Fernando Alcoforado*
This article aims to show the consequences of the US-China trade war on the world economy and international trade. In addition, actions are outlined for Brazil to neutralize the negative impacts of the trade war on the Brazilian economy.
Arguing that he seeks to protect US producers and reverse the US trade deficit with China, President Donald Trump has since 2018 announced the adoption of tariffs on products imported from the Asian country. The goal is to make it difficult for Chinese products to arrive in the United States, which would stimulate domestic production. The Chinese government, for its part, has reacted to these announcements with retaliation, even imposing tariffs on US products.
During the election campaign, Donald Trump’s speeches already pointed to a protectionist tendency, with criticism of the US trade deficit in relation to China. Already as president, Trump made the first announcement of rates on Chinese products in March 2018. Since then, he has announced several measures and threatened to adopt others. China has also responded with trade barriers to US products and threats.
Since 2018, some attempts have been made to get accord, but the break of truce with new announcements and threats of retaliation frustrated expectations of resolution of the problem. The dispute shifted from announcements and tariff threats on imported products to the currency exchange area. In reaction to the adoption of a new round of tariffs by US, China strongly devalued its currency, the Yuan, and was accused of currency manipulation.
While China and the United States are waging their trade war, most economists assume that China will soon reach global economic supremacy. After all, with a population four times larger than that of the United States and an economic plan designed to catch up after centuries of technological stagnation, it is not inevitable that China will assume the status of hegemonic economic power on the planet.
It can hardly be said that China’s rise is a mirage. Its rapid success is not solely based on population size. India, for example, has a similar population (both about 1.3 billion people), but at least for now it is less developed. Chinese economic leadership must be credited for the miraculous work of lifting hundreds of millions of people out of poverty into middle-class status.
China’s rapid growth has been driven mainly by progress and investment in technology. China, unlike the Soviet Union, shows exceptional local technological innovation. Not surprisingly, Chinese companies are already leading the technological path of the next generation of 5G mobile networks and their capacity is high for a cyber war with the United States. China’s achievements still stem largely from the adoption of Western technology and, in some cases, from the appropriation of intellectual property.
China is going its own way by demonstrating that centralized and planned political systems are able to boost development faster than free market-based systems. China can lead the digital future even if the United States does its part. The impending era of intelligent machines could be a turning point for China in the battle for global hegemony with the United States.
Today, the United States has the largest economy in the world and China the second. Therefore, if both countries suffer negative consequences of this dispute, the fear is that other countries and the global economy as a whole could be impacted, in a chain reaction, undermining the growth of global Gross Domestic Product (GDP) and International trade.
According to the IMF, in the first quarter of 2019, the trade war between the United States and China helped to promote a sharp slowdown in emerging Asian economies. Global technology supply chains were threatened by the possibility of the United States imposing sanctions. Geopolitical tensions were cited in the document in which the IMF reduced its estimate of world economic growth to 3.2% in 2019 and 3.5% in 2020.
The latest events do not indicate a quick solution to the trade war between the United States and China. China, which monopolizes 80 percent of the world’s rare earth production, threatens to refuse to export these crucial minerals to its rival. It is important to note that the dispute between the United States and China goes beyond the economic issue because it concerns a geopolitical issue. This is the first major geopolitical dispute of the 21st century between two superpowers with the declining of the United States and rising of China as an economically hegemonic power.
A power that is emerging as China bothers the power that is established and declining like the United States. This is a classic problem of international relations. Even with Trump’s direct attacks on China, this does not seem to be an individual matter for the president in the United States because the idea that China must confront China in some way is also consolidating in American society.
WTO warns that world trade in goods weakens as a result of the trade war. The escalating tension between China and the US feeds the fear of a global slowdown. This is compounded by fears of a sudden slowdown in the global economy that is already taking place.
The US economy is in danger of recession. Trump’s tax policy has produced a public deficit that tends to rise by widening the gap in the unprecedented US budget, and will eventually have to be covered. And the trade war only adds to these problems for the United States government, for example, by granting subsidies to farmers to offset losses from falling exports of their products to China.
