US-China Trade War

US-China Trade War

Outline

• Analysis of economic data

• Background of the trade war

• Causes of the US trade deficit

• Economic impacts of the trade war

• Developing the DRQ

Analysis of Economic Data

• Aim to test the ability of students to apply their (economics) knowledge to unseen information on statistical data, charts, line graphs and newspaper extracts and comics etc.

Data response questions

Analysis of Economic Data

Facts tell us something about the world, but nothing about relationships between variables.

Economic theory or hypothesis is to study the causal relationship between X and Y

• X variable explains (or predicting) Y variable, Y = f (X),

• There may be more than one X variable.

Presence of Correlation does not necessarily imply causality:

edu = f(income) or income = f(edu)?

CPI = f(PPI)? or PPI = f(CPI)?  Cost push or demand-pull inflation?

Correlation + a sensible theory suggests (but does not prove) causality

Correlation itself may be suggestive -- spurious correlation

• Caused by third variable: drownings rise when ice cream sales rise ? (Rising heat may cause more people to swim, and buy more ice cream)

• Non-stationary data  cointegration?

Fallacies

Post hoc fallacy

When two events occur in time sequence, the first event is necessarily the cause of the second event (indeed, it is not necessarily).

(鄭少秋效應? )

Skirt length “theory” in 1920s (If skirt lengths are long, the stock market is going down)?

Fallacy of Composition

• What is true for one individual or part of a whole is necessarily true for a group of individuals or the whole, i.e., trade protection, paradox of saving

• What is true for a group of individuals or the whole is necessarily true for one individual or part of a whole, e.g., if all investors sold HSBC share, its stock price would fall. Therefore, if you sold HSBC share, its stock price must fall

Reference: McConnell et al. (2020)

Correlation should be based on theory

Necessary factor

Necessary factor

• If A implies B, or A  B or A only if B, or B is the necessary factor of A, we can say if ‘not B’ then necessarily ‘not A’.

Mother  Female

Background

Globalization of Resource Market

https://outsourceworkers.com.au/offshoring-and-outsourcing/

McConnell et al. (2018)

Globalization of resource market

Outsourcing of work abroad and Offshoring (relocation of a business process from one country to another).

• Outsourcing: car parts made in China

• Offshoring: factory in China

Economies of scale: allowing producers to specialize in the specific steps in the production process and increase the total production level

Beneficial for all countries and become much more common with technological improvements

Helping a firm remain internationally competitive with lower costs leading to increased demand for complementary goods and jobs within the U.S.

Increases flexibility  by taking advantage of time zone differentials.

Globalization of resource market

Disadvantage

• Part of the revenue of producing the good now shifts to foreign countries.

• Shifting work previously performed by American workers is now to workers in other countries, taking away jobs from Americans and increasing U.S. unemployment

• Cultural and Social Differences  may have an adverse effect on productivity and communication

• Security Issues: (i) Military self-insufficiency (ii) oversea data transmission always at risk of security breach and compromised data integrity

Trade War

Trade War

• A trade war occurs when a country imposes tariffs or quotas on imports and foreign countries retaliate with similar forms of trade protectionism. It reduces international trade.

• A trade war starts when a country aims to protect its local industry and create jobs. With lower relative prices, tariffs and quotas give a competitive advantage to local producers, who would have more domestic demand from local customers and hence add more jobs.

• A trade war in the long run, however, would depress economic growth for all countries involved and trigger inflation (stagflation) when tariffs cause higher import prices.

• The Smoot-Hawley Tariff Act of 1930 raised US tariffs on over 20,000 imported goods (increased 900 tariffs by an average of 40% to 48%), leading to a 65% reduction in international trade and worsen the Great Depression.

https://www.thebalance.com/trade-wars-definition-how-it-affects-you-

4159973#:~:text=A%20trade%20war%20is%20when,similar%20forms%20of%20trade%20protectionism.&text=But%20in%20the%20long%20run,increase%20the

%20prices%20of%20imports.

The Fallacy of Protectionism

Frederic Bastiat, a French economist (1801-1850)

a. The candle makers petition the government to relieve them from the “foreign” competition of the sun, arguing that the sun provides light at lower prices than which the candle makers can offer.

b. The petition further argues that shutting out all-natural light will stimulate industries that support the candle industry.

Timeline of the US-China Trade War

Trade friction

Krugman et al (2012)

Trade friction arises if countries (or trading blocs) implement protectionist trade policies.

Gengyan Tang (唐耕硯，四川省社会科学院新闻与传播研究所)

Trade friction is a dynamic game process between the two sides of trade Joseph Stiglitz:

• Intense trade frictions will result in the current account deficit of a country with its trading partner exceeding 1.5% of the GNP.

• If the current account deficit of a country with its trading partner exceeds 2% of the GNP, it will lead to retaliatory actions from the deficit country.

• If a country’s trade surplus with another exceeds 25– 30% of its trade volume, however, the problem is a political one instead.

