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In the trade war with China, beware of geopolitical grimaces

Written by The Anand Market

Updated on:

“Are Chinese subsidies triggering a trade war? The front page teaser of your Big Read article by Joe Leahy, James Kynge and Sun Yu piqued my interest (January 31).

But the military metaphor of war has its limits when it comes to trade. Suppose China provided significant subsidies to its electric vehicle producers, which some consider an aggressive economic act. This does not necessarily merit a response from importing countries.

After all, imports fill demand gaps caused by inadequate or poor quality local supplies. In the case of electric vehicles, cheaper imports also accelerate the adoption of a technology essential to the energy transition.

Import invasions are not troop invasions. More troubling were the assumptions not made in the Big Read, titled “Looming Tensions Over Chinese Subsidies.”

Your analysis assumes that business subsidies should lead to excess capacity that will be exported and ultimately cause an import surge among trading partners.

Using publicly available data, my colleagues and I have repeatedly examined over the past five years whether this logical chain can be supported by evidence.

Surprisingly, the answer is no. Complaints from import-competing companies merit further investigation.

Just like the assumptions of the current cohort of geopolitical curmudgeons within Western governments.

Simon J. Evenett
Professor of Economics, University of St. Gallen, Switzerland; Co-Chair of the World Economic Forum Trade and Investment Council

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