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What is the America-China trade war all about?

Summary:
That is the subject of my latest Bloomberg column, and here are the closing bits: So that means the trade war is really all about Huawei and Taiwan. If the U.S. persists in trying to eliminate Huawei as a major company, by cutting off its American-supplied inputs and intimidating foreign customers and suppliers for Huawei equipment, it will be difficult for the Chinese to accept. In this case, the reluctance to make a deal will be on the Chinese side, and the structure and relative power of the various American interest groups are not essential to understanding the outcome. The question, then, is whether the U.S. national security establishment, and in turn Congress (which has been heavily influenced on this question), will accept a compromise on Huawei. Maybe that means no Huawei

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That is the subject of my latest Bloomberg column, and here are the closing bits:

So that means the trade war is really all about Huawei and Taiwan. If the U.S. persists in trying to eliminate Huawei as a major company, by cutting off its American-supplied inputs and intimidating foreign customers and suppliers for Huawei equipment, it will be difficult for the Chinese to accept. In this case, the reluctance to make a deal will be on the Chinese side, and the structure and relative power of the various American interest groups are not essential to understanding the outcome.

The question, then, is whether the U.S. national security establishment, and in turn Congress (which has been heavily influenced on this question), will accept a compromise on Huawei. Maybe that means no Huawei communications technologies for the U.S. and its closest intelligence-sharing allies, but otherwise no war against the company. That is the first critical question to watch in the unfolding of this trade war. The answer is not yet known, though it seems Trump is willing to deal.

The second major question, equally important but less commented upon, is Taiwan. China has long professed a desire to reunite Taiwan with the mainland, using force if necessary. If you belong to the U.S. national security establishment, and you think a confrontation with China is necessary sooner or later, if only because of Taiwan, you would prefer sooner, before China gains in relative strength. And that militates in favor of the trade war continuing and possibly even escalating, as the U.S. continues to push against China and there is simply no bargain to be had.

It is far from clear what a U.S.-China deal over the status of Taiwan could look like. How much Americans actually care about Taiwan is debatable, but the U.S. is unlikely to abandon a commitment that would weaken its value as an ally around the world. And unlike with Huawei, it is difficult to see what a de-escalation of this issue might look like.

So: If the Huawei and Taiwan questions can be resolved, then the trade war should be eminently manageable. Now, does that make you optimistic or pessimistic?

There is much more at the link.

The post What is the America-China trade war all about? appeared first on Marginal REVOLUTION.

Tyler Cowen
Tyler Cowen is an American economist, academic, and writer. He occupies the Holbert C. Harris Chair of economics as a professor at George Mason University and is co-author, with Alex Tabarrok, of the popular economics blog Marginal Revolution. Cowen and Tabarrok have also ventured into online education by starting Marginal Revolution University. He currently writes the "Economic Scene" column for the New York Times, and he also writes for such publications as The New Republic, the Wall Street Journal, Forbes, Newsweek, and the Wilson Quarterly.

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