Both Sides Would Lose a U.S.-China Trade War
The largest market in the world is open for business. Will America forfeit this opportunity?
The U.S. has a structural trade deficit with China because of the market forces of comparative advantage: Economies produce what they are best at making and import other things. Dollars earned from trade surpluses in China have been recycled to finance American borrowing, keeping U.S. interest rates low with favorable economic conditions. American unemployment stood at 4.1% in March, a 17-year low. All these economic indicators suggest that the U.S. economy is doing well, regardless of the trade deficit.
American economic policy for the past 30 years encouraged U.S. companies to outsource labor-intensive manufacturing to China and other Asian countries while retaining the most valuable parts of American ingenuity: innovation, technology and brand.
China embraced this American-led globalization because it was also the best path for China’s development as an emerging economy. To raise living standards for 1.3 billion people, the Chinese government promoted foreign investment and built the economy on the strength of its large and increasingly skilled labor force. As a result, China became the world’s largest exporter, with a significant trade surplus. American consumers benefited from low prices and American corporations made giant profits.
There’s no better example of a beneficiary of this symbiotic relationship than Apple . The company designs the iPhone and develops proprietary chips and software in California. It makes the units through contractors that hire millions of workers in China, assembling components manufactured in South Korea. Through smart marketing, Apple products capture consumers’ hearts, making its brand more valuable.
While countries like South Korea and China collect revenue from selling components and assembling the final product, Americans make almost all of the profits. Apple’s $48 billion of profits in fiscal 2017 will not make it into the balance-of-trade calculation.
Under a symbiotic U.S.-China relationship, America became a pre-eminent technology leader, and its brands are today the envy of the world. China improved the standard of living of its citizens with a tenfold increase in per capita gross domestic product over the past 20 years
But U.S.-China trade relations in the next 20 years will look very different from the past two decades. The benefits of globalization since joining the World Trade Organization in 2001 have opened China’s mind to the idea of open markets.
China is shifting its economy from the world’s largest exporter to the world’s largest consumer. Chinese citizens now have the wealth and income to pursue discretionary spending. They want to buy high-quality imported food, cosmetics, fashions, and health and wellness products for themselves and their children.
With average urban income growing at almost double digits and an emerging middle class of 300 million, Chinese consumers are already driving massive demand for imports from all over the world. Last year, President Xi Jinping said at the World Economic Forum that over the coming five years, China will import $8 trillion of goods.
It is therefore ironic that the U.S. administration is waging a trade war at a time when the largest potential consumer market in the world is open for business. Is America going to forfeit this opportunity?
Instigating a trade war is the wrong solution because it will only provoke retaliation. The Chinese government responded to U.S. tariff threats with its own tariffs on American agricultural products such as soybeans. China is the largest export market for American soybeans, worth $14 billion annually and accounting for 65% of all U.S. soybean exports.
The U.S. has been a consistent defender of free and open markets, but this time it is resorting to protectionism that will not improve American competitiveness. Any country seeking to increase exports would do better to focus on developing good products and channels to access foreign markets rather than putting up trade barriers.
At the heart of Alibaba’s mission—to make it easy to do business anywhere—is our support for small businesses. A vibrant small-business sector is good for any economy, because small businesses create jobs.
This trade war will hurt millions of American small businesses and farmers. I feel for these men and women, because I met many of them when I toured the U.S. last year to host our “Gateway” trade showcase in Detroit.
Small-business owners and farmers traveled from all over the country to learn how Alibaba could connect them to the massive Chinese consumer market. Those attending Gateway saw what the future could hold for their business. I saw the entrepreneurial gleam in their eyes.
Through our digital-commerce platforms, where more than 500 million Chinese consumers shop, Alibaba will continue to help American small businesses and farmers access the China market.
If we encounter trade barriers, we will have to work harder. While we may face setbacks in the current protectionist environment, I remain confident and look forward to the next 20 years.
Mr. Ma is executive chairman of Alibaba Group.
There are 37 comments.
I would like nothing more than to have fair trade between China and the US. Problem I have is the massive trade deficit the US absorbs annually. I have no problem with China growing and making a profit. But there needs to be a balance. I believe last year's trade deficit was $385 billion. Every time I shop at Walmart, Target, Home Depot, or Loews a majority of the products are made in China. So I can see why the trade deficit is so high. I would like more of the products sold in the stores mentioned be US made.
