Posts Tagged ‘tariffs’

U.S. Reliance on Obscure Imports From China Points to Strategic Vulnerability

September 24, 2018

Corporations tariff waivers gained for raw materials and parts by arguing that China had become an indispensable supplier

The U.S. quietly exempted China’s rare earth minerals from their original inclusion in the tariff hit-list.
The U.S. quietly exempted China’s rare earth minerals from their original inclusion in the tariff hit-list. PHOTO: WANG CHUN – IMAGINECHINA
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Forget Apple Inc.’s smartwatch. When it comes to goods the Trump administration exempted from its latest blitz of tariffs on Chinese imports, the cases of fluorine salts and carbonate esters say more about where the U.S. is vulnerable in its reliance on Chinese supply.

The chemicals, used to make electrolytes for electric-car batteries, are among 297 dispensations sparing importers the new 10% levy. The mineral barite, which helps energy companies drill for oil and gas, and the painkiller ibuprofen—90% of which comes from China—were also beneficiaries, along with Apple’s far-better-known products, including its smartwatches and AirPods.

While the latest broadside from the U.S. in its tariff feud with China, covering 5,745 items worth some $200 billion, is a demonstration of America’s buying power, items cut from the initial tariff hit-list point to weaknesses across a range of businesses, from energy giants like Halliburton Co. to smaller suppliers of specialty parts, all of which sought waivers for raw materials and parts by arguing that China had become an indispensable supplier.

These businesses gained exemptions after intense lobbying by corporate chieftains during six days of public hearings in August and in a flurry of letters to the U.S. trade representative. Nearly 400 top executives showed up for the hearings, and thousands more wrote in; most failed to get exemptions, including giants Walmart Inc. and GE Appliances.

The letters and hearing transcripts show where the Chinese have become outsize global producers of relatively obscure industrial commodities—on which American industry has become reliant. In some cases, the U.S. companies say, substitute makers in other countries could be found—but were likely to raise price tags on American buyers as these rivals sought advantage in the escalating bilateral standoff.

In the case of ibuprofen, chemical giant BASF SE in June halted production at a Texas plant, which analysts say accounted for a sixth of the world’s ibuprofen, citing technical problems. The shutdown sent American pharmacy suppliers rushing for new sources of ibuprofen. Pharmacy suppliers faced looming tariffs on Chinese-made ibuprofen, which would have been substitutes for the BASF-made ibuprofen.

If enacted, “this tariff can cause a shortage of dosage ibuprofen in the domestic market,” said Joseph Mollica, chief executive officer of LNK International Inc., a Hauppauge, N.Y., drug manufacturer that supplies Walmart and Target stores, among others, in a letter to the USTR. “This will not punish China, but will benefit India’s continuing foray into the U.S. market at the expense of U.S. manufacturing jobs.”

BASF said it doesn’t yet have a clear timeline on reopening its plant.

President Trump is girding to broaden the standoff with Beijing, saying his policy curbs Chinese tech theft and underscores how much less China imports from America—a roughly four-to-one imbalance—than the other way around.

Mr. Trump’s tariffs now affect some $250 billion worth of Chinese imports, and another $267 billion is on standby, covering the value of nearly all Chinese imports. Beijing has retaliated on $110 billion, but it has left out items China relies upon, such as semiconductors and crude oil.

A USTR official said it takes into account the likely impact on U.S. consumers and the economy when evaluating exemptions. Commerce Department data show the U.S. is heavily dependent on China also for consumer imports such as luggage, refrigerators and vacuum cleaners. Despite China’s accounting for about 80% of such imports, Washington has gone ahead to tax these products; sellers say it is likely consumers would ultimately bear most of the cost.

China has in the past been swift to sense American reliance on its exports. In 2010, Beijing drastically slashed an export quota on rare earths, a group of minerals essential for making high-tech gadgets like iPhones—a play at using China’s control of 97% of global output to raise prices. The U.S. took China to the World Trade Organization and won. In a signal that such dependence remains high, Washington last week quietly exempted rare-earth minerals from their original inclusion in the tariffs.

“There are no viable suppliers available in the U.S. currently to replace that of our Chinese manufacturers,” said Curtis Glover, president of operations at Lighting Technologies International Inc., a California-based producer of cinematic lamps that relies on Chinese rare earth for its xenon lights.

Rare-earth elements are also crucial in a range of military applications, as raw material for missile-guidance systems, satellites and aircraft electronics.

Mitsubishi Chemical America Inc. got an exemption for an obscure class of complex fluorine salts and carbonate esters, which go into the electrolyte for lithium-ion batteries used in electric vehicles including Tesla Inc.’s Model 3 and Chevrolet’s Bolt.

“There simply is no other viable source of these key inputs outside China in the volumes and the quality levels that we require,” Dennis Trice, the company’s president, told a USTR hearing. “Developing new sources outside of China to replace existing production would take massive long-term investments and many years.”

Mr. Trice said his company would have had to reconsider its investments in the U.S., which include a $38 million plant in Tennessee employing 2,600 workers, had it not received the exemptions. Official data show China accounted for 46% of such U.S. imports in the January-July period. Thailand provided 25%, trailed by Mexico, Japan and Germany. Tesla didn’t respond to a request for comment.

A similar vulnerability won Halliburton a reprieve for barite, a mineral used to weight drilling fluids, which aids oil-and-gas exploration. China provided 54% of U.S. imports from January-July. Data show India and Mexico are minor suppliers, with 18% and 17% of the market, respectively.

“China will not suffer consequences as a result of the proposed duties on barite, because China has the largest amount of barite reserves in the world, the majority of which is exported,” said Ryan Ezell, Halliburton’s global-operations manager.

For now, there is no sign that China plans to choke such supplies, but the exemptions add to a menu of last resorts. Analysts say Beijing could first unleash nontariff reprisals, such as squeezing the amount of services it purchases from the U.S.

The fear is whether constricting supply crosses the line into a “hot” war, said Terry Chan, an S&P Global Ratings analyst. But, “together with dumping U.S. Treasurys, it’s a so-called nuclear option.”

