Masao Miwa, Always interested, especially Asia Answered Dec 13
Currently, US trade represents 18% of China’s exports. However, because of actions by the US to threaten that trade with tariffs, China is moving to reduce the threat to her economy by trade and investments with the other countries. China’s trade as a percent of GDP has been falling since 2006, from a high of 64% to 38% in 2018, which puts China in the bottom quartile of dependence on trade. That trend will continue.
China Trade to GDP Ratio 1960-2019
List of countries by trade-to-GDP ratio - Wikipedia
The issue is not just trade the issue of Huawei and 5G has more to do with China’s technology rise than trade. Huawei’s trade in the US before the ban was small but increasing, especially selling to small rural carriers, its mobile phone business was almost zero. In spite of Huawei’s ban to US markets, Huawei continues to sell well to the rest of the world and domestically. Other Chinese companies are recognizing the dangers in trade with the US and are creating their own backup plans for sourcing and for sales. You see a decoupling going on, one that won’t change overnight, But for sure it is occurring. US tech companies will be the big losers, same as happened to US soybean farmers, the China market lost because of US policies and actions.
Keep in mind there are other sectors that are being affected by the trade war. These are for the US to lose if Trump keeps pushing for demands China will not accept. Foreign affiliate sales are falling, tourism is falling, student enrollment is falling, and FDI dropped off a cliff in 2018. All are inputs of wealth from China that don’t show up in the trade figures. All these sectors are falling because of the trade issue and the general tone of the US against China. From meddling in China’s domestic affairs to bans and sanctions, all create a tone of retaliation and opposition instead of building on working together in peace.
“According to many in the United States, however, these flows are imbalanced to America’s disadvantage. Look no further, they argue, than America’s large trade deficit, which amounted to more than $622 billion in 2018, with China accounting for some $378 billion of it.
But there are serious problems with the simplistic cross-border trade-deficit metric – not least its failure to account for the business conducted within a foreign country’s borders. In 2016, (the latest year for which data are available), US multinationals, including their foreign affiliates, generated $5.8 trillion in sales in foreign countries.
That figure not only dwarfs direct US exports, which amounted to $2.2 trillion in 2016; it exceeds the $4.1 trillion in total sales by all foreign multinationals in the US market. When it comes to sales in foreign markets, therefore, the US had a “surplus” of $1.7 trillion in 2016 – three times larger than the US trade deficit of $502 billion that year. This has meant major profits for US multinationals: the ratio of overseas sales to foreign direct investment (FDI) implies that companies are doubling their initial investments.
Geographically, US multinational sales and FDI are concentrated primarily in Europe. In 2016, European sales by US multinationals reached $2.8 trillion, or just under half the global total. But FDI amounted to $3.3 trillion, meaning that every dollar of FDI produced $0.85 of sales. Europe thus represents a below-average market for US multinationals.
The Asia-Pacific (APAC) region – which ranks second for both US trade and sales by US multinationals – is more lucrative. APAC accounted for just over 29% of US exports in 2018, but 39.5% of imports, producing an overall trade deficit of $506.8 billion. But, returning to 2016 figures, US multinationals recorded $1.58 trillion in sales in the APAC region, while delivering $881 billion of FDI. For every dollar of investment in APAC, US multinationals gained $1.80 in sales.
One country is driving up this average: China. In 2016, US multinationals made $345.3 billion in sales, while investing $97.3 billion. That translates to an impressive sales-to-FDI ratio of 355%, up from 267% in 2009. (The much lower European ratio – 85% in 2016 – reflects a downward trend, from 123% in 2009.)
US companies’ sales in China dwarf Chinese firms’ sales in the US, which amounted to just $35 billion in 2016. In fact, by this measure, the US has a “surplus” of $310 billion. That is $2 billion larger than America’s bilateral trade deficit with China, meaning that, considering cross-border trade and overseas sales together, the positions of the US and China are roughly balanced. Meanwhile, US multinationals continue to reap huge profits in China – profits that, barring ill-advised interventions, will continue to grow.”
How will the US-China trade war affect corporate America?
“Chinese travel to the U.S. fell another 2.4% in the first quarter of 2019. The pullback has taken a toll because Chinese tourists stay an average 18 days and spend an average of nearly $7,000 per trip – about 50% more than other international tourists, according to the U.S. Travel Association.Aug 9, 2019”
Slump in overseas travel to US is expected to continue through 2020
“Chinese enrollment in US universities is falling — several schools reported declines of one-fifth or more. Administrators and observers say trade conflicts and US concerns about the security risks posed by visiting Chinese students appear to be accelerating the trend.Sep 24, 2019”
US universities are seeing steep declines in Chinese enrollment amid political tensions, and it's hurting their wallets
“"It dropped from tens of billions of dollars several years ago to virtually zero. It's actually a contraction now. If you include sales of Chinese assets in the United States and add back in the investments, you still don't reach zero, you actually end up still somewhat below zero."”
https://news.cgtn.com/news/2019-08-11/Chinese-investment-in-U-S-falls-off-a-cliff-J4TCRNOUdq/index.html
So where is that wealth going? Europe and Asia are the prime benefactors. Trump’s obsession with the trade deficit is throwing out the baby with the bath water.