But, US companies should be able to sell their goods/services freely. No roadblocks with forced technology sharing, unequal tariffs (e.g. cars 2% for Chinese cars to US / 20%+ for US cars to China), required Chinese partners, different set of rules (e.g. safety, red tape).
I am all for free trade. If China can sell a trillion dollars worth or more of goods/services to the US then good for them. US companies should be able to sell freely as much to Chinese consumers and businesses.
This author is recalling the Ricardo thesis on free trade. But he ignores the reality of "dumping " a product to achieve an unfair advantage. In such a case it is no longer free trade. Thus our iron and steel industry has shrunk and thousands of steel workers are out of work. By the way in all honesty technology does the same thing . I don't call the results trade wars, I call them economic realities.
Of course both sides would lose, but China would lose far more than the US would, because it would lose what until now has been free technology transfer from the US, via coercion in market-access deals, and outright IP theft.
This whole issue can and will go away if CHINA stops playing one-sided Third-World games with market access restrictions and IP theft. THAT is the great opportunity in this situation. Play fair, and things will settle down.
So how do I know if this is a genuine article or not? Forbes says this cat is the largest purveyor of counterfeit goods in the solar system?
The person that thought publishing this piece was a good idea should be kicking a pop can down Wall Street about now, muttering, " but it wasn't really my idea.... I just took credit for it, sniff"
"... The benefits of globalization since joining the World Trade Organization in 2001 have opened China’s mind to the idea of open markets...."
...as long as said markets are outside of China.
and
"...Chinese citizens now have the wealth and income to pursue discretionary spending...."
...which may lead to another revolution if taken away from them following lack of jobs and income due to inability to sell the products.
Why in the world do people think that pushing for a trade agreement which treats both parties fairly would lead to a trade war is beyond me. I wonder if anyone realizes that Apple manufacturers almost ALL of it's iPhone's in China, while China implements a 25% import tax on ALL luxury cars made outside of China. So why doesn't the US implement tariffs on assembled iphones entering our country. Now that sounds like something CEO Cook would support, now doesn't it.
On balance I dislike Trump but on the China issue he and his people are spot on. And scoring points, the proof is Xi's speech yesterday and now this Ma self-serving opinion: the top Chinese start being very agitated.
This is pure non-sense! This man/author is simply working his own "book". China cheats in trade and DOES steal technology. Their status in the WTO must be changed from"emerging economy" to "developed economy" - and that is just for starters!!
Yo, Ma-ma.
There are probably compelling arguments in support of any relationship, including the wife who stays with her husband, even though he regularly tees off on her with a golf club. Hey: He's paying the bills, right??
China helps pay US bills, no question, but China is like the neighborhood protection racket that steals from store-owners, buys cooperative judges and breaks every law in the book. In the darkened shadows of the Chinese, millions of slaves live in smog-dimmed poverty.
While Party members' kids drive Ferraris and attend elite American universities, 100s of millions of Chinese exist well below the poverty line, and sleep on cots in corrugated hell: They're the modern day plantation labor that has turned China into the Steel king of the world and China's skies into a Hieronymus Bosch painting of Hell on Earth.
Chinese Olympians are stolen from their parents, in toddlerhood, and become cogs in the State propaganda machine. They see "granny" (mom) once per year, if they win medals.
Disagree, openly, with any of this -- have an inkling that you want to make yourself heard with a paper-mache Lady Liberty, and you'll find yourself greasing tank treads or riddled with bullets: Your relatives will be billed for the bullets (See: Tiananmen Square).
Nobody benefits, materially, from arresting a wife-beater, but that doesn't mean it's not the right thing to do.
Trump is the first president, ever, to stand up to China and demand a public accounting. For China's constant intellectual property theft. For China's transshipment of State-subsidized steel to our supposed allies in order to crush our domestic steel markets. For bullying of American corporate CEOs with demands for "access to [proprietary] technology." And for the ominous spread of Chinese adventurism in international waters (South China Sea).
China simply ignores international law, The World Court, The WTO and arbitration interventions to do whatever it wants: You either play by China's skewed rules, or you don't play.
Trump doesn't play that game, so -- apologies to Jack Ma and his Berkeley-educated offspring -- but the status quo ain't workin' for us any more, and Trump is working to "level the playing field," without slave labor.