Write to Chuin-Wei Yap at chuin-wei.yap@wsj.com

https://www.wsj.com/articles/u-s-reliance-on-obscure-imports-from-china-points-to-strategic-vulnerability-1537781400

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China Says Trump Administration Is a Trade Bully as New Tariffs Take Effect

September 24, 2018

White paper describes ‘America First’ policy as an abandonment of norms of mutual respect and consultation

Containers sit stacked at a deep water port in Shanghai earlier this year. China’s cabinet accused the Trump administration of being a bully on trade, as new tariffs took effect.
Containers sit stacked at a deep water port in Shanghai earlier this year. China’s cabinet accused the Trump administration of being a bully on trade, as new tariffs took effect. PHOTO: QILAI SHEN/BLOOMBERG NEWS
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China’s State Council accused the Trump administration of being a trade bully and abandoning important communication channels, as a new round of tariffs took effect.

In a position paper published by state news agency Xinhua on Monday, the State Council’s information office said the Trump administration was responsible for unwinding 40 years of efforts to settle differences rationally between the two nations and foster global economic stability.

The white paper from China’s cabinet stopped short of making new trade threats against the U.S., according to the summary. It pushed back on some specific concerns from the Trump administration but said China said it always answers American concerns with the greatest patience and good faith.

The report described the Trump administration’s “America First” policy as an abandonment of norms of mutual respect and consultation.

“Rather, it has brazenly preached unilateralism, protectionism and economic hegemony, making false accusations against many countries and regions, particularly China, intimidating other countries through economic measures such as imposing tariffs, and attempting to impose its own interests on China through extreme pressure,” the white paper said.

China has pledged to retaliate against U.S. tariffs in “equal scale and equal strength.” In addition to tariffs, here are three ways Beijing could hit back at Washington. Photo composite: Adele Morgan/The Wall Street Journal

New U.S. tariffs took effect on Monday that impose import taxes on $200 billion in Chinese goods, which prompted Beijing to apply new tariffs on $60 billion of imports from the U.S. President Trump vowed to apply tariffs on an additional $257 billion of Chinese products and Beijing decided not to join trade talks with the U.S., The Wall Street Journal reported previously.

The Chinese white paper offered a full-throated rebuttal to American allegations that Beijing forces foreign companies to share technology with Chinese partners—a core issue underlying the Trump administration’s trade offensive.

The paper says foreign companies have “taken the initiative” to establish partnerships with Chinese companies to expand into new markets, save production costs and achieve economies of scale. Foreign firms enter into contracts to transfer production capacity and orders to China, the paper says, adding that such practice represents “voluntary behavior of businesses based on commercial interests.”

Since the 1990s, the paper said, American companies like Microsoft Corp. , Intel Corp. ,Qualcomm Inc., Procter & Gamble Co. , General Electric Co. and others have set up research and development institutions in China to better adapt to the local market, the government said in its report.

“American companies in China have received huge returns through technology transfer and licensing, and are the biggest beneficiaries of technical cooperation,” the report said.

Beijing also said it is a protector of intellectual property. China has established “a complete and high-standard intellectual property legal system in a relatively short period of time,” the paper said, a process that it says has taken developed countries decades or even hundreds of years to assemble.

China regularly publishes lengthy white papers to stake out key government positions, often to challenge critics from overseas who comment on its environmental or human rights practices. As trade frictions were heating up in June and Beijing was threatening to challenge American policy at the World Trade Organization, for instance, China published a detailed white paper that affirmed its support for the multilateral trading system.

The newest paper, “Facts on China-U.S. Economic and Trade Frictions and China’s Position” runs to 36,000 Chinese characters and includes six sections tracing the arc of bilateral relations. It accuses Washington of contradicting itself and challenging China, Xinhua said.

The Journal reported previously that Mr. Trump is expected to issue a formal statement over the next few days directing U.S. Trade Representative Robert Lighthizer to begin writing up the next group of tariffs that, if fully implemented, would cover virtually all imports of Chinese goods, which totaled $505 billion in 2017.

“The trade war is now a reality,” said Brian Coulton, chief economist at Fitch Ratings, in a statement on Monday as the firm cut forecasts for global growth due to “protectionist” trade policies by the Trump administration. It said the actions are expected to have “a material impact on global growth.”

Fitch cut its forecast for China’s economic growth next year to 6.1% from 6.3% previously and lowered its 2019 global economic growth forecast to 3.1% from 3.2%.

Write to James T. Areddy at james.areddy@wsj.com and Lingling Wei at lingling.wei@wsj.com

https://www.wsj.com/articles/china-says-the-trump-administration-is-a-trade-bully-as-new-tariffs-take-effect-1537777015

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(Bloomberg)

(White Paper from Xinhua)

China Is Confronting New U.S. Hostility. But Is It Ready for the Fight?

September 24, 2018

The Chinese leader, wearing a dark Mao suit, and the American president, in a black tuxedo, stood side by side with arms aloftat the Kennedy Center. Deng Xiaoping and Jimmy Carter smiled broadly as the orchestra played “Getting to Know You,” signaling the dawn of a new era of friendship and cooperation between their two nations.

Over the next 40 years, China and the United States built the most important economic relationship in the world and worked together on issues such as regional security, counterterrorism and climate change. Taking Mr. Deng’s lead, China played the junior partner, if not always deferential then at least soft-pedaling its ambitions and avoiding conflict with the much stronger United States.

Now, faster than many in either nation expected, that has all changed.

By  Jane Perlez
The New York Times

On Monday, the United States will begin taxing $200 billion in imports from China, the biggest round of tariffs to take effect yet in an escalating trade war. President Trump says the measures are necessary to fight an economic model that requires American companies to hand over technology in exchange for market access and provides state subsidies to Chinese competitors.

China’s strongman leader, Xi Jinping, presiding over an economy gaining quickly on the United States, has openly challenged American leadership abroad while dashing hopes of any political thaw at home. During this time, both Republicans and Democrats in Washington have turned on Beijing, accusing it of imperial ambitions in Asia, aggression in disputed waterspersecution of ethnic minorities and unscrupulous trade policies aimed at dominating the industries of the future.