Timeline

June 28, 2016

While campaigning for the White House, Trump laid out plans to counter “unfair trade practices from China” and threatened to apply tariffs under sections 201 and 301 of U.S.

trade legislation, which he subsequently did. He said China’s entrance into the World Trade Organization enabled the “greatest jobs theft in history.”

Section 201 of the US Trade Act of 1974—allows the President to impose temporary duties and other trade measures if the International Trade Commission (ITC) determines a surge in imports is a substantial cause or threat of serious injury to a U.S. industry.

https://www.everycrsreport.com/reports/R45529.html#:~:text=Section%20201%20of%20the%20Trade,injury%20to

%20a%20U.S.%20industry.

Section 301 of the US Trade Act of 1974— authorizes the President to take all appropriate

action, including tariff-based and non-tariff-based retaliation, to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade

agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S.

commerce. https://en.wikipedia.org/wiki/Section_301_of_the_Trade_Act_of_1974

March 31, 2017

Trump signed two executive orders. One called for tighter tariff enforcement in anti-subsidy and anti-dumping trade cases. The other ordered a review of U.S. trade deficits and their causes.

April 7, 2017

Trump and Xi Jinping agreed to a 100-day plan for trade talks.

June 2017

Trump initiated a ‘Section 232 investigation’, for reasons of national security, on the import of steel and aluminum. Considering the huge production capacity of steel and aluminum in China, the investigation and the following additional tariff were believed to be targeting China.

Section 232 of the Trade Act of 1962 authorizes the President to impose imports restrictions on products, imported into the United States “in such quantities or under such circumstances as to threaten to impair the national security”.

July 19, 2017

The US and China failed to agree on new steps to reduce the U.S. deficit with China after the 100 days of talks.

August 14, 2017

Trump ordered “ Section 301” probe into alleged Chinese intellectual property theft, described as his first direct trade measure against Beijing

January 22, 2018

The US government-imposed safeguard tariffs on large residential washing machines, as well as solar cells and modules (not just those from China). These conflicts have engendered a full- fledged trade war.

https://www.bloomberg.com/news/articles/2020-09-15/wto-rules-that-u-s-tariffs-on-china-violate-trade-rules-kf4189y0

Since March 2018

Tariffs, by percentage rate, imposed by the U.S. and China on each other

The US-China trade war started on 6 July 2018, when the US imposed a 25 per cent tariff on US$34 billion of Chinese imports. In response, China made countermeasures on the same day and imposed a 25% additional tariff on imports from the US worth US$ 34 billion, including soybean.

December 1, 2018

The US and China agree on a 90-day halt to new tariffs. Trump agreed to put off the January 1 scheduled increase on tariffs on $200 billion of Chinese goods until early March while talks between the two countries take place. China agreed to buy a “very substantial” amount of U.S.

products.

February 24, 2019

Trump extended the March 1 deadline, leaving the tariffs on $200 billion of Chinese goods at 10% on an open-ended basis.

May 8, 2019

The Trump administration gave formal notice of its intent to raise tariffs on $200 billion of Chinese imports to 25% from 10%, effective May 10.

June 18, 2019

Trump and Xi spoke by phone, and the two sides agreed to rekindle trade talks ahead of a

planned meeting between the two leaders scheduled for the Group of 20 (G20) summit in Japan at the end of June.

June 18, 2019

At the G20 meeting in Osaka, the United States and China formally agreed to restart trade talks after concessions from both sides. Trump agreed to no new tariffs and an easing of restrictions on Chinese telecom powerhouse Huawei Technologies Co. Ltd. China agreed to unspecified new purchases of U.S. farm products.

August 1, 2019

Trump said China had not followed through on a promise to buy more U.S. farm products, he announced 10% tariffs on $300 billion worth of Chinese imports, in addition to the 25% already levied on $250 billion worth of Chinese goods. Trump said the talks between Washington and Beijing would continue despite the new tariffs, and that the rate could be increased above 25 percent in stages.

August 6, 2019

The People’s Bank of China, said Beijing had not and would not use the yuan to respond to trade frictions.

August 9, 2019

Trump said he was not ready to make a deal with Beijing and suggested he may cancel in- person trade talks with China scheduled for Washington in September.

August 23, 2019

China announced that it would impose additional retaliatory tariffs against about $75 billion worth of U.S. goods, putting as much as an extra 10% on top of existing rates in response to the U.S. tariffs announced earlier in August.

August 25, 2019

China’s top trade negotiator Vice Premier Liu called for calm amid the recent escalation of trade war threats. Trump said talks would proceed.

September 1, 2019

Tariffs came in force as scheduled. The US began implementing tariffs on more than US$125 billion worth of Chinese imports (list 4A) starting Sunday.

September 2, 2019

China lodged WTO tariff case against the US.

September 5, 2019

China and US agreed to 13th round of trade talks

September 11, 2019

China unveiled tariff exemption list for US imports. China announced that it would exempt 16 types of US imports from additional tariffs.

