Saleh Akram :
China and US are now embroiled in a trade war. It looks as though the war is a self-inflicted conflict for the US since it is overly focused on tariffs to offset the trade gap with China. The war so far has hurt both parties and could accomplish nothing other than aggravating the major portfolios of both economies. The conflict was switched on by the US through imposition of duties and tariffs one after another on imported Chinese goods by the US on grounds of unfair trade practices by China and its violation of intellectual property norms and forced transfer of American technology.
But sadly for US the enhanced tariffs failed to bring about desired results for the Americans as volume of exports from China to the United States did not decline. On the contrary it rose by USD34 billion, or seven percent and U.S. exports to China decreased by USD10 billion, or eight percent. Overall, the average tariff rate on U.S. imports of Chinese goods will be about 24 percent, up from about three percent two years ago, and that on Chinese imports of U.S. goods will be at nearly 26 percent. This is compared to China’s average tariff rate of 6.7 percent for all other countries. The two sides met in more than a dozen rounds of high-level negotiations without any real prospect of a settlement.
On the import side the damage to the US economy is more pronounced than it is for China. Economists at the Federal Reserve Bank of New York and elsewhere found that in 2018 the tariffs did not compel the Chinese exporters to reduce their prices and instead the full cost of the tariffs pushed prices up for the American consumers. This will prompt the U.S. consumers to look for substitutes (when available) from other countries, which may be more expensive than the original Chinese imports. The price difference between the pre-tariff Chinese imports and third-country substitutes is what economists call a dead-weight loss to the economy.
According to economists the dead-weight loss arising from the existing tariffs on USD200 billion of Chinese imports will be about USD80 billion, annually. If the United States continues to expand its tariff regime as scheduled, that loss will be higher. On the other hand, Chinese consumers are not paying higher prices for U.S. imports. A study shows that since the beginning of 2018, China has raised the average tariff rate on U.S. imports from 8.0 percent to 21.8 percent and has lowered the average tariff rate on all its other trading partners from 8.0 percent to 6.7 percent. China imposed tariffs only on U.S. commodities that can be replaced with imports from other countries at similar prices. It actually lowered duties for those U.S. products that can not be procured from other supply sources more cheaply. Consequently, China’s import prices for the same products have dropped overall, in spite of higher tariffs by US administration.
The impact of the trade war between the two economic superpowers is not limited to or within the boundaries of the two parties involved. The gnawing effect of the ongoing lengthy war has raised apprehensions about another worldwide depression. The main reason being fall in production of goods and services in a country that is not duty free and consumers will have to pay higher prices. However the Chinese are going ahead with a master plan aimed at striking the top spot in world economy. If and when it happens, it is feared that the ongoing trade war may turn into an actual war with rousing global impact.
However, there are countries which will benefit from the trade war. Bangladesh is one of them. With US announcement to impose higher tariffs on Chinese goods, 40% of US companies are seriously considering to shift their production units from China and 25% of those have already left China for neighbouring south east Asia and only 6% has gone back to US. Interestingly, it is neither China nor the United States, but countries like Bangladesh and Vietnam may benefit most from the trade dispute between the world’s two biggest economies. In the first place, the impending effect of the trade war on supply chain dynamics and investment patterns could help Bangladesh emerge as a potential beneficiary of the conflict and as the Asia Development Bank’s chief economist argues, “Trade war to generate additional USD 400 million exports for Bangladesh.”
Secondly, both China and the United States have been stable trade partners to Bangladesh for decades. The volume and value of trade Bangladesh has with both countries are significant although the nature of trade with both countries is different. China is the top exporter to Bangladesh while the United States is the second largest destination for Bangladesh’s exports. The changed geopolitical relationship between the United States and China through this trade war have alarmed many countries that have trade stakes with these two nations-though this raises hope for Bangladesh.
Thirdly, as the garment sector accounts for 80 percent of Bangladesh’s total export, The country’s garment industry already observed significant growth with escalation of the trade war and buyers are placing more work orders with Bangladesh since ready-made garments from China declined. A report by McKinsey forecasted that Bangladesh would become the next hotspot for textile manufacturing, and the Bangladeshi market would triple in value by 2020, up from USD 15 billion in 2010.
Fourthly, with more factories are relocating from China to elsewhere in Asia to avoid higher tariff, Bangladesh has more competitive advantages than its competitors such as Cambodia and Vietnam. Setting up factories in Cambodia has become more challenging these days due to the presence of strong unions. Additionally in contrast to 160 million Bangladeshis, Cambodia has a population of just 16 million, which gives Bangladesh a clear edge for this labour-intensive industry.
Fifthly, Bangladesh is a competitive place compared to China, Vietnam and Cambodia for setting up industries because of the lower cost of production, trade privileges granted in major markets such as the EU and China.
Finally, due to higher wage and production costs, Vietnam also looks less attractive for the investors. The minimum wage in Bangladesh is currently USD 95 per month, which is about half of USD 182 per month in Cambodia and USD 180 per month in Vietnam. If Bangladesh can make the most of such opportunities, a much brighter future awaits us.
(The writer is a TV personality and can be reached through [email protected])