In a fundamental shift, the Trump administration has formally described China as a “revisionist power” and “strategic competitor” in the past year. China has been saying similar things about the United States for even longer. But as relations have deteriorated in recent months, many Chinese are now asking if their country is really prepared to take on the world’s most powerful nation.

China has abruptly canceled not only trade talks that were planned this week in Washington but also military-to-military talks scheduled to begin Tuesday. The latter move was made to protest American sanctions imposed last week on a Chinese military department for buying warplanes and missile equipment from Russia.

Image may contain: 2 people, people smiling, people standing and suit

Donad Trump and Xi Jinping at Mar-a-Lago, April 6, 2017. Reuters file photo

In a sign of Beijing’s growing international influence, though, the Vatican and the Chinese government said Saturday that they had reached a breakthrough agreement on the appointment of Roman Catholic bishops in China, taking a step toward normalizing relations.

[Discuss China’s role in the world with New York Times journalists in a new Facebook group here.]

As the acrimony and rivalry with the United States have intensified, the immediate worry in Beijing is how the Chinese public, accustomed to a fast-expanding economy, will handle the trade war, and what impact it might have on the ruling Communist Party’s overriding concern of domestic stability.

The government has sought to project confidence.

“Maybe the growth rate will slow 1 percent. We can accept it. That’s not terrible for us,” said Hu Xijin, the editor in chief of The Global Times, a state-run newspaper known for its nationalist tone. He added that Washington would soon realize that its mobile phone and auto manufacturers could not survive without Chinese customers.

Chinese workers at the entrance to a tunnel they are building for the China-Laos railway project near Vang Vieng, Laos, last year. Credit Adam Dean for The New York Times

“As long as our market is expanding economically and growing, China will win the trade war,” he said.

Charles S. Y. Liu, a private equity investor who sometimes advises the government, said the Chinese people were prepared to endure a protracted trade conflict.

“The Chinese are more tolerant of pain because we have been poor for so long,” he said. “Wealth has only arrived in the last decade.”

But many others are worried, and some have urged the Chinese leadership to seize the moment and shift the economy even further toward open markets and private enterprise rather than allowing an inefficient state sector to dig in.

“A closed approach will lead to a decline in the rate of national competitiveness,” wrote Yan Xuetong, dean of the Institute of International Relations at Tsinghua University, in a recent paper. He warned that China risked returning to the stagnation it suffered in isolation during the Mao era.

“When Trump adopts a protectionist strategy, China should have an open door and force the state-owned enterprises to reform,” Professor Yan added in an interview. But he said his advice was being ignored. “I get no reaction. Nobody listens to me.”

Other Chinese are arguing that the spike in hostility from the United States could have been avoided if President Xi had continued the policy of “hiding strength, biding time” followed by his predecessors and originally set by Mr. Deng.

Mr. Xi instead has flaunted two ambitious programs: the global infrastructure plan known as the Belt and Road Initiative and the effort to dominate advanced industries known as Made in China 2025, both of which have drawn criticism by the Trump administration.

“The same things can be done without such arrogance,” said Yun Sun, an analyst at the Stimson Center, a think tank in Washington. “I believe the Chinese policy community does wish to see more actions and more assertiveness but Xi went too far.”

President Xi and President Cyril Ramaphosa of South Africa attending a summit meeting of the Forum on China-Africa Cooperation in Beijing this month. Credit Pool photo by Lintao Zhang

The party has sought to censor criticism of Mr. Xi but there have been glimpses of anxiety online about the potential impact of the trade war as well as anger at the Belt and Road Initiative, which has earmarked hundreds of billions of dollars for overseas projects intended to lift China’s clout abroad.

Echoing a popular opinion on social media, a retired economics professor, Sun Wenguang, has argued that it is wrong to spend so much money in other countries given the problems that China faces at home.

“Some are too poor to see a doctor, some are too poor to have pensions after retirement, and some too poor to go to school,” Professor Sun said in an interview on the Voice of America last month. “Under such circumstances, if you still choose to throw money at other countries, domestic backlash is almost guaranteed.”

As he was speaking, the police entered his home and forced him off the phone.

Professor Sun’s criticism reflects a broader concern in China about the government’s efforts to win over allies. The subject is important because the United States has long touted its alliances as key to its national strength generally and its ability to counter China’s rise in Asia in particular.

China enjoys significant advantages in the region. It is the largest trading partner of almost every country in Asia while President Trump has strained relations with allies around the world. Even Japan, America’s most important ally in Asia, appears to be drifting closer to China as Mr. Trump threatens the nation with tariffs.

In a rapprochement between the two Asian rivals, Prime Minister Shinzo Abe is scheduled to travel to Beijing next month, the first visit to China by a Japanese leader since 2011.

“Trump said recently, ‘Japan, you’re next for tariffs,’” said Mr. Liu, the private equity manager. “Thank you, Donald Trump.”

But some say China is fumbling the opportunity presented by the Trump administration and alienating neighbors by throwing its weight around too aggressively. There has been a backlash in several countries against Belt and Road projects that have left governments in deep debt, created few jobs for local residents or damaged the environment. Others have raised an alarm about Chinese efforts to interfere in politics of smaller nations.

In an essay that has been widely shared on Chinese social media, a prominent Communist Party scholar warned against national arrogance and overreach, noting the fate of rising powers that succumbed to “recklessness and impetuousness” in the 20th century: Germany, Japan and the Soviet Union.

Workers from Sungrow connecting solar panels to custom-made buoys on the banks of a lake in a flooded coal mine in Liulong Village, China, last year. Credit Adam Dean for The New York Times

“I recall a topic hotly debated on line by young internet users: Who is really China’s enemy? Is it America? Japan? Russia?” wrote the scholar, Luo Jianbo, head of the China Foreign Policy Center at the Central Party School. “If we think about things coolly, perhaps none of them are. China’s enemy is itself.”