September 19-20, 2019

US-China mid-level trade talks in Washington September 20, 2019

US released new tariff exemption lists, which exempt over 400 Chinese goods from tariffs

October 11, 2019

US and China reached a “Phase 1” agreement. China would reportedly purchase US$40-50 billion in US agricultural products annually, strengthen intellectual property provisions, and issue new guidelines on how it manages its currency. Trump announced that the US would delay a tariff increase scheduled to go into effect on October 15.

October 18, 2019

US tariff exclusion process for US$300 billion of Chinese imports. The US announced tariff exclusion for certain Chinese products starting October 31, 2019 through to January 31, 2020.

The exclusion process will apply to Chinese products that were subject to an additional 15 percent tariff through the August 2019 action under Section 301, in effect since September 1, 2019.

November 1, 2019

The WTO said China could impose compensatory sanctions on US imports worth US$3.6 billion for the US failure to abide by anti-dumping rules on Chinese products. The announcement centered on a WTO case that originated nearly six years ago, long before the trade war.

According to news sources, the US was disappointed in the decision and a US official responded by saying that the arbitration panel “overstates the amount of the impact on China”

and that the WTO’s approach had “no foundation in economic analysis.”

November 7-8, 2019

The US and China have, in principle, agreed to discussing rolling back tariffs on each other’s goods in phases. This will be done in the same proportion and simultaneously, once the two sides sign a “phase one” deal, according to China’s Ministry of Commerce.

November 26, 2019

US released new regulatory guidelines for its telecom networks procedure to protect telecom networks from national security threats.

December 13, 2019

China and the US agreed to ‘phase one deal’ just before next tariff

China released second set of US products to be excluded from additional tariffs.

January 13, 2020

US officially dropped China’s currency manipulator label

January 15, 2020

US, China signed phase one trade deal will cut US tariffs and boost China’s purchases of US products.

February 7, 2020

China announced would halve tariffs on US$75 billion worth of goods, in line with phase

one deal

February 17, 2020

China granted tariff exemptions on 696 US goods to support purchases February 21, 2020

China unveiled new tariff exemption lists for US imports May 8, 2020

China and the US reaffirmed their phase one trade deal commitments over the phone May 12, 2020

China announced new list of US commodities excluded from tariffs from May 19, 2020 to May 18, 2021

July 14, 2020

China booked record deal for US corn

July 22, 2020

The US sought public comments to exclude Chinese imports from Section 301 tariffs August 15, 2020

The US and China postponed trade deal review August 20, 2020

China said trade deal review to be rescheduled August 25, 2020

The US and China held trade talks, act optimistic on phase one trade deal

15 September 2020

WTO said Trump’s tariffs violated several global rules, including a provision that requires all WTO members to offer equal tariff rates among the body’s trading partners.

Robert E. Lighthizer, the United States Trade Representative, blasted the World Trade Organization for trying to prevent the United States from helping its own workers. “This panel report confirms what the Trump administration has been saying for four years: The W.T.O. is completely inadequate to stop China’s harmful practices. “Although the panel did not dispute the extensive evidence submitted by the US of intellectual property theft by China, its decision shows that the W.T.O. provides no remedy for such misconduct.”

W.T.O. Said American Tariffs on China Broke Global Trade Rules

https://www.nytimes.com/2020/09/15/business/economy/wto-trade-china-trump.html

Background

Lesson from US-Japan trade conflicts

https://news.cgtn.com/news/2019-07-11/Lessons-from-U-S- Japan-trade-war-of-1980s-IcWJh9RjAQ/index.html

US trade deficit with Japan

• According to the U.S.-Japan Security Treaty signed in 1951, the US had strict military control over Japan and political as well as diplomatic influence.

• After WWII, Japan kept upgrading its industrial sectors, also managed to capitalize on its edge in R&D investment and product quality to rapidly expand its presence in the US market and outcompete American companies.

• Japan’s export to the US skyrocketed, such that the U.S. had a trade deficit with Japan for the first time in 1965.

• Japan “were forced to” sign a series of voluntary export restrictions (in 1981) on agricultural products, textiles, steel, color televisions, automobiles, and semiconductors

• Japan also opened up key markets such as color TVs and automobiles to the U.S., signed trade liberalization agreements on beef and oranges with the U.S., and relaxed restrictions on circulation.

Plaza Accord (廣場協議)

• The 1985 Plaza Accord (廣場協議) : An agreement among the G-5 nations—France, Germany, the United States, the United Kingdom, and Japan—to manipulate exchange rates by depreciating the U.S. dollar relative to the Japanese yen and the German Deutsche mark.

• In 1987, the US trade deficit reached US$56.7 billion against Japan. It was around 1.2% of the US GDP that year. (From 1985 to 1995, the US trade deficit with Japan accounted for 30–50% of the overall US trade deficit)

Japanese companies grow up

• Japanese companies grow up

E.g. Mitsubishi Real Estate from Japan purchased the historic American landmark Rockefeller Centre in 1989.

E.g. president of Japan’s Sony Corporation, Akio Morita, published the book “Japan Can Say No”, reflecting the public sentiment in Japan towards the need to improve its international status.

