Hagstrom: Steel aluminum tariffs ‘here to stay’
The Hagstrom Report
The steel and aluminum tariffs that President Donald Trump imposed on Chinese steel and aluminum and have resulted in retaliatory tariffs on U.S. farm products are likely to last a long time, the author of a book on the history of China’s membership in the World Trade Organization said today.
“The tariffs are probably here to stay” because Trump’s relatively short-term goal is to make sure manufacturing in China does not grow and that companies that have been investing in China put their money in other Southeast Asian countries “that are more in tune with our values,” said Stewart Paterson, a British capital markets economist and fund manager with 25 years of experience in Asia and author of “China, Trade and Power.”
Paterson’s work is not focused on agriculture, but for those farmers who expect the tariffs are going to go away soon, he and his book have a message: “We might as well get used to the fact” that the tariffs are having an impact.
“My sense is that what Trump has done so far is quite helpful; it has gotten Chinese attention, the U.S. is not going to roll over, Chinese expansionism comes at a cost. All this is very good signaling,” Paterson said.
Paterson is in Washington this week under the auspices of the Hinrich Foundation, a Hong Kong organization focused on global trade that published his book. He is scheduled to speak at the Center for Strategic and International Studies today.
The book is focused on the history of how China came to join the WTO and the mistakes that the United States and other countries made in allowing China to join the international trade pact while maintaining its state-owned enterprises and control over its currency.
The group clamoring for China’s admission to the WTO was multinational corporations that wanted to gain access to low-wage workers in China and access to the Chinese market, Paterson noted.
By bringing China into the world trading system, the West was going to induce political change and the middle class would demand to run the country, he said. But none of that happened.
“China’s admission into the WTO helped lift hundreds of millions of people out of poverty in China, cementing the legitimacy of the Chinese Communist party and making China’s mercantilist model attractive to emerging economies in Asia,” he said. “At the same time, the supply-side shock created by China’s increasing and deflationary exports, coupled with the inflation-targeting response of Western central banks, led to a fall in real incomes for the many and a rise in asset prices for the few, raising questions about the effectiveness of Western liberal economic models.”
The question now, he continued, is whether there is “a middle way to have a less debilitating relationship. Or do we have to disengage from China since a policy of engagement produced economic success for China? Is the reverse true that we could produce a result that would lead to domestic pressure in China?”
“Inflicting economic pain on China makes sense,” Paterson said because Chinese President Xi Jinping “owns the trade war” and the expensive Belt and Road Initiative to build infrastructure in other countries to provide links to China.
“The leverage that Trump is creating is potentially quite great,” with the Chinese Communist Party becoming divided over the way forward, he added.
The leadership is still likely to resist the changes that the United States wants, but younger Chinese leaders “on the way up” may be looking at profit and loss statements to see whether they want to continue the current policies.
The key changes that need to take place are transparent capital accounts and a floating exchange rate, Paterson said.
Paterson’s book is more of a history of China’s admission to the WTO and the repercussions of that than a policy prescription for the future.
As leaders of Western countries try to figure out a way out of this unequal relationship, he says, they need to be aware of what created this unfair playing field.
“To my mind, proponents should be held accountable,” he said. How did these leaders expect the private sector in the West to compete with state-owned enterprises and private Chinese enterprises that get access to land and subsidies as long as they are pursuing the country’s goals, he asks.
For American agriculture, which has profited greatly since China joined the WTO in 2001 and hopes for a quick return to exporting to China, the book may be an uncomfortable but necessary read.