In many ways, the Chinese political elite has been caught off guard by how quickly relations have deteriorated with the United States, which has long been a source of envy and inspiration for many Chinese as well as a leading destination for education and immigration.

Chinese scholars often observe that new American presidents usually take a hard line against China but seek cooperation after realizing how the two nations need each other. President Trump has stunned them by defying that pattern.

“I personally feel surprised by the fact that Trump is taking such radical measures,” said Mr. Hu, the newspaper editor. “I initially thought it was a joke, but it turns out to be a real policy, putting tariffs on all these products.”

Some Chinese analysts have sought to explain the escalating conflict with the United States by focusing on the personal qualities of the nation’s two leaders. Mr. Trump is a viewed as a fickle, transactional businessman who may retreat after the midterm elections in November. They note he has repeatedly spoken out against China’s trade practices but said little about human rights or military issues.

Mr. Xi, on the other hand, is said to have invested too much politically in his signature programs to back down under foreign pressure.

“Personality matters in this relationship,” said Wu Xinbo, the director of the American Studies Center at Fudan University. “The biggest problem is Trump’s credibility.”

Though Beijing devotes tremendous resources to studying the United States, there seems to be little understanding that the hostility against China in Washington is bipartisan and extends beyond trade, and that many frustrated business leaders, once defenders of good ties with China, now favor tougher measures against it as well.

Teng Jianqun, director of American studies at the China Institute for International Studies, said the government needed to accept the new reality and tell the Chinese public that the coming struggle could be the beginning of a long fight for the country’s survival as a great power.

“We should let our people fully know that this trade war is not a short-term contest,” he said, “but a contest that will determine the future of the Chinese nation.”

Luz Ding contributed research.

A version of this article appears in print on , on Page A1 of the New York edition with the headline: China, Facing U.S. Hostility, Vows to Come Out Swinging.

Japan’s PM says talks with Trump on trade were constructive ahead of meetings this week

September 24, 2018

Japanese Prime Minister Shinzo Abe said he had constructive talks on trade with U.S. President Donald Trump in New York on Sunday ahead of the second round of trade dialogues between the two countries this week.

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Prime Minister of Japan Shinz Abe, and U.S. President Donald Trump hold a joint press conference in the Rose Garden at the White House in Washington D.C. on June 7, 2018.  NurPhoto via Getty Images

He told reporters in New York that they spoke about trade and investment and reaffirmed their commitment to denuclearize the Korean Peninsula.

“I will continue discussions on trade with him in our summit after economy minister Motegi and U.S. Trade Representative Robert Lighthizer meeting,” Abe told reporters in a media briefing broadcast on Japan’s NHK.

Abe and Trump will hold a summit meeting on Wednesday on the sidelines of a United Nations General Assembly meeting in New York, Japan’s top government spokesman said on Friday.

To lay the groundwork for the summit, top trade negotiators of the two countries – Japanese Economy Minister Toshimitsu Motegi and U.S. Trade Representative Robert Lighthizer – will hold their second round of trade talks on Monday.

Trump had tweeted: “Going to New York. Will be with Prime Minister Abe of Japan tonight, talking Military and Trade. We have done much to help Japan, would like to see more of a reciprocal relationship. It will all work out!”

Abe said the U.S. and Japan would remain in close touch on North Korea and that he had relayed to Trump a message from families of Japanese abducted decades ago by North Korea.

Reporting by Ayai Tomisawa; Editing by Sam Holmes

Reuters

China Says No Talks Under Tariff Threat as Trump Threatens More

September 24, 2018

China said talks to resolve the impasse over trade with the U.S. can’t happen as long as President Donald Trump keeps threatening to impose further tariffs.

Related image
An A.P. Moller-Maersk container ship and a Hapag-Lloyd container ship at the Yangshan Deep Water Port in Shanghai. Bloomberg photo by Qilai Shen.

Just over an hour after the Trump administration imposed further duties on another $200 billion in Chinese goods on Monday, Beijing published a document reiterating its position in the standoff. Talks scheduled for this week were cancelled as the imposition of fresh tariffs by Washington neared.

“The door for trade talks is always open but negotiations must be held in an environment of mutual respect,” according to the white paper carried by the state-run Xinhua News Agency. Negotiations “cannot be carried out under the threat of tariffs.”

The latest round of U.S. duties took effect just after midnight Washington time on Monday (midday in Beijing) on a list of products ranging from frozen meat to television components. China is poised to retaliate with tariffs on $60 billion in U.S. goods, a move that Trump has said would spur new duties on another $267 billion in Chinese imports.

In announcing the rates for the retaliatory duties last week, the government in Beijing said the tariffs would be effective as of 12:01 p.m. local time on Sept. 24. As Monday is a public holiday in Beijing, no official confirmation of that has yet been given.

If the president follows through on the escalation threat, U.S. tariffs would cover all goods the nation imported from China last year. The conflict risks descending into a war of attrition that economists warn could undermine the global economy and upend the supply chains of multinational companies.

China on Saturday called off planned trade talks with U.S. officials amid the escalation. The U.S. State Department’s sanctions against China’s defense agency and its director on Thursday contributed to the decision, according to people familiar with the situation. There’s a growing consensus in Beijing that substantive talks will only be possible after U.S. mid-term elections in November, the people said.

Even as both sides slap fresh levies on each others’ products, they have peppered statements with offers to talk.

“President Trump has an excellent relationship with President Xi and our teams have been in frequent communication since President Trump took office,” Lindsay Walters, deputy White House press secretary, said in an emailed statement. “We remain open to continuing discussions with China, but China must meaningfully engage on the unfair trading practices.”

Neither side has backed down since the tit-for-tat tariff war began in July, when the U.S. imposed duties on $34 billion of Chinese goods. The Trump administration imposed a further $16 billion in August. China retaliated in kind to both moves.

Efforts at diplomacy have failed, with no breakthroughs since high-level talks began in May. And things are set to get worse: the 10 percent tariffs on $200 billion in Chinese goods will rise to 25 percent in January if Beijing refuses to offer concessions.