• Interest groups formed by large US domestic companies utilized their political power to lobby the government into waging trade “wars” against Japan.

US government “counterattacked”

• “accused” Japan of stealing intellectual property from the U.S. and dumping products into the U.S. market, illegally selling militarily-sensitive products to the Soviet Union (“security issues were lumped together with trade?”)

• “forced” Japan to sign agreements to share semiconductor technologies and increase imports of American semiconductor products.

• The US-Japan Structural Impediments Initiative 《美日結構性障礙問題協定》

signed in 1989.

An agreement on removing structural trade barriers between the US and Japan, e.g., promote the reform on Japan’s anti-monopoly act and patent laws, and alleviating the discriminatory treatment of imported goods and foreign companies etc.

The United States and Japan have been involved in trade frictions over a number of products including textiles, steel, automobiles, semi‐conductors, and agricultural products over the last 50 years. (Urata, 2020)

US-Japan trade conflict vs US-China trade war

Similarities

• Both involve the world’s largest and second-largest economies;

• the largest trade surplus with the U.S.,

• highly dependent on the U.S.

Real economic conflict of interests between two countries -- could be a long-term struggle

Dissimilarities

• Economically, the industrial structures are not the same for China and Japan in the 1980s.

• Japan took the lead in some technology-intensive industries, a very large proportion of China’s exports still comes from business with low added value.

• Politically, Japan is a key ally of the US in East Asia.

• China is more like a foe to the US with different ideologies.

• The US mainly focused on two forms:

a. restricted Japan’s exports to the US;

b. increased its exports to Japan by “opening” the Japanese market.

• Two main objectives:

a. reduced its trade deficit vis-à-vis Japan;

b. protected and promoted US industries.

The US failed to achieve the first objective (reduced its trade deficit vis-à-vis Japan), while some success was achieved for protecting / promoting US industries. (Urata, 2020).

US–Japan trade frictions

US– China trade war

• Objectives?

a. reducing the bilateral trade deficit

b. stopping “unfair trade practices” by Chinese firms such as violations of intellectual property rights and forced technology transfer.

• Based on the experiences from the US–Japan trade frictions, the US may achieve some success for the second objective, but not for the first (reduced its trade deficit vis-à-vis China) (Urata, 2020).

Background

Devaluation of RMB?

Accused China of devaluing its currency(Yuan per USD)

• Trump (2016/17) officially accused China of intentionally devaluing the yuan.

• Yuan weakened significantly from 6.20 yuan per US dollar at the end of 2014 to 6.95 yuan (i.e., ., ¥ / $ ↑ from 0.1613 into 0.1439) at the end of 2016 in order to boost China’s export competitiveness.

• Noted that yuan devaluation also increased China’s import cost, thus spurring the production of domestic substitute products and protect the domestic industry.

Trade figure • US trade data with China in 2017

US Import from China US Export to China

US$ 477 billion dollars US$ 140 billion dollars

US trade deficit = US$ 337 billion dollars

How about capital account?

BOP -- US$ 12.39 billion surplus

Why trade Deficit?

Was China Manipulating Its Currency?

Chinese Yuan per US Dollar

https://www.macrotrends.net/2575/us-dollar-yuan-exchange-rate-historical-chart

• On August 11, 2015, the People’s Bank of China (PBOC) surprised markets with three consecutive devaluations of the Chinese Yuan knocking over 3% off its value (i.e., ¥ /

$ ↑)

• However, since 2005, Chinese yuan had appreciated 33% against the U.S.

dollar (i.e., ¥/$ ↓). After a decade of a steady appreciation against the US dollar, investors had become accustomed to the stability and growing strength of the yuan.

• 1984-1995 -- ¥/$ ↑

Was China Manipulating Its Currency?

US dollar index (only yuan weakened?)

 However, during 2015-16, the value of the US dollar rose against most currencies .

Was China Manipulating Its Currency?

• China’s President Xi Jinping pledged the government’s commitment to reform China’s economy in a more market-oriented direction since he first took office in March 2013.

• China’s economy had slowed significantly in the years before the devaluation while the US economy had improved (⸫USD tended to appreciate?)

• IMF’s response: a continued rise in the yuan’s value was not totally counter market fundamentals.

(https://www.investopedia.com/trading/chinese-devaluation-yuan/ )

Why trade deficits?

Savings were too small?

Saving rate and trade balance

(Not within the scope of the Economics Curriculum)

• I + G + X = S + T +M

X - M = (S - I) + (T - G) = KO– KI (net capital outflow)

• Trade balance = net private saving + net government saving

= national saving ( = net capital outflow)

Trade balance to GDP ratio = National saving rate (to GDP)

• Identity – necessarily true (tautology)

• National saving and trade surplus are positively related.

• With higher national saving, a country can sell their product/service to other countries (export), therefore it will have a favorable effect on the trade balance.

• Negative Saving (excessive consumption) and trade deficit are positively related

• Similar as Joseph Stiglitz suggests: the US runs a current account deficit because its people save too little to fund domestic investment.

