A panel of economic scholars voiced their opinions on the escalating trade conflict between the United States and China during a roundtable discussion at the 2018 North America Conference of the Chinese Economists Society, hosted at the Terry College of Business.
While the countries have a complicated history of trade deals and tariffs, the current situation is being handled in new ways, which has led to erraticism that can unnerve investors, the panelists said.
“We’ve had a lot of anti-China backlash over time. It goes hot and cold, and right now we’re in a situation where we have two political systems not talking to each other, which creates a lot of uncertainty,” said Penelope Prime, director of the China Research Center at Georgia State University.
The CES North America Conference was held April 5-7, and hosted about 200 visiting scholars on the UGA campus. It was sponsored by Terry’s James C. Bonbright Center for the Study of Regulation, the College of Public Health and the School for Public and International Affairs.
Enacting new tariffs may have much larger economic impacts than policymakers realize, said Andrew Feltenstein, a professor of economics at Georgia State University’s Andrew Young School of Policy Studies.
“If you look at most trade studies, they use the Armington Assumption, that goods are distinguished by physical characteristics and place of origin. You have not just cars, but German cars or Japanese cars. I would argue those are not perfect substitutes,” Feltenstein said. [However in this case] the things being taxed, like soybeans, pork and tofu, those areperfect substitutes. China will substitute Brazilian soy for U.S. soy. So there are perfect substitutes, but our trade models are still operating like they’re not.
“Right now, there’s still a question of whether these proposed tariffs are real policies or just a negotiating position,” he said. “Let’s say they’re real. I’m betting the changes they bring are really big, and big in ways we’re not anticipating.”
While the public rhetoric may revolve around fairness and trade, the real concern is financial policy, said Jack W. Hou, professor of economics at California State University, Long Beach.
“Trump is talking about the trade deficit, but he’s not really talking about the trade deficit. His targets are intellectual property rights and the financial sector,” Hou said. “China has not kept its word in opening up the financial sector. If you go to any major city in China, you see foreign banks, but their business is extremely limited. No credit cards, no this, no that. All these foreign banks are waiting there to get their hands on this big pie: the huge savings in China.
“Why does China have real estate bubbles? Why do we have periodic financial market collapses? Because China has huge savings and very little investment channels,” he said. “So whenever something shows promise, the hoarding effect is tremendous.”
While the consequences of the trade war could be monumental, the panelists pointed out that much of the political rhetoric is overly bombastic and should not be taken seriously.
“There have been promises about certain kinds of jobs coming back to the U.S. They won’t. Even if jobs come back, they will be more skilled and more automated, and I don’t know what extent the administration is taking this into account,” said Ginger Zhe Jin, professor of economics at the University of Maryland and former director of the U.S. Federal Trade Commission Bureau of Economics. “You have [Taiwanese electronics giant] Foxconn promising to bring jobs, but the kind of jobs coming back are not going to be the same kind of blue-collar jobs that left.”
If politics and not policies are driving the tensions, that could mean a much faster resolution to the conflict, Prime said.
“The midterm elections are really important here,” she said. “And by just imposing the tariffs that have already been imposed, I think Trump’s accomplished his purpose and he’ll be on to something else soon.”
The Chinese Economists Society is a nonprofit academic organization focused on the advancement and dissemination of economics and management sciences in China. Each year, the conference brings together close to 200 prominent health, economics and data science researchers from the U.S. and China for seminars, roundtables and workshops centered on scholarly exchange and professional development.