Companies complain that the time frame between announcement of the latest levies and implementation of the tariffs on thousands of products is too short. A protracted trade war will fuel inflation in the U.S., particularly as tariffs are added to categories such as furniture, apparel and technology, according to analysts at Bloomberg Intelligence.

Here’s Where Tariffs on $260 Billion of Goods Are Biting in U.S.

“Retailers are already facing a tidal wave of tariffs. This latest tranche is a tsunami,” said Hun Quach, vice president of international trade for the Retail Industry Leaders Association. “With thousands of consumer products included, little warning, and no time to prepare, businesses are left scrambling.”

Beijing’s plans for tariffs on $60 billion of U.S. goods that are also set to take effect Monday include an additional 5 percent duty on about 1,600 kinds of U.S. products including computers and textiles and an extra 10 percent on more than 3,500 items including chemicals, meat, wheat, wine and liquefied natural gas.

Administration officials have repeatedly warned that the president is serious about his pledge to re-balance the trading relationship and that Chinese retaliation will only lead to further U.S. duties.

Asked last week if Beijing’s planned retaliation was a guarantee that Trump would go ahead with the next round of duties, White House trade adviser Peter Navarro said on NPR’s Morning Edition that “the president was crystal clear in his statement: if China retaliates, the process will move forward on the additional amount.”

Edward Alden, senior fellow at the Council on Foreign Relations, said there was a chance the trade war could spiral out of control but that there is “a window for serious negotiation.”

“The Trump administration must get its position straight though — what does it want from China, and who is empowered as a negotiator by President Trump to bring the deal home? Unless that happens, serious negotiations will be impossible and the likelihood of continued escalation increases,” Alden said.

Amid the onset of economic damage for both economies, state newspaper China Daily reached into the U.S. heartland in an advertising supplement in Iowa’s largest newspaper to highlight the impact on the state’s soybean farmers as “the fruit of a president’s folly.’’

The four-page section in Sunday’s Des Moines Register, which carried the label “paid for and prepared solely by China Daily, an official publication of the People’s Republic of China,” featured articles including one outlining how the trade dispute is forcing Chinese importers to turn to South America instead of the U.S. for soybeans.

Bloomberg

 Updated on 

https://www.bloomberg.com/news/articles/2018-09-24/trump-imposes-next-batch-of-china-tariffs-as-trade-war-escalates

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US, China impose fresh tariffs with no trade talks in sight — China has warned of “qualitative” measures to retaliate

September 24, 2018

The US and China imposed fresh tariffs on each other’s goods on Monday, as the world’s biggest economies showed no signs of backing down from an increasing bitter trade dispute that has rattled financial markets.

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US tariffs on $200 billion worth of Chinese goods and retaliatory tariffs by Beijing on $60 billion worth of US products took effect as of 0401 GMT.

US tariffs on $200 billion worth of Chinese goods and retaliatory tariffs by Beijing on $60 billion worth of US products took effect on Monday. (AP)

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The two countries have already slapped tariffs on $50 billion worth of each other’s goods earlier this year.

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Chinese products hit with new US duties include vacuum cleaners to Internet-connected devices, while US goods targeted by Beijing include liquefied natural gas and certain types of aircraft.

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China’s state council will publish a white paper at 1 pm local time (0500 GMT) on the trade frictions with the US, the official Xinhua news agency reported, without giving further details.

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Though a senior White House official last week said the US will continue to engage China for a “positive way forward,” neither side has signaled willingness to compromise.

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The US official said on Friday there was no date set for the next round of talks. The Wall Street Journal reported that China, which has accused Washington of being insincere in trade negotiations, has decided not to send Vice Premier Liu He to Washington this week.

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Economists warn that a protracted dispute will eventually stunt growth not just in the US and China but across the broader global economy.

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The trade tensions have also cast a pall over broader relations between Beijing and Washington, with the two sides butting heads on a growing number of issues.

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China summoned the US ambassador in Beijing and postponed joint military talks in protest against a US decision to sanction a Chinese military agency and its director for buying Russian fighter jets and a surface-to-air missile system.

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Trade talks in Washington last month produced no meaningful progress.

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Rob Carnell, chief Asia economist at ING, said in a note to clients that in the absence of any incentives Beijing would likely hold off on any further negotiations for now.

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“It would look weak both to the US and at home,” he said, adding that there is “sufficient stimulus in the pipeline” to limit the damage of the latest tariffs on China’s growth.

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“The US-China trade war has no clear end in sight.”

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China may also be waiting for US mid-term elections early next month for any hints of changes in Washington’s policy stance, Carnell added.

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“With generic polls favoring the Democrats, they may feel that the trade environment will be less hostile after November 6.”

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The US administration will levy tariffs of 10 percent on the $200 billion of Chinese products, with the tariffs to go up to 25 percent by the end of 2018.

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Beijing set its new levies on $60 billion of US goods at 5 and 10 percent and warned it would respond to any rise in US tariffs on Chinese products accordingly.

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US President Donald Trump on Saturday reiterated a threat to impose further tariffs on Chinese goods should Beijing retaliate, in line with his previous comments signaling that Washington may move to impose tariffs on virtually all imported Chinese goods if the administration does not get its way.

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China imports far less from the US, making a dollar-for-dollar match on any new US tariffs impossible.

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Instead, it has warned of “qualitative” measures to retaliate.

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Though Beijing has not revealed what such steps might be, business executives and analysts say China could withhold exports of certain products to the US or create more administrative red tape for American companies.

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Some analysts say there is also a risk that China could allow its yuan currency to weaken again to cushion the blow to its exporters.

Reuters

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US-China trade worries damp mood in Asia — Chinese authorities awaiting the result of the US midterm elections

September 24, 2018

Regional markets including Japan and China shut for public holiday

Image may contain: sky, outdoor and water

Alice Woodhouse in Hong Kong
Monday 03:15 BST

Hong Kong stocks fell and the Australian dollar slipped after China rejected US calls for trade talks, while markets in mainland China, Japan, South Korea and Taiwan were shut for public holidays.