Wonder what DumboCrats or a Chinese nationalist have against Fair Trade. Wonder why they all think Free Trade is Fair? Thankfully President Trump knows the difference.
JACK MA "Both Sides Would Lose a U.S.-China Trade War"
No... actually America lost the trade war long ago through feckless presidents. Today we have a $500 billion dollar trade deficit and an estimated $300 billion dollar IP loss annually. If we are losing $800 billion annually... continuing on this path guarantees a $1 Trillion dollar trade/IP deficit in the near future.
With the windfall... China buys up our companies, treasuries, resources and land ... oh yes.. and politicians Mitch McConnell and Joe Biden.
It does not take a genius to figure out that within a few decades they could own much of America. Heck, we just sold 20% of our rare uranium reserves to Putin in 2010 ... so everything is for sale right?
America is the only loser in this equation. Time for a new approach, new leadership and a better outcome.
Sorry Jack... America is no longer your doormat.
Ma's self-serving opinion does not surprise me, but what exactly are the WSJ's criteria for accepting to publish opinions?
Didn't "Alibaba" run the Forty Thieves? I think I saw that on Johnny Quest?
The cartoon didn't have the Wall Street Journal shilling for them though..... or I was getting a cookie or something.
Ma runs the worlds largest counterfeiting products bazaar. He is in the rear pocket of Xi and the rest of the Communist Chinese hierarchy.
Ma’s Conuterfeiting Internet Bazaar should be investigated for continuing to hock all these fake goods ripped off from those who have created these innovated products legally with ownership to solely sell themselves.
Don’t talk trade Ma, talk cleaning up your own backyard which you seem to do nothing about but utter bromides.
Time for The West to crack down on these counterfeiters.
This Ma commentary will allow Alibaba continued favor to do business in the China market. Herein lies the main reason for the " structural trade deficit with China because of the market forces of comparative advantage."
The man on the pictured U.S. currency invented things, published things, and helped lead his country into freedom. The man on the pictured Chinese currency was the largest mass murderer in the 20th century. That the United States can 'trust' China - including China's new dictator's promise to protect foreign countries' companies' intellectual property - is laughable. "Fair" trade - the equalization of tariffs and the removal of significant non-trade barriers - is a good thing. But we in the free world need to understand that China will remain a malevolent actor on the global stage so long as the Communist Party runs China.
The war was started by Communist China, China is now cranking up its anti American propaganda machine, it made anti American movie "wolf war" that humiliated and attacked Americans, how dare you do that! Your arrogance and ignorance will only destroy the evil Communists.
@Joy Yee Great sentiment Joy. I just hope the rest of the world has the resolve to thwart China's ambitions.
So America's conservative paper of record gets a bonified Chicom, Oligarch, Apparatchik to write a piece telling America; "You will be assimilated"
I didn't read the Moby piece because......well, just because. Now I wish I hadn't read this one.
yesterday morning this newspaper had a headline warning us not to make Xi mad, written by someone named Ling Ling. Then Someone named Zhu wrote a story with the headline emploring the reader to thank XI for easing our fears.
I was kinda joking when I emailed JT and asked him if the Chinese Communist party was writing the headlines for his newspaper. He must have taken me seriously.....hahaha
Mr. Ma, does it bother you Xi has, for all intents and purposes, proclaimed himself Emeror for life? That he is now moving Party cadres into virtually every business to monitor their behavior and make sure they are in line with the Coummnist Party’s and Xi’s ideology? Are these cadres now infiltrating your companies? In our country, the President was elected primarily because he promised tougher trade policy—especially with your country. Had he not done so and won over the votes of blue-collar workers who twice voted for Obama, he would not have been elected and we would not likely be having this discussion. Bottom-line: you answer to your dictator, whereas, our President answers to the people. Please keep that in mind the next time you share your views with Americans.
Of course the goal is not a trade war. And of course everyone knows China has stolen intellectual property and has huge tariffs on US products. And of course everyone knows that previous US administrations have done nothing about this. And of course the US has its own share of anti-free trade practices, one of the largest of which is farm subsidies.
