2020-01-25 14:18:00  2204874
Impact of US-China trade war on livelihoods and effect of Phase One Agreement

By Shingo Ito

Almost two years have passed since theUS government's announcement in March 2018 of sanctions againstChina under Section 301 of the US Trade Act of 1974. Repeatedsanctions and retaliations by both the United States and China in thewake of that announcement led to a US-China trade war that isaffecting the daily lives of ordinary people, as exemplified by thesoaring pork price.

In mid-December 2019, a branch ofZhejiang Linhai Rural Commercial Bank initiated a scheme called "Freepork in return for deposits", which became a hot topic in the news.According to Dushi Kuaibao (City Daily), individuals who deposit RMB10,000 or more into a three-month term deposit account could win acut of pork. Most cuts weighed around 500 grams, while others weighedup to 1.5 or even 2.5 kilos. While it is not known just how many termdeposits have been collected, a bank clerk said that the number wasnot insignificant.

The number of deposits made out of adesire for pork is rising about as fast as the price of pork itself.The Pork Index included in the Consumer Price Index (CPI) has risenfrom a notional 100 in January 2018 to 204 as of November 2019. Porkis estimated to account for around 2% of the CPI, with a doubling ofthe pork price resulting in a 4.5% year-on-year rate of increase inconsumer prices for November 2019. Rising inflation, which has beenhigh since January 2012, has weakened the purchasing power of thegeneral public, pushing down real deposit interest rates to belowzero.

The soaring pork price is largelyattributable to the spread of African swine fever. However, anydecline in domestic supply can be addressed by increasing importsfrom overseas in addition to releasing pork from governmentstockpiles. In fact, the Chinese government has been doing just that,but the US-China trade war has hindered imports from overseas.

In April 2018, as part of the US.-Chinatrade war, the Chinese government began imposing additional tariffson US pork, resulting in a dramatic decrease in imports of US porkinto China. However, when the pork price soared due to the spread ofAfrican swine fever, Chinese imports of US pork rose suddenly fromMay 2019. In October 2019 the volume of US pork imports increased34-fold year-on-year (dollar-denominated), after the Chinesegovernment exempted a certain amount of US pork from additionaltariffs. This measure was taken because of the considerable adverseeffects on the livelihoods of the Chinese people, as described above.Pig farmers in the United States were not the only casualties.

The pork price has not yet come downsufficiently. At this time of year, demand for pork in China willincrease because of the Lunar New Year celebrations. In order toreduce the pork price as much as possible by then, in addition to themeasure described above the Chinese government decided to voluntarilyreduce the tariff rate for pork on January 1, 2020 (on a most-favorednation treatment basis).

In this situation, implementation ofphase one of the US-China agreement is likely to contribute to somedegree to a lowering of the pork price. According to an announcementby the United States, China has promised to import its pork and otheragricultural products to the value of 400–500 billion dollars. At apress conference on December 13, China too predicted that importsfrom the US of pork and other products that are in short supply inChina will increase as a result of the latest US-China agreement,assuming that market principles and WTO rules are observed, US supplycapacity is ensured, quality is guaranteed, and price competitivenessis ensured.

However, the term "phase one" is aclear indication that there are still many points of contentionbetween the United States and China. The US government is calling onChina to rectify its market-distorting practices such as protectingand providing industrial subsidies to its state-owned enterprises,but this is not included in the latest agreement. Furthermore, the USgovernment has announced that it will regularly monitor the Chinesegovernment's implementation of the agreement and in the event ofits failure to abide by its obligations, may impose unilateralsanctions on China. Were the US government to take such measures, theChinese government would have no choice but to squeeze imports of USagricultural and other products. If US farmers lack confidence thatUS-China trade will not be disrupted by political influence, they mayhesitate to increase pork production.

In addition, the Chinese government isbecoming more cautious about the risk that the US-China trade warwill have on employment in China, although it is difficult to affirmthe magnitude of that risk statistically. In a document issued onDecember 24, 2019, the State Council of the People's Republic ofChina laid out measures to stabilize China's job situation, such asencouraging enterprises to move to the country's middle, western,and northeastern regions, expanding sales channels in the domesticmarket, and further increasing domestic demand. This indicatesconcerns regarding the current or potential impact of the offshoringof companies and US sanctions against China on employment.

There is growing recognition that theUS-China trade war is part of the competition between the two nationsfor supremacy in the Asia-Pacific region. At the same time, the caseof the soaring pork price described above clearly shows that if tradestability based on marketplace principles and mutual complementarityis compromised, people's livelihoods in both countries will beimpacted. Where will the United States and China draw the linebetween intensifying fierce competition and maintaining mutualcomplementarity? The answer could have a major impact on publiclivelihoods not only in the United States and China, but worldwide.There will be a need for countries other than the United States andChina to discuss in greater depth the formulation of newinternational rules on the relationship between security and trade.

(Shingo Ito is Senior Economist at theInstitute for International Economic Studies.)

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