China at the weekend declined an invitation to explore a fifth round of trade talks with the US, after President Donald Trump last week imposed a 10 per cent tariff on about $200bn of Chinese imports starting from Monday, further souring relations with Beijing. A visit by Wang Shouwen, China’s vice-commerce minister to Washington to explore talks between Liu He, China’s vice-premier, and Steven Mnuchin, the US Treasury secretary, planned for the end of last week was also shelved following the tariffs announcement.

Robert Carnell, an ING economist, suggested Chinese authorities were awaiting the result of the US midterm elections. “With generic polls favouring the Democrats, they may feel that the trade environment will be less hostile after November 6,” he said, adding: “In my view, this is far from certain. A poor result for President Trump at the midterms might instead encourage him to double-up a policy that has up to now won him some votes.”

Hong Kong stocks shed 1.3 per cent, with financial stocks down 1.4 per cent and the technology sector sliding 2.4 per cent. The Hang Seng China Enterprises index of major Chinese companies listed in Hong Kong was down 1.9 per cent.

In Australia, the S&P/ASX200 slipped 0.1 per cent as the basic materials sector and financials both declined 0.2 per cent.

Forex

Trade worries weighed on the Australian dollar, which was seen as vulnerable to the US-China trade war, with the currency weakening 0.3 per cent to $0.727 per US dollar.

The offshore Chinese renminbi rate was 0.3 per cent weaker at Rmb6.866 to the dollar, while its onshore counterpart was not trading.

The dollar index, a measure of the greenback against a basket of currencies, nudged up 0.1 per cent. The Japanese yen was flat at ¥112.58 per dollar.

The UK pound was unchanged at $1.3076 following its biggest one-day drop against the dollar in more than a year on Friday after Prime Minister Theresa May called on the EU to shift its position or risk a complete breakdown in Brexit negotiations. The euro was hovering at $1.1746.

Neither US Treasuries nor Japanese government bonds were trading due to the holiday in Tokyo.

Commodities

Oil prices climbed, with Brent crude up 1.2 per cent at $79.74 a barrel and West Texas Intermediate rising 1.1 per cent to $71.52 a barrel.The world’s largest oil producers on Sunday decided against an additional rise in output, despite calls from President Trump last week for Opec to “get prices down now”. Mr Trump urged the oil cartel to ramp up production to offset the effects of new sanctions on Iran.

Gold was down $2 at $1,197 an ounce.

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Asian Markets Down Monday on New Trade Worries After Beijing Pulls Out of Planned Talks

September 24, 2018

Hong Kong led a sell-off in Asian markets during holiday-thinned business Monday as trade tensions burst back on the scene with China and the US preparing to impose fresh tariffs and reports saying Beijing has pulled out of planned talks.

The recent optimism in the US economy that saw equities rack up healthy gains over the past two weeks was replaced by fresh concerns about the impact of a standoff between the world’s top two economies.

Hong Kong bore the brunt of the selling, giving up more than one percent, while Sydney fell 0.1 percent and Wellington shed 0.6 percent.

However, volumes were low with Tokyo, Shanghai, Seoul and Taipei all closed for public holidays.

Media reports said Chinese officials had called off a trip to the US for fresh talks on averting an all-out trade war and the two sides were unlikely to meet up before the US mid-term elections in November.

The news comes as Washington prepares to impose 10 percent duties on another $200 billion of Chinese goods Monday, with China lining up $60 billion of imports in retaliation.

While the measures are a significant step up in the row — the US will be taxing about half the goods it imports from China once the new tariffs are imposed — traders took the low rates as a sign they could reach a deal eventually.

However, uncertainty is dogging trading floors.

© AFP | Donald Trump has lined up almost all China’s exports to the United States for tariffs

“Make no mistake, this will be a bumpy ride and don’t underestimate the possibility of the US announcing reviews of further China tariffs at some point in time given the Trump administration ‘modus operandi’ of applying non-stop pressure,” said Stephen Innes, head of Asia-Pacific trading at OANDA.

On currency markets the pound struggled to recover after suffering deep losses Friday after British Prime Minister Theresa May’s Brexit plan was brushed off by EU officials and she said talks were “at an impasse”.

The dollar also rose against most emerging market and high-yielding units after they enjoyed a much-needed boost last week. The South Korean won, Indonesian rupiah, South African rand and Mexican peso were down between 0.2 and 0.4 percent.

Oil surged more than one percent after the world’s top producers decided to maintain output during a meeting in Algeria at the weekend, in an apparent rebuff to pressure from Donald Trump to lower prices.

A committee comprised of OPEC and non-OPEC producers said it was satisfied with the current market outlook, which represented “an overall healthy balance between supply and demand”.

– Key figures around 0230 GMT –

Hong Kong – Hang Seng: DOWN 1.1 percent at 27,644.83

Tokyo – Nikkei 225: Closed for a holiday

Shanghai – Composite: Closed for a holiday

Euro/dollar: DOWN at $1.1745 from $1.1752 at 2040 GMT on Friday

Pound/dollar: DOWN at $1.3077 from $1.3085

Dollar/yen: UP at 112.60 yen from 112.58 yen

Oil – West Texas Intermediate: UP 76 cents at $71.54 per barrel

Oil – Brent Crude: UP 94 cents at $79.74 per barrel

New York – Dow Jones: UP 0.3 percent at 26,743.50 (close)

London – FTSE 100: UP 1.7 percent at 7,490.23 (close)

AFP

Pompeo on China trade war: ‘We are going to win’

September 23, 2018

Secretary of State Mike Pompeo vowed that the United States would emerge victorious in an intensifying trade war with China, a day before Washington imposes $200 billion worth of tariffs.

“We are going to win it,” Pompeo said in an interview on Fox News broadcast Sunday.

© AFP/File | US Secretary of State Mike Pompeo said that President Donald Trump “very much likes” his Chinese counterpart Xi Jinping but said he would press policies that “the American workers deserve”

“We’re going to get an outcome which forces China to behave in a way that if you want to be a power — a global power — transparency, rule of law, you don’t steal intellectual property,” he said.