• However, the opponents against that, even if the US has a problem, but not necessarily is with China.

Positive Relationship between Saving rate and trade balance

Source: China Finance 40 Forum

Reserve currency and Excessive Consumption:

• Because of the dominant role of the US in the world economy and its superior position in military and technology, the US dollar is the international and reserve currency, other countries need them.

• After adopting the floating exchange rate system in 1973, the US does not need to control its money supply to maintain a trade balance.

US dollar as the reserve currency:

• Hence, the US can run trade deficits by printing more US dollars to make payments for additional imports since 1970, which is the reason that the US has run a trade deficit.

“The dollar is our currency, but it’s your problem” (John Connally, Secretary of the Treasury in 1971)

• Paul Krugman: “Americans make a living selling each other houses, paid for with money borrowed from the Chinese” (China bought US debt?)

https://www.ipe.com/the-dollar-is-our-currency-but-its-your-problem/25599.article

emergence of cryptocurrency?

• US dollar slowly but may gradually lost its dominant role in the world economy

Impacts of Trade War

Theory: Impact of Tariffs on US import and domestic market

• Supply of Chinese products shifts upward (assume tariff is per unit tax).

• Price of the Chinese products ↑, Import volume from China ↓

• Lower production (and employment) in China

• Total revenue of Chinese producers ↓

• Tax burden (TB) on buyers /sellers depends on elasticity of D and S  Ɛd > Ɛs  TBs > TBb

• US Domestic-Product demand ↑ (domestically produced goods are substitutes for imported Chinese goods).

• P↑, Q↑

• Higher production (and employment) in the US

• Total revenue of US domestic producers ↑

 Retaliation Declined in bilateral trade, both China and the US lost

International Monetary Fund (IMF) and United Nations Conference on Trade and Development (UNCTAD) Studies

Decline in bilateral trade:

• US imports from China declined in all three groups of the goods on which tariffs were imposed

US imports from China

Decline in bilateral trade

• US exports to China also declined as China imposed retaliatory tariffs

Adopted from: IMFBlog -

https://blogs.imf.org/2019/05/23/the-impact-of-us-china- trade-tensions/)

Higher prices for users

• Sharp jump in the post-tariff import prices matching the magnitude of the tariff

• Little change in the ex-tariff border prices of imports from China

The US tariffs on China have been paid almost entirely by US users (importers /manufacturers/

consumers). -- Demand has been much more inelastic (no choice in the short run?)

Chinese firms have recently started absorbing part of the costs of the tariffs by reducing the prices of their exports -- Demand has become more elastic (more choices?).

(Adopted from: IMFBlog - https://blogs.imf.org/2019/05/23/the- impact-of-us-china-trade-tensions/)

Prices of imports in US

Trade diversion effects

A decline in imports from China offset by an increase in imports from other countries (substitute goods especially from Mexico, the largest exporter to the US)

Potential winners

• Domestic producers competing against the tariffed Chinese products

• Third country exporters (e.g., Mexico)

Potential losers: Domestic users

• Domestic Consumers of the goods affected by the tariffs

• Domestic Producers that use those goods as intermediate inputs

(Adopted from: IMFBlog - https://blogs.imf.org/2019/05/23/the-impact-of-us-china- trade-tensions/)

Changes in imports in US

Effects on trade deficit

• Little effect of increasing tariff on improving US trade deficit (same conclusion as the “Lesson from US- Japan trade conflicts”).

• Economists suggest macroeconomic factors play a much bigger role than tariffs in determining bilateral trade balances

• Relative aggregate demand and

supply in partner countries and their underlying drivers

(Adopted from: IMFBlog - https://blogs.imf.org/2019/05/23/the-impact-of-us-china-trade-tensions/)

US trade deficit

Macroeconomic Impacts

• Both countries would experience a decrease in sales, which in turn put pressure on total output and employment in the short run.

• An increase in the import price decreases the SRAS as a result of higher production costs as the SRAS curve shifts to the left.

• Besides, the wealth effect of a fall in value of the stock market might decrease the consumption expenditure, and the fall in stock price might also dampen the investment incentive, and the investment expenditure decrease.

• As a result, the AD decreases and shifts to the left, real output decreases and unemployment increases.

• When the magnitude of the shift in SRAS is greater than that of the AD, the general price level will increase.

• Note that LRAS would also decrease as the productivity would fall due to misallocation of productive resources towards the protected industries.

The soybean case

The soybean case

March 22, 2018, US imposed tariffs on imported goods from China, involving a total estimated value of 60 billion US dollars.

July 6, 2018, imposed an additional 25% tariff on Chinese exports worth US $ 34 billion.

• The Ministry of Commerce of China made countermeasures on the same day and imposed a 25% additional tariff on the US exports worth US $ 34 billion, including soybean from the US.

The soybean case

• China is almost self-sufficient in terms of pork supply although China’s demand for pork meat makes up nearly half of the world's total output.