Currently, US trade represents 18% of China’s exports. However, because of actions by the US to threaten that trade with tariffs, China is moving to reduce the threat to her economy by trade and investments with the other countries. China’s trade as a percent of GDP has been falling since 2006, from a high of 64% to 38% in 2018, which puts China in the bottom quartile of dependence on trade. That trend will continue.
China Trade to GDP Ratio 1960-2019
List of countries by trade-to-GDP ratio - Wikipedia
The issue is not just trade the issue of Huawei and 5G has more to do with China’s technology rise than trade. Huawei’s trade in the US before the ban was small but increasing, especially selling to small rural carriers, its mobile phone business was almost zero. In spite of Huawei’s ban to US markets, Huawei continues to sell well to the rest of the world and domestically. Other Chinese companies are recognizing the dangers in trade with the US and are creating their own backup plans for sourcing and for sales. You see a decoupling going on, one that won’t change overnight, But for sure it is occurring. US tech companies will be the big losers, same as happened to US soybean farmers, the China market lost because of US policies and actions.
Keep in mind there are other sectors that are being affected by the trade war. These are for the US to lose if Trump keeps pushing for demands China will not accept. Foreign affiliate sales are falling, tourism is falling, student enrollment is falling, and FDI dropped off a cliff in 2018. All are inputs of wealth from China that don’t show up in the trade figures. All these sectors are falling because of the trade issue and the general tone of the US against China. From meddling in China’s domestic affairs to bans and sanctions, all create a tone of retaliation and opposition instead of building on working together in peace.
“According to many in the United States, however, these flows are imbalanced to America’s disadvantage. Look no further, they argue, than America’s large trade deficit, which amounted to more than $622 billion in 2018, with China accounting for some $378 billion of it.
But there are serious problems with the simplistic cross-border trade-deficit metric – not least its failure to account for the business conducted within a foreign country’s borders. In 2016, (the latest year for which data are available), US multinationals, including their foreign affiliates, generated $5.8 trillion in sales in foreign countries.
That figure not only dwarfs direct US exports, which amounted to $2.2 trillion in 2016; it exceeds the $4.1 trillion in total sales by all foreign multinationals in the US market. When it comes to sales in foreign markets, therefore, the US had a “surplus” of $1.7 trillion in 2016 – three times larger than the US trade deficit of $502 billion that year. This has meant major profits for US multinationals: the ratio of overseas sales to foreign direct investment (FDI) implies that companies are doubling their initial investments.
Geographically, US multinational sales and FDI are concentrated primarily in Europe. In 2016, European sales by US multinationals reached $2.8 trillion, or just under half the global total. But FDI amounted to $3.3 trillion, meaning that every dollar of FDI produced $0.85 of sales. Europe thus represents a below-average market for US multinationals.
The Asia-Pacific (APAC) region – which ranks second for both US trade and sales by US multinationals – is more lucrative. APAC accounted for just over 29% of US exports in 2018, but 39.5% of imports, producing an overall trade deficit of $506.8 billion. But, returning to 2016 figures, US multinationals recorded $1.58 trillion in sales in the APAC region, while delivering $881 billion of FDI. For every dollar of investment in APAC, US multinationals gained $1.80 in sales.
One country is driving up this average: China. In 2016, US multinationals made $345.3 billion in sales, while investing $97.3 billion. That translates to an impressive sales-to-FDI ratio of 355%, up from 267% in 2009. (The much lower European ratio – 85% in 2016 – reflects a downward trend, from 123% in 2009.)
US companies’ sales in China dwarf Chinese firms’ sales in the US, which amounted to just $35 billion in 2016. In fact, by this measure, the US has a “surplus” of $310 billion. That is $2 billion larger than America’s bilateral trade deficit with China, meaning that, considering cross-border trade and overseas sales together, the positions of the US and China are roughly balanced. Meanwhile, US multinationals continue to reap huge profits in China – profits that, barring ill-advised interventions, will continue to grow.”
How will the US-China trade war affect corporate America?
“Chinese travel to the U.S. fell another 2.4% in the first quarter of 2019. The pullback has taken a toll because Chinese tourists stay an average 18 days and spend an average of nearly $7,000 per trip – about 50% more than other international tourists, according to the U.S. Travel Association.Aug 9, 2019”
Slump in overseas travel to US is expected to continue through 2020
“Chinese enrollment in US universities is falling — several schools reported declines of one-fifth or more. Administrators and observers say trade conflicts and US concerns about the security risks posed by visiting Chinese students appear to be accelerating the trend.Sep 24, 2019”
US universities are seeing steep declines in Chinese enrollment amid political tensions, and it's hurting their wallets
“"It dropped from tens of billions of dollars several years ago to virtually zero. It's actually a contraction now. If you include sales of Chinese assets in the United States and add back in the investments, you still don't reach zero, you actually end up still somewhat below zero."”
https://news.cgtn.com/news/2019-08-11/Chinese-investment-in-U-S-falls-off-a-cliff-J4TCRNOUdq/index.html
So where is that wealth going? Europe and Asia are the prime benefactors. Trump’s obsession with the trade deficit is throwing out the baby with the bath water.
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