables on China itself? If the negative impact on China is greater, it is not desirable. Therefore, it is necessary to consider the "anti-sanctions" measures in terms of economic benefits.

economic

This section examines how China will impose tariffs on goods imported from the United States, which will have an impact on the economic performance of both China and the United States. We collaborated with the team of Xiaoying Liang of Invitro Consulting (ISM) to conduct quantitative analysis using the Global Production Supply Chain Model (GSCM). The model is a policy simulation tool that analyzes political, environmental, and economic shocks from a global perspective based on a Computable General Equilibrium (CGE) framework and micro-theories. The model connects the economic sectors of the country through the latest import and export trade and input-output table data, including the three entities of enterprises, residents and government. The following simulations assume that China imposes a 10% tariff on each product, thus comparing the comparison of each indicator before and after the tariff is imposed.

Figure 5 shows that except for tariffs on power equipment, China's trade surplus will improve, and in all cases, the US trade deficit will further widen. Among them, transport equipment and electrical equipment will result in a net loss of more than $6 billion. Figure 6 shows the impact of tariffs on the added value of various industries (or products) in China and the United States. The basic conclusions are consistent with Figure 5. Trade barriers will reduce the added value of various industries in the United States, with oil crops falling by more than 7%, fiber crops and wool sericulture. Transportation equipment, etc. have a significant decline.

Changes in supply and demand comparisons affect factor prices and employment. Figure 7 examines the impact of tariffs on factor price changes. It can be seen that China's levy of tariffs on various products imported from the United States will lead to a certain degree of improvement in Chinese prices, more obviously in terms of transportation. At the same time, due to the decline in import demand, some of the products can only be transferred to domestic sales, so the price of related products in the United States will fall, and China will be larger in terms of magnitude. This can also be reflected in the fact that the United States is more dependent on the Chinese consumer market for its production of power equipment and transportation equipment.

The impact of tariffs on balance of payments, industry value added, factor prices and employment will reflect GDP and total social welfare. Figure 9 first examines the impact of tariffs on real GDP growth in both countries. The first thing that can be confirmed is that the result of the trade war is both losses. China's tariff collection has a negative impact on the growth rate of both countries' GDP, but the impact on the United States is even more significant. Among them, the impact of power equipment, transportation equipment, mechanical equipment and motor vehicles and equipment is more obvious. From the perspective of total social welfare, the basic conclusions are still established, and the impact of Fujian in the United States is even more pronounced. But at the same time, it should be emphasized that the tariff on processed foods has a more significant impact on China's GDP. In terms of oil crops, China's social welfare has declined by a large margin, mainly because China relies more on the United States for agricultural products such as soybeans. High, but also because they are all necessities of life. This also shows once again that the trade war, especially the trade war between the two major powers of China and the United States, is economically inefficient for either side.

The above examines China's reservations to the US trade war from the two dimensions of politics and economy. From a political perspective, the industrial structure of the 30 states that Trump wins is dominated by manufacturing and real estate. However, in the bilateral trade between China and the United States, transportation equipment, chemical products, agricultural products, oil and natural gas account for a relatively high proportion. Moreover, the proportion of voters in these products is relatively large. On the economic front, China's tariff collection will aggravate the US trade imbalance and will have a certain negative impact on employment. However, from the perspective of GDP and social welfare, both China and the United States face certain losses, but the US losses are even more serious. Among them, food processing and seed materials have a negative impact on China.

On the whole, from the perspective of the impact on the United States, the intersection of politics and economy is China's best choice. Transportation equipment, chemical products, electronic products and agricultural products are all options, of which transportation equipment is the best option, including cars. And specific products such as aircraft and parts. However, this is actually an illusion. In the case of airplanes alone, Boeing in the United States and Airbus in Europe are the world's two major monopolies. In 2017, Airbus’s order volume was 1,229, with 700 deliveries. Boeing’s order volume was 1,053, and 763 aircraft were delivered. At the same time, there were tens of thousands of undelivered orders. Therefore, the import of aircraft and its accessories is irreplaceable. Although the domestic large aircraft C919 has been successfully tested, the time for commercial launch is still uncertain. Moreover, many of its core components need to be imported from the United States. In the case of almost zero substitution elasticity, the tariff is equivalent to “self-destructive martial arts”. There is another view in China that the US soybean products are dependent on the Chinese market, and tariffs on their soybeans seem to be able to hit soybean producers and exert pressure on Trump by affecting the US farmers' union. From the analysis of Sino-US trade structure, this conclusion is understandable, but we believe that we must also consider the impact on China. Most of the US exports to China are mainly genetically modified soybeans, which are mainly used in China to refine soybean oil because of its low price and high efficiency. Therefore, the "soybean war" can put pressure on the US soybean farmers, but the impact on China is comprehensive. The rise in food prices, such as grain and oil, will increase CPI. In the current global liquidity contraction, the pressure on monetary policy tightening is greater, which is in conflict with the idea of ​​progressive deleveraging. According to our simulation of the stock-flow consistent model (SFC), raising interest rates will force the highly leveraged sector to further leverage in the short term, which is very pessimistic for China.

