As one travels the internet highway, stopping at articles that talk about the U.S.-China trade conflict, a frequent theme is that the U.S. has gained nothing. It may have shifted the source of some of its inputs, but the overall trade deficit is not going down. Another theme, as noted, is that trends are being set in motion now that cannot and will not be quickly reversed.
Admittedly, there is something rather arbitrary about trying to separate the trade from the supply chains. Like math and physics, they go together, and yet occasionally it helps to talk about them separately.
Trade. China is itself an enormous market. Indeed, it is the world's largest market for a range of products from cars to cotton. And where U.S. products are concerned, the current tensions are likely to have a lasting impact on America's ability to sell to Chinese customers.
John Neuffer, president of the Semiconductor Industry Association, made that point yesterday, May 29, in remarks at the Washington International Trade Association. He said:
"America is now the unreliable trading partner. I don't think we can, in our generation, ever reverse that. I think we're stuck with that and we'll never get back to normal in our trade relations with the Chinese in our generation."
That said, we still think there will be a U.S.-China deal at some point, and when that deal comes, it is almost certain to include the promise of more U.S. exports to China, especially from America's agricultural producers. Other sectors - especially those where China is determined to overtake the United States - are more difficult to analyze. But Mr. Neuffer's point is a valid one, and, with his help, GBD will have more to say on that issue in the weeks ahead.
Supply Chains are different in important ways. It seems to us self-evident that China has benefited greatly from being America's go-to supplier for a broad range of inputs. Those relationships have made China a stronger country. It is not at all self-evident, however, that America will be the loser from encouraging some of those supplier relationships to shift. Countries like Mexico and Vietnam are not the strategic competitors that China clearly is, and China's threat to withhold rare earths is yet another reminder that over-reliance on Chinese suppliers could be costly.
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