The trade war affects China’s industrial production, which in July this year grew 4.8%, showing a slowdown as Chinese production grew at a 6.3% rate a month earlier in June. In the Eurozone, industrial production fell by 1.6% in July, and the European Union already has a 2.6% fall in GDP in 2019. And Germany’s GDP (Gross Domestic Product) fell 0.1% in the second quarter. quarter compared to the first.
The trade war will have impacts on Brazil. China is one of the most important trading partners for Brazil. The Chinese market is the number 1 destination for Brazil’s main export products: soybeans, oil and iron ore. The United States was China’s second largest soybean supplier before the trade war, but imports fell sharply after the Chinese government adopted 25 percent tariffs on US products. If China buys less soy from the United States, for example, there may be an increase in demand for Brazilian grain. However, if the slowdown in the Chinese economy becomes even greater due to the dispute with the United States, its demand for oil and ore would become smaller, which could hurt Brazilian exports.
Given this unfavorable scenario represented by the global recession and the drop in exports, the correct strategy of the Brazilian government would be to prioritize the development of the domestic market with the adoption of measures aimed at reactivating the Brazilian economy. Before reactivating the Brazilian economy, the Brazilian government should abandon the neoliberal economic model implemented in 1990 from which the federal government abdicated national economic planning. The neoliberal model, responsible for Brazil’s economic debacle, would be immediately replaced by the national developmentalalist model with active state participation in economic planning, as occurred in the 1930-1980 period when Brazil achieved its greatest economic and social development throughout history. The Bolsonaro government would hardly take this measure because of its subordinate position in relation to the United States and international capital. This means that Brazil, which is in a situation of devastated land, will be in an even worse situation.
The Brazilian government should consider as a number one priority to reactivate the economy with the immediate execution of a broad program of public infrastructure works (energy, transportation, housing, sanitation, etc.) with the participation of the private sector to combat the current one mass unemployment by raising household and corporate employment and income levels, thereby promoting the expansion of household and corporate consumption resulting, respectively, from the increase in household wage bill and corporate income from investments in public works to make Brazil grow back economically.
* Fernando Alcoforado, 79, awarded the medal of Engineering Merit of the CONFEA / CREA System, member of the Bahia Academy of Education, engineer and doctor in Territorial Planning and Regional Development by the University of Barcelona, university professor and consultant in the areas of strategic planning, business planning, regional planning and planning of energy systems, is author of the books Globalização (Editora Nobel, São Paulo, 1997), De Collor a FHC- O Brasil e a Nova (Des)ordem Mundial (Editora Nobel, São Paulo, 1998), Um Projeto para o Brasil (Editora Nobel, São Paulo, 2000), Os condicionantes do desenvolvimento do Estado da Bahia (Tese de doutorado. Universidade de Barcelona,http://www.tesisenred.net/handle/10803/1944, 2003), Globalização e Desenvolvimento (Editora Nobel, São Paulo, 2006), Bahia- Desenvolvimento do Século XVI ao Século XX e Objetivos Estratégicos na Era Contemporânea (EGBA, Salvador, 2008), The Necessary Conditions of the Economic and Social Development- The Case of the State of Bahia (VDM Verlag Dr. Müller Aktiengesellschaft & Co. KG, Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe Planetária (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2010), Amazônia Sustentável- Para o progresso do Brasil e combate ao aquecimento global (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2011), Os Fatores Condicionantes do Desenvolvimento Econômico e Social (Editora CRV, Curitiba, 2012), Energia no Mundo e no Brasil- Energia e Mudança Climática Catastrófica no Século XXI (Editora CRV, Curitiba, 2015), As Grandes Revoluções Científicas, Econômicas e Sociais que Mudaram o Mundo (Editora CRV, Curitiba, 2016), A Invenção de um novo Brasil (Editora CRV, Curitiba, 2017), Esquerda x Direita e a sua convergência (Associação Baiana de Imprensa, Salvador, 2018, em co-autoria) and Como inventar o futuro para mudar o mundo (Editora CRV, Curitiba, 2019).
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