• For an average Chinese family, pork accounts for two-thirds of their meat consumption, and on average, a Chinese person consumes 120 pounds of pork annually.

• Before 2018, China is the world's largest importer of soybeans from the US.

Soybean is used as the raw material for soybean oil, and the main pig feed.

• The U.S. soybean was one of the items being charged tariff, China’s soybean import from the US in November 2018 dropped to almost zero.

The soybean case

• For feeding pigs, uncooked food scraps is the substitute for soybean.

• Uncooked food scraps are infected with African swine fever (ASF) virus.

• The first ASF outbreak happened in August 2018 in Shenyang, northeastern China.

Through people feeding pigs, ASF spread quickly in China.

• The Chinese government killed more than 100 million pigs within one year. The total output (supply) of pork dropped about one-third of the total average.

• With a high demand for pork, pork price rose.

The soybean case

According to the General Administration of Customs, PRC, in the first two quarters of 2020, China’s import volume in US soybean restored to the level before the trade war.

Other Issues

McConnell et al. (2018)

Regional Trading Blocs

• A regional trading bloc is a group of countries within a geographical region that protect themselves from imports from non-members.

• It is a type of international agreement, often part of a regional intergovernmental organization, such as the North American Free Trade Agreement (NAFTA) and the European Union (EU).

• Trade barriers (tariffs and others) are reduced or eliminated among the participating nations. Trading blocs lead to trade liberalisation and trade creation between members,

• i.e. trade liberalisation within trading blocs but trade protection among trading blocs.

Regional Comprehensive Economic Partnership RCEP

https://www.bbc.com/news/world-asia-54949260

• 區域全面經濟夥伴協定

• 15 countries have formed the world's largest trading bloc, the Regional Comprehensive Economic Partnership (RCEP), covering more than 2 billion people and has an economy of nearly $26 trillion, or about 30% of global GDP, making it the world's largest trade

agreement in terms of GDP. RCEP also accounts for about a third of the world's trade.

• The 15 countries include the 10 members of ASEAN東盟—Brunei-Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam plus the five countries with which ASEAN has free trade agreements—Australia, China, Japan, South Korea, and New Zealand.

• RECP was signed on 16/11/2020, expected The RCEP is expected to eliminate a range of tariffs on imports within 20 years. It covers a wide range of issues, including trade in goods and services, investment, intellectual property rights, competition policy, e-commerce, rules of origin, dispute settlement, and economic and technical cooperation., but does not include environmental protection and labour rights.

世界三大自貿區

佔全球人口 (77.54 億):

43.33%

佔全球GDP: 76.9%

佔全球貿易總量:60%

世界三大自貿區鼎足:

Source: http://www.waimeicankao.com/news-1547.html

經濟聯盟

關稅同盟

自由貿易協定

共同市場

Regional Trading Blocs

Pre-condition:

Goods/Factor mobility

Purchasing Power Parity / Law of one price)

Transaction costs

> Gains from trade  No trade

The level of Transaction cost is the key to closer economic

integration.

http://publications.gc.ca/Collection-R/LoPBdP/inbrief/prb0249-e.htm

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

• Comprehensive and Progressive Agreement for Trans-Pacific Partnership (跨太平洋夥伴全面進步協定 )

• 主要內容: 綜合性的自由貿易協定，包括貨物貿易、原產地規則、貿易救濟措施、衛生和植物衛 生措施、技術性貿易壁壘、服務貿易、智慧財產權、政府採購和競爭政策等。

• CPTPP原稱跨太平洋戰略經濟伙伴關係協定（TPP），最初由亞太經濟合作會議成員發起，從 2002年開始醞釀的一組多邊關係的自由貿易協定，旨在促進亞太區貿易自由化。2017年特朗普簽 署行政命令退出TPP，同年TPP改組為CPTPP。2018年3月8日，日本、加拿大、澳洲、新西蘭、馬 來西亞、新加坡、越南、文萊、墨西哥、智利及秘魯11國在智利簽署該協定。

• 路透社報道，日本明年將擔任CPTPP輪值主席國，日本首相菅義偉在亞太經濟合作組織（APEC）

首腦峰會的錄製視像講話中表示，「日本希望早日核准《區域全面經濟伙伴關係協定》（RCEP）

的同時，能够穩步執行並擴大CPTPP自由貿易區」。據悉，中國和英國都是CPTPP的潛在爭取對 象，中方將積極考慮加入CPTPP。明報2020年11月23日

• 美國和前蘇聯以及其他三十多個國家，於1992年簽訂《開放天空條約》，條約在2002年 起生效，允許簽約國之間的飛機飛越各國領空，進行非武裝空中偵察，監察各國控制 軍備情況。

• 今年5月，美國總統特朗普指由於俄羅斯沒遵守有關條約，美方會於六個月後退出。

• 美國國家安全顧問奧布萊恩在社交網站發文稱，美國通知退出《開放天空條約》已六 個月，現時不再是條約的成員國。

• 國務卿蓬佩奧則指，美國退出條約後變得更加安全。俄羅斯外交部就發聲明指，美國 退出條約既不利於歐洲安全，也不利於美國及其盟友的安全，又指美方早前指責俄方 違反條約是毫無根據。