Pompeo said that President Donald Trump “very much likes” his Chinese counterpart Xi Jinping but said he would press policies that “the American workers deserve.”

Even before Trump’s election, the United States has complained vigorously that China has been unfair to US businesses and has stolen technology by forcing firms to reveal secrets as a condition to operate in the fast-growing Asian economy.

But Trump has taken an increasingly hard line on trade around the world, with $200 billion in tariffs on Chinese exports set to take effect on Monday.

China has retaliated by hitting $60 billion in US products and the world’s two largest economies have already imposed tariffs of $50 billion on each other.

In a first, the Trump administration has also punished a unit of China’s defense ministry for buying fighter jets and missiles from Russia in defiance of sanctions on Moscow.

AFP

China’s relentless export machine moves up the value chain

September 23, 2018

The country’s move into mid-range manufacturing stands it in good stead as the trade war with the US intensifies
 
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By Tom Hancock in Shanghai 


At Sany Group’s factory on the outskirts of Shanghai, there is little sign of a trade war involving the world’s two biggest economies.

With 500 workers and 200 robots welding and screwing steel parts into place, the facility can produce up to 50 excavators every day, each weighing 20 tonnes. Outside 200 yellow diggers wait to be transported to a port 30 minutes’ drive away, their hydraulic arms covered in blue fabric sleeves to prevent rusting in the salty sea air.

One of China’s biggest manufacturers of heavy equipment, Sany exports more than 40 per cent of the factory’s production — worth a total of $1.2bn last year, mainly to emerging markets in Asia and Latin America. The group shows no signs of slowing down: Sany aims to increase international sales by 30 per cent this year.

 
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Sany factory

The success of companies such as Sany is part of the relentless march of China’s export sector, even as tariffs and counter-tariffs between the US and China cast a shadow over the global trading system.

In the decade since the financial crisis, China’s export sector has proved remarkably resilient. After overtaking Germany as the world’s top exporter of goods in 2009, Chinese exports have grown at an average of 5 per cent a year, compared with annual global export growth below 2 per cent.

China’s share of manufacturing exports expanded from 12 to 18 per cent during the past decade — adding to gains made after China’s 2001 entry to the WTO which accelerated the decline of manufacturing employment in developed countries. One study from the US National Bureau of Economic Research blamed Chinese imports for 2m-2.4m US job losses in the decade to 2012.

Sany’s booming sales also reveal something important about the trade war and the competition between the US and China. Officials in President Donald Trump’s administration have focused on Chinese advances in high-tech areas such as artificial intelligence and robotics to justify their use of tariffs.

Yet in the short term, the bigger threat to industry in the US and other developed economies comes from the rapid increase in Chinese exports of medium-level technology, such as vehicles and their parts, electrical machinery and the sort of construction machinery that Sany produces. It is in products such as these — rather than high-tech goods — that Chinese companies are swiftly winning market share.

“Chinese companies are abandoning low-end goods to move to middle-range goods, its actually a very fast change,” says Xu Bin, a professor at the China Europe International Business School. “I estimate the net effect of US tariffs will be such that it speeds up the upgrading. Chinese companies may be forced to upgrade their product line in order to offset the negative effects.”

China is the now dominant producer in medium high-tech industries, with its global share nearly tripling in the past decade to 32 per cent, according to the US National Science Board, surpassing the US in the late 2000s and the EU this decade.

Most of that growth has come from privately owned Chinese companies such as Sany. China’s share of global bulldozer exports has grown to nearly 10 per cent from just 2 per cent a decade ago, and the company is taking on Japan’s Komatsu in global markets.

“Sany’s product quality and performance has reached Japan’s, and our service is even better than theirs, so we are very competitive in south-east Asian countries,” says Zhou Wanchun, head of overseas sales. “The price of excavators is higher than Korean products, so we are not just competing on price.”

Image result for bulldozers, Sany, Photos

Its fortunes highlight another trend — the share of Chinese exports going to countries outside the OECD club of developed economies has risen from 43 to 48 per cent over the past decade.

Sany also reflects that much of China’s move up the value chain has been in capital goods — goods used to make other goods — and components, rather than consumer products. Its share of global exports in electrical transformers and their components, which are crucial to power grids, has doubled to 20 per cent in the past decade.

JDMachine in the eastern city of Ningbo exports machines used to make air-conditioning units for cars to auto parts makers in Europe and the US, generating more than $100m in foreign sales last year. It entered the market a decade ago after taking on the staff of a British company that had gone bust.

The industry began moving to China after the financial crisis, says Mark Forster, an executive at JDMachine. “Technologically, the machines are better than those we used to make in the UK,” he adds.

 
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A TCL factory in Huizhou, Guangdong province. Chinese white goods producers have increased their market share overseas and exported a combined $15bn-worth of consumer electronics in 2016 © Bloomberg


The shift by Chinese companies into more sophisticated capital goods has altered trade between China and developed countries. Over the past decade, telecommunications and transportation equipment and auto parts have grown as a proportion of China’s exports to the US, while the share of textiles and footwear has shrunk. China’s share of the global capital goods market rose from about 5 per cent to 20 per cent between 2007 and 2016, according to the World Bank.

Consumer goods have played a role, too. Chinese white goods producers such as Midea, TCL and Hisense have increased their market share overseas and exported a combined $15bn-worth of consumer electronics in 2016, according to Chinese customs.

Some economists see the rise up the value chain as a near inevitable result of competition. “Once an economy gets to produce electric generators, say, or motor vehicles, labour productivity in that industry is placed on an automatic upward trajectory,” according to Harvard economist Dani Rodrik. The trick is to get a toehold in these automatic convergence industries and to expand domestic employment in them.”

Average wages in China’s manufacturing sector have more than tripled in the past decade, putting them above Brazil and Mexico and forcing companies to increase productivity.