So yes Mr. Ma, everyone wants to avoid a trade war. But where do you stand on free trade? And more importantly, what do you propose to get China, the US and other countries to remove their anti-free trade policies. It won't be easy, since change is always hard and there is a political price to be paid to remove anti-free trade policies, as their local beneficiaries are sure to scream. Your article is pleasant, but does not provide a solution.
Ma Yun is a liar, his company Tao bao site sells all kinds of counterfeit goods, his business model relies on counterfeit goods, he himself is a cheater. Now, Ma Yun is once again trying hard to fool and manipulate the American public by writing this junk. For decades the Communists have deceived and brought great sorrow to the world, this must be stopped. Boycott goods made in Communist China.
@Joy Yee There's nothing like trapping the opponent by giving him enough rope to hang himself.
We have just just heard "The Sirens' Song of Jack Ma," billionaire toady for the Chinese Communist Party.
Will American businesses forego the mixed pleasures of selling things to China? Will Chinese businesses forego the mixed pleasure of selling to us? On balance, the answer in each case is "maybe." We prospered before Chinese could afford a single car or refrigerator, so our future is not dependent on them.
But how about their future? No nation "likes" China. What is there to like, after all? Unless one is an admirer of arrogance, dishonesty, crooked dealings, broken agreements, and industrial espionage, in a better world there would be no reason to trade with China at all! How is Belt and Road going? Are Asians thrilled with China's expansion? Hardly.
Jack Ma would do better to focus on the trade practices of his government, as well as on the disregard for law that literally saturates Chinese society everywhere. Do that, and there might be no need for his ridiculous admonishment.
Outsourcing to China has caused massive job loss in the manufacturing industry which is very very important to US national security. Ma Yun should stop threatening US and go tell the Communist dictator to stop stealing intellectual property and fulfill the promises they made at the WTO. Communists are liars, why should American people be the servants to the evil communists, those service jobs are at the mercy of the Communists? We don't want that to continue. US can bring back the jobs, grow its middle class, that's the way to prosperity.
"As a businessman, I have been encouraged by the U.S. administration’s pro-business policies, like lowering corporate taxes. Now, like many in the business community, I am struggling to understand why a trade war with China would be good for the U.S. economy." - Really? It wouldn't have anything to do with the current situation benefiting you and yours, eh Mr. Ma? All we are asking for is fair trade --- and instead, we have false prophets detailing 'their' insights, yet they are more than biased by the benefits they receive under the current unfair trade practises America has ignorantly entered into over time ----
Mister Ma,
You are stuck in classic economic theory which is a good cover for the thievery China has been exacting from its trading partner, USA. We think Nixon was great for opening up China and we’ve been robbed ever since. Maybe things will work out, or maybe not, but if things go the distance, we’ll win because you’ll lose more.
Excellent essay and well written.
I think that the second paragraph deserves elaboration however. U.S. economic growth is partially funded by a temporary low interest rate environment and very big loans to the U.S. federal government and no national VAT which enables an artificially low (and not sustainable) tax circumstance for the American consumer. This combined with the most open market in the world, easy access to the consumer with minimal duties or delays at ports is an economic structure that optimizes on the consumer. These circumstances are not the same for the Chinese consumer relative to imports of goods from the U.S.
Certainly a trade war is no solution. But a sober re-enginnering of the economic relationship between China and the U.S. is needed to propel both nations forward for continued, sustainable prosperity and development. A comprehensive on-going review by a newly established board to protect IP rights would also help.
Of course, he doesn't mention that his Alibaba is the world's market place for counterfeit goods, doesn't mention that China's predatory policies do more harm to American businesses, small, medium, and large than a vigorous U.S. defense of the American economy [i.e, U.S. countermeasures against the Chinese offensive against the U.S. economy] ever will do, doesn't mention that China has been flouting, is flouting, and will continue to flout the norms of free trade, and that the U.S. tariffs that the Trump administration has imposed on China's goods are no higher than, in some cases are still less than, the tariffs China long has imposed on U.S. goods.
And, so on.
"The U.S. has a structural trade deficit with China because of the market forces of comparative advantage" I'm not sure comparative advantage applies when one trading partner has unreasonably high import tariffs and manipulates it's currency. The economics book on comparative advantage was written in 1817. The world economy and currencies have changed a bit in one hundred years.
In all the wars, both sides lose. However, it is not clear if this war can end with the stealing of technology property.
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