(資料來源：美國正式退出《開放天空條約》，Now 新聞，2020-11-23 https://news.now.com/home/international/player?newsId=413892)

• 拜登11月16日提到需要「與其他民主國家結盟……這樣我們就可以制定規則，而不是讓中 國和其他國家決定結果」，這與特朗普時期在貿易問題上四處開火、單打獨鬥形成了鮮明 的對比。

• 德國和法國等歐洲盟友對拜登寄予希望，美歐關係有望得到修復。在RCEP簽署後，德國聯 盟黨聯邦議院黨團外交發言人哈特（Jurgen Hardt）認為，「與美國達成貿易協定對於整個 西方世界而言仍然至關重要，這應該是德國和歐盟對於新任美國總統的首要願望」，並且，

歐洲政壇有關「聯美抗中」的聲音也頻頻響起。

(資料來源：拜登將全面顛覆特朗普，HK01，2020-11-20 )

The level of Transaction cost would be the key to the success of closer economic integration.

Reduce resistance to free trade: Trade Adjustment Assistance

Free Trade, on average, is associated with poverty reduction (operating through improved wages) in the long run.

However, the trade liberalization process can adversely affect workers and stakeholders in the comparative-disadvantage industries. (South Korean farmers protested against the liberalization of the rice trade in their country (2009).

Trade Adjustment Assistance (TAA) Programs in the US provide assistance to workers and stakeholders who have been adversely affected by foreign trade and reduce the damaging impact of imports felt by certain sectors of the economy.

Trade adjustment assistance (TAA) in the US offers job training, relocation allowances, income support and help with healthcare premiums and related benefits to workers who lost jobs due to the effects of increased imports and offshoring.

• However, jobs lost due to imports is such a small percentage of total jobs lost that it’s not fair that these workers receive special benefits while other displaced workers do not.

Developing the DRQ

• Aim: test the ability of candidates to apply their (economics) knowledge to unseen information on statistical data, charts, line graphs and newspaper extracts and comics etc.

• Topic: current /big/ hot/ controversial….issue -- US- China Trade War

• Based on academic materials (economic theory).

http://dolanecon.blogspot.com/p/index-of-slideshows.html

• Keywords related to the curriculum:

balance of trade, exchange rate, effects of tariff (burden, import price, winners/losers, inflation,

unemployment etc).

• Global data: image search on the web.

e.g. “US china trade war”

Data response questions

Data response questions

 Questions - three levels: gradually increase the level of difficulty

• Entry-level: directly extract information (observed facts) from the materials without digestion, e.g. “point out” and “describe” the trend and change, “calculate”,

“measure”.

• Medium-level: select and generalise information, infer points of view, e.g., “analyse”,

“explain” and “elaborate”, e.g., Explain why price has increased (given observed outcome--data): caused by many factors (various possible answers - based on theory )

• Advanced-level: compare and analyse different information sources from multiple angles to demonstrate students’ understanding of the topic outside the material,

e.g., “compare” and “evaluate ….

 Start from the “entry-level or “advanced-level” ?

https://www.edb.gov.hk/attachment/tc/curriculum-development/kla/pshe/references-and- resources/economics/A_DBQ_whole_Eng.pdf

Data response questions

Are the material and questions related? – based on theory

Difficulties:

• Certain questions expect students to propose solutions, but many students may fail to provide logical inferences for solving the problem.

• Real-world data are not highly consistent with theory.

• less-well known data /too many possible answers

Facilitate student’s thinking: Provide more information, assumptions and limitations

• Provide “hints” (use economic theory to think about the problem)

“Explain whether you support the legalization of drugs (such as cocaine) from an economic perspective using the concepts of supply, demand, and elasticity.”

• Guide students toward identifying the nature of the problem, the number of variable solutions, compare the merits of each solution, then propose a final solution and even verify the validity of the solution.

• Use global data and qualitative data: dialogue / news/ media articles / comics

Data response questions

Is the quantity of the material appropriate – neither insufficient nor excessive:

• shouldn’t focus on students’ ability to speed-read but the ability to respond to the data-response questions. conduct analysis based on theory, not just based on the data.

More daily practices – open-ended discussions

Public Exam: answers should be based on data provided and economic theory

https://www.edb.gov.hk/attachment/tc/curriculum-development/kla/pshe/references-and- resources/economics/A_DBQ_whole_Eng.pdf

Data response questions

Factors and observed outcome:

• Theory: Y = f (X1, X2..)

• Explain why price has increased (given observed outcome): caused by many factors–

different answers (tourists ↑  Demand ↑ P ↑ , but P ↑ not necessarily because tourists has increased)

Inference from theory: various possible outcomes – different views e.g.,P ↑ : total revenue may ↑or ↓, depends on elasticities of D/S

• Explain why total revenue ↑(given observed outcome)

Correlation /causality – based on evidence and theory

Identity: must be true for all values of the variable for which the equation is defined.

