In the world of global trade, the struggle for power continues to unfold. Recently, Janet Yellen, the former chair of the Federal Reserve, paid a visit to China with a clear agenda – to accuse China of excess capacity, particularly in areas such as electric cars and solar panels. These industries are seen as weak spots for the United States and Europe, either lacking price competitiveness or being monopolized by China due to their possession of key patents.
It’s important to note that these accusations of “dumping” by China are not new, but they have persisted for several years. In the past, when the U.S. and Europe were grappling with high inflation, they turned a blind eye to China’s low-priced dumping, as it helped alleviate inflationary pressures. However, as inflation has eased and national elections approach, the threat to local manufacturing has become more apparent.
While the U.S. auto industry only accounts for about 1 percent of total employment, it contributes over 3 percent to the country’s GDP. This demonstrates the significance of the industry and the potential impact of China’s dumping practices on the U.S. economy.
To truly understand the overall impact of dumping, it is necessary to look at macro-level data. Merely examining trade value or deflated trade volume is insufficient. Even comparing year-over-year changes does not provide a comprehensive picture, as many macro variables within a country tend to move together. One way to identify key differences across countries is by comparing ratios.
In this case, we can compare the ratio of U.S. exports to China to U.S. total exports, and the ratio of U.S. imports from China to U.S. total imports. The chart accompanying the article displays these two series in blue and red, respectively, with the difference between the two ratios shown in green.
This ratio reveals how important China is to the U.S. The data shows that while the U.S. has been exporting a stable share to China over time, the import share has experienced a significant shift between 2015 and 2018. Extrapolating this difference, it is expected that the gap will close in two years, resulting in a roughly balanced U.S.-China trade relationship. This contradicts the notion of dumping, as the U.S. has been buying less from China rather than more.
It becomes evident that the dumping argument is merely an excuse to suppress China’s exports. In the capitalist world, those with economic power often dictate the rules of the game. If China does not retreat, it may face sanctions or tariffs, and the outcome could be even more detrimental. The writing is on the wall – the loser in this struggle for power has been predetermined.
The continued struggle for power in global trade is not a new phenomenon. Countries like China and the U.S. are constantly vying for dominance, employing various tactics such as accusations of dumping to gain an upper hand. As we move forward, it will be crucial to closely monitor the developments in this ongoing battle, as they will undoubtedly shape the future of global trade relations.
