In The News

Mon 6 Feb 2017

Who Wins in a Trade War?

International Business

There were many who were surprised by the recent election victory of Mr. Trump, and earlier, the soon to be implemented British exit or the UK’s Brexit from the European Union.  There seems to be a slow and creeping rebellion against globalisation.  The impending ascent of Donald Trump to the US presidency may herald the coming of a new global order.       

If Mr. Trump makes good of his campaign promises about slapping high tariffs on Chinese goods, and labeling it a currency manipulator, there is little doubt that China will have no recourse but to raise tariffs on American products going into China as well.  That only means there would be a trade war between the world’s two largest economies, which are the main drivers of world economic growth.

Sad to say, but no one wins in a trade war.  Trump wants manufacturing jobs to come back to the US, and his answer has been to put up barriers to trade with China.  With these measures, will manufacturing jobs come back to the United States as Mr. Trump has promised?

China’s advantage cannot be attributed solely to its cheaper labour and currency alone.  In fact with regard to the latter, China, in recent years, has done much to prop up its yuan’s value to move towards a more self-sufficient economy. 

Through the decades of its meteoric rise as an economic power, China has built a sophisticated network of manufacturing sites that are insanely efficient, something that the US or any other country can find hard, if not impossible, to duplicate. 

Chinese factories have the kind of flexibility and efficiency that have since been just products of our dreams.  Employees in Chinese factories live in residential complexes just a short walk away from the assembly floor.  They are able to respond at a moment’s notice, to immediate requirements from their customers. 

In China, new prototypes or sudden changes in manufacturing specifications, are quickly addressed within its well-developed and efficient supply chain networks.  One typical story is of Steve Jobs who came home one day to find scratches on his prototype iPhone, because of the keys in his pocket.  Being fussy as he was, he wanted the glass used for the screen changed very close to the launch date of the new iPhone.  The Chinese company was able to make the change on thousands of phones on the production line, and made the deadline for their shipment.

There is also a surfeit of mid-level engineers that live and work in the industrial complexes.    Apple executives have long harped on the US’s lack of mid-level engineers.  There are just not enough of them in the United States. 

There are no easy answers to the pros and cons of globalisation.  Right now, it seems easier to simply revert to a protectionist past.  I am hoping that patience wins out in the end, for globalisation has been good to people like me, and countries like China, and Australia as well.  

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