"Wu Xiu Yu Lin, the wind will destroy it; piled out of the shore, the flow will be smashed." It is almost inevitable that the United States will launch a trade war against China.

On the one hand, after the Second World War, the world economic order was established under the dollar-centered quasi-gold exchange standard system, and finally established the United States.

The world's leading position in the world, the globalization 2.0 order centered on the United Kingdom and the British pound was replaced by the globalization 3.0 order centered on the United States and the United States dollar. Then, the United States implemented the "Marshall Plan" for Europe, and the European economy, especially the German economy, recovered rapidly. The US support for Japan has also enabled the Japanese economy to grow rapidly since the late 1950s. The rapid development of Germany and Japan and the birth of the euro have given the United States the feeling of "fostering tigers". Japan's textiles, steel, white goods and automobiles have occupied the US market in turn, and the trade friction between them has never stopped, but This did not reverse the US current account deficit. At its peak, the US deficit with Japan accounted for 40% of the total deficit. The United States could no longer sit still. In 1985, the United States, Britain, France, Germany, and Japan signed the "Plaza Agreement." After that, the yen appreciated sharply against the US dollar, and the appreciation rate was as high as 20% in three months. The price of exports in Japan has increased by 20%, greatly weakening its international competitiveness.

China today has much resemblance to Japan in the 1980s. Sino-US trade also has much in common with the US-Japan trade. Since the establishment of diplomatic relations, Sino-US relations have been in the midst of bumps and bumps. In July 1979, China and the United States signed an agreement on China-US trade relations and established normal economic and trade relations. In that year, the United States unilaterally announced a quota system for China's seven categories of export textiles. In 1983, Sino-US trade frictions escalated into trade wars. The background is that the US is in the textile trade agreement.

The negotiations demanded a reduction in the annual growth rate of quotas in mainland China, and China is not willing to make unilateral concessions.

The company announced that it will impose new quotas on Chinese textiles, while China announced that it will reduce or terminate the purchase of US cotton, chemical fiber and soybeans.

Although the two sides finally reached a second textile trade agreement in September 1983, the curtain of Sino-US trade frictions has been fully opened. Since the 1990s, China has gradually joined the global industrial chain. In particular, it joined the WTO in 2001. China has established itself as a “world factory” in the global industrial chain. A large number of foreign manufacturing companies have moved their manufacturing plants to China, and products around the world. They were all labelled "made in China", and capital and jobs moved to China. On the contrary, it corresponds to the passage of foreign capital and jobs. Therefore, Trump's current policy is to let capital, employment and factories return to the United States, "makeAmerica great again".

However, in the era of globalization with such a high degree of division of labor and specialization, although the distinction between producing countries, resource countries and consumer countries still makes sense, even China, which is a "world factory", only bears the final link of the industrial chain. In Sino-US trade, China is only a “transfer station”, and its industrial added value is relatively low compared to the upstream of the industrial chain. Taking Iphone as an example, except for software and design, other links are completed overseas, and nine countries including China, South Korea, Japan, and other countries have assumed different roles. Iphone components, baseband chip processor, RF transceiver, baseband chip power IC are provided by Qualcomm, WIFI chipset, GPS, touch chip is provided by Broadcom, and image sensor chip CCD is Japanese SONY Provided, the display panel is provided by Japan Sharp Corporation, South Korea's Samsung provides memory DRAM for Apple, and China's Foxconn provides assembly and OEM services for Apple devices. According to industry insiders, China can only earn $6.50 per Iphone.

Therefore, the trade war is no longer limited to bilateral interests, but will cause the country and the people in the entire industrial chain to be affected. The suppression of China by China is a challenge that must be faced in the course of China's development. The future will be the norm. Of course, China should not limit its own reasonable development in order to avoid trade wars. This is tantamount to "disposing of food because of shackles." At the same time, China should plan ahead and design a retention plan. Active defense is a moral offense. Or, this is the "moral realism" that Professor Yan Xuetong of Tsinghua University said.

Shao Yu is the author Orient Securities 600,958, chief economist attending stocks, Chenda Fei Orient Securities Senior Fellow