(unemployment rate = U / (U+ E))

Theory  conceivable to be false, many factors source with different views

DRQ on China-US trade war

• A DRQ developed by Dr. Lee can be downloaded from the link below:

(https://www.edb.gov.hk/en/curriculum-

development/kla/pshe/references-and-resources/economics/China-

US_Trade_War.html)

Sources for getting data

Keywords: balance, trade, exchange rate, import prices, inflation, unemployment etc.

• Hong Kong Census and Statistics Department

• U.S. Bureau of Labor Statistics

• U.S. Census Bureau

• Bloomberg

• Reuters

• National Bureau of Statistics of China

• Ministry of Commerce People’s Republic of China

• Bureau of Economic and Business Affairs

• U.S. Department of Commerce

• Bureau of Economic Analysis

References

• Baldwin, R.E. (1960), "The Effects of Tariffs on International and Domestic Prices", Quarterly Journal of Economics, 74(1) 65-70.

• Bhagwati, J., V.K. Ramaswami and T.N. Srinivasan (1969), "Domestic Distortions, Tariffs, and the Theory of Optimum Subsidy: Some Further Results", Journal of Political Economy, 77(6) 1005-1013.

• Carbaught, R. (2016). International economics. (15th ed.). South-Western.

• Chong, T. T. L., & Li, X. (2019). Understanding the China–US trade war: causes, economic impact, and the worst-case scenario. Economic and Political Studies, 7(2), 185-202.

• Economic Planning Agency (Keizai Kikaku-chō) 1986, ed., Shōwa 55-nen Kijun Kaitei Kokumin Keizai

• Keisan Hokoku (Report on Revised National Accounts on the Basis of 1980), Ōkura-shō Insatsukyoku (Ministry of Finance Printing Bureau), Tokyo, vol. 1.

• Feenstra, R. and Taylor, A. M. (2014). International economics. (3rd ed.). Worth Publisher.

• Gerber, J. (2014). International economics. (6th ed.). Pearson.

• Husted, S. and Melvin, M. (2013). International economics. (9th ed.). Pearson.

• Meltzer, J. P., & Shenai, N. (2019). The US-China economic relationship: A comprehensive approach.

Available at SSRN 3357900.

References

• Krugman, P. R., Obstfeld, M., and Melitz, M. (2015). International economics: Theory and policy.

(10th ed.). Pearson.

• McConnell C. R., Brue S. L., & Flynn S. M. (2020). Economics: Principles, Problems, & Policies, 22nd ed., McGraw-Hill

• OECD. (2013). Interconnected economies: Benefitting from global value chains. OECD.

• Pugel, T. (2015). International economics. (16th ed.). McGraw Hill.

• Riad A. Ajami (2020) US-China Trade War: The Spillover Effect, Journal of Asia-Pacific Business, 21:1, 1-3

• Salvatore, D. (2013). International economics. (11th ed.). Wiley.

• Urata,S. (2020). US–Japan Trade Frictions: The Past, the Present, and Implications for the US–China Trade War. Asian Economic Policy Review, Japan Center for Economic Research, vol. 15(1), pages 141-159, January.

References

• Wang, Y. (2020), "Causes of U.S.-China trade imbalances: a review", Journal of Chinese Economic and Foreign Trade Studies, Vol. 13 No. 1, pp. 37-44. https://doi.org/10.1108/JCEFTS-01-2020-0003

• https://blogs.imf.org/2019/05/23/the-impact-of-us-china-trade-

tensions/#:~:text=US%2DChina%20trade%20tensions%20have,trade%20deficit%20remains%20broad ly%20unchanged

• https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2226

• https://www.investopedia.com/trading/chinese-devaluation-yuan/

• https://outsourceworkers.com.au/offshoring-and-outsourcing/

• https://www.economicsonline.co.uk/Global_economics/Trading_blocs.html

• https://www.thebalance.com/trade-wars-definition-how-it-affects-you-4159973

• https://www.reuters.com/article/us-usa-trade-china-timeline/timeline-key-dates-in-the-us-china-trade- war-idUSKCN1VD20A

• https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/

• https://news.cgtn.com/news/2019-07-11/Lessons-from-U-S-Japan-trade-war-of-1980s- IcWJh9RjAQ/index.html

Book Recommendation

• The History of US-Japan Relations: From Perry to the Present

• Authors:

Makoto Iokibe Tosh Minohara

Book Recommendation

• “Charting a Path for a Stronger U.S.-Japan Economic Partnership”

• Authors:

Saori N. Katada, Junji Nakagawa, and Ulrike Schaede

 Saori N. Katada:

Professor of International Relations, University of Southern California

 Junji Nakagawa:

Director, Institute of Social System, Professor, Faculty of Liberal Arts, Chuo Gakuin University

 Ulrike Schaede:

Professor of Japanese Business School of Global Policy and Strategy, University of California San Diego

Thank you!