Rather than groundbreaking innovations, Chinese companies have become adept at incremental improvements. According to Dan Breznitz, an innovation researcher at the University of Toronto, they are good at making “new versions, often simpler, cheaper and more efficient, of technologies and products . . . after they are invented and marketed elsewhere.”

China’s investment boom after the financial crisis enabled producers of industrial goods to hugely expand domestic production, increasing economies of scale. Manufacturers have upgraded through acquisitions of foreign technology. Sany acquired German concrete pumpmaker Putzmeister for €360m in 2012. Multibillion-dollar deals for western manufacturers include Midea’s €4.5bn deal for German robot-maker Kuka the same year.

There has also been technology transfer by developed-world companies — and technology theft. About 20 per cent of US companies say they have been asked to transfer technology to China — often when they set up joint ventures in the country, according to a US-China business council survey last year. Several of China’s top exporters have faced lawsuits over patent violations.

Multinationals have also played a big role in the growing sophistication of China’s exports. About 43 per cent of China’s exports came from foreign-invested companies last year, according to official statistics. The figures are higher for high-tech products such as laptops and smartphones, and for large companies. Thirteen of China’s top 20 exporting companies are foreign-owned, according to Chinese customs.

Much of China’s export upgrade has come from multinationals deepening supply chains in China. Companies such as General Electric, chemicals maker BASF and US conglomerate Honeywell have opened more sophisticated plants in China in the past decade, sometimes at the expense of jobs in the US.

Presidents Xi Jinping and Donald Trump © AP

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The companies were often motivated by China’s domestic market, which has been the fastest-growing for chemicals and heavy equipment over the past decade. But such plants often turned into export bases. “Any large US conglomerate will have a substantial presence in China . . . and if you have a Chinese machine, why not export it,” says Jonathan Woetzel, director of the McKinsey Global Institute.

In the past, one of the consolations of China’s export machine was the huge volume of components made in developed economies that it required. China was a final-assembly point for components made elsewhere, known as the “processing” trade.

However, that trade has fallen as a share of Chinese exports, from about 46 per cent a decade ago to 35 per cent today. The domestic content of China’s exports has risen from about 60 per cent a decade ago to about 80 per cent, according to Chinese estimates. Panels for flatscreen TVs, largely imported a decade ago, are now made in China.

Apple is an example. Its China-based suppliers have more than doubled over the past five years to 19 companies in 2017, up from only seven in 2012. If Hong Kong-based suppliers are added, the total rises to 28. They include Goertek, a company which began to supply audio parts for the iPhone in 2014 and has increased its share at the expense of US company Knowles.

As China makes more advanced products, it often needs to import the components and the capital goods to make them — China’s imports from Germany nearly doubled in the past decade.

Yet the effect could fade. “If China is adding new, import-intensive sectors at a rapid rate, this could keep the import ratio high for a number of years; but it could then fall quickly once Chinese firms master the component techniques,” note Arthur Kroeber and Dan Wang at Gavekal, a consultancy.

Moving up the chain

 
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© AFP


43%
Chinese exports which came from foreign-invested companies last year, according to official statistics

20%
China’s share of exports in electrical transformers and their components, a doubling in the past decade

48%
Share of Chinese exports going to countries outside the OECD club of developed economies, up 5 per cent over the past decade

Probably the most threatened by China’s move into mid-tech sectors are China’s east Asian neighbours. In the decade up to the financial crisis, a triangular trade arose, with Japan, South Korea and Taiwan running large surpluses exporting components to China,

But China’s trade deficit with those countries began to shrink in 2013, as China produced more of what it used to import. “It’s a big question facing the region. South Korea is the one which feels the most threatened,” says Yukon Huang of the Carnegie Endowment for International Peace.

Even Germany, which has a much smaller deficit than the US with China because of its strong machinery exports, is feeling the pressure. Hermann Simon, a consultant specialising in “hidden champions” who dominate niche sectors. “I see the Chinese as the most serious competitors of the German hidden champions,” he says. “The competition is mostly in machinery, household appliances or metalworking products”.

 
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Despite its growing prominence in medium-level tech goods, the one relief for western countries is that China remains far from the forefront in high-tech manufacturing. Indeed, it is barely a presence in export markets for computer chips, diesel engines and passenger vehicles. Where it does compete, Chinese exports still often challenge on price but at slightly lower quality.

“Chinese companies are upgrading into mid-range goods but still rely on a price advantage to provide products which are welcome in developing economies,” says Prof Xu. “It’s a lower-end version of German and Japanese goods.”

Additional reporting by Wang Xueqiao

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The end of flying geese? Why the low-value factory base keeps ticking over

 
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Workers sew clothes for Adidas at the Shengyuan clothing factory in Suzhou, Jiangsu province © EPA


China’s development model has often been compared to its east Asian neighbours. As exporters in those countries moved to higher technology sectors and wages rose, they shed labour-intensive exports such as clothing, passing them on to neighbouring countries.

This trade pattern, named “flying geese” by Japanese economists, has to some degree held true for China. The share of textiles in its overall exports has stayed steady for the past decade, but the mix has changed from more labour-intensive apparel to capital-intensive cloth, exported largely to garment makers in south-east Asia.

Pou Chen, the world’s top contract footwear maker, made 17 per cent of its 325m pairs of footwear in China last year, down from 29 per cent in 2014, while 46 per cent of its production is now in Vietnam. Vietnam now accounts for 44 per cent of Adidas footwear last year, compared with 19 per cent in China.

But while China’s share of the global apparel trade peaked in 2015, it is still the biggest apparel exporter with 33 per cent. It also still has large shares in labour-intensive toys and furniture.

China’s ability to retain low-end exports — contrasting with its east Asian peers — may reflect “its larger labour pool, greater economies of scale and stickier supply-chain clusters,” says Mr Kroeber and Mr Wang at Gavekal.

“It is remarkable that China has remained competitive in labour-intensive production for so long,” said a 2016 IMF report. “It may be that the extreme efficiencies, network effects and other factors associated with exporting from China’s coastal provinces have caused the “geese” to stop flying”.

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