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How Trump's trade war with China could backfire

President Trump is waging a trade war with the biggest holder of US debt at a time when America's borrowing is surging.

Posted: Oct 20, 2018 5:03 PM
Updated: Oct 20, 2018 5:36 PM

This is an uncertain moment for global trade. Longstanding agreements between the United States and its biggest trading partners have been called into question by President Donald Trump. The United Kingdom is working to disconnect itself from the European Union.

Look more closely, however, and another, less-told story appears. Trade among emerging economies, with China often serving as the anchor, has been rising sharply. The world is not standing still.

We estimate that goods trade between emerging economies, both with China and not, encompasses 20% of the value of all global trade, up from 8% in 1995. Trade between China and other emerging economies has risen 11-fold in that time, while trade among emerging economies not involving China has risen six-fold.

China runs a big trade surplus of $170 billion with emerging economies, although this is starting to shrink. Its share of labor-intensive manufacturing exports from emerging economies peaked at 56% in 2014. That shrunk to 53% in 2016 because of rising production costs.

Other emerging-market countries have been able to fill the gap left by China in labor-intensive manufacturing, including products such as textiles. Some have put reliable infrastructure and business-friendly investment conditions in place. Some countries have specialized. Vietnam has been the biggest beneficiary of this shift, through rapidly growing exports of electronics, among other things. In India, the fastest-growing manufacturing sectors include furniture-making, automotive and pharmaceuticals. Ethiopia, Rwanda and Vietnam have grown their textile exports rapidly, posting annual growth by more than 15% in the past five years. Bangladesh has also become a leading textile exporter — the sector employs about 5% of the labor force there.

China, for its part, wants to increase its share of R&D and capital-intensive production, ceding some growth in labor-intensive production. Wages in China have been rising — and that has allowed emerging economies with lower wages to better compete. This trend, if it endures, is good news for low-cost, labor-intensive manufacturing in emerging economies. Manufacturing has long been an essential pillar of development, creating jobs and economic growth. Ethiopia, for example, increased manufacturing employment by almost 10% annually between 2000 and 2010.

It's an economic tenet that, eventually, manufacturing employment peaks as countries reach a higher stage of development. In recent years, that peak has been happening earlier than it used to. Harvard economist Dani Rodrik has dubbed the phenomenon "premature deindustrialization." Nonetheless, our analysis suggests there is still room for manufacturing going forward in emerging economies. Moreover, the growth of trade between emerging economies, including China, creates a strong position for China itself. In the years ahead, China, now the world's second-largest economy and growing faster than the United States, can become the center of an expanding trade ecosystem.

But trade can also continue to help other, smaller emerging economies grow. We studied the per capita GDP of 77 countries over half a century. We found that countries that raised their share of the global trade of goods have done significantly better than those that did not. Indeed, for the 18 outperforming countries, the share of trade inflows and outflows rose from just 7% in 1980 to 29% in 2016. That 22 percentage-point increase is matched by a 22 percentage-point decline among outflows and inflows of goods in high-income countries in the same period.

Our research also shows that the top-performing companies from those 18 countries made a clear priority of trade and global expansion. The bottom line is that trade works — it helps lift emerging economies and their businesses.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 1560117

Reported Deaths: 20796
CountyCasesDeaths
Marion2118112563
Lake1021301523
Allen964791027
Hamilton75541551
St. Joseph66476761
Elkhart51045634
Vanderburgh50511531
Tippecanoe45721338
Johnson39600527
Hendricks37933463
Porter35132476
Madison30330547
Clark27296331
Vigo26401347
Monroe24100249
LaPorte23921313
Howard23237381
Delaware22453370
Hancock19314220
Bartholomew18980216
Kosciusko18400204
Warrick17733216
Wayne16982303
Floyd16686257
Grant15966300
Morgan15091232
Boone13924138
Dearborn12235113
Shelby12225152
Noble12170142
Henry12027202
Dubois11696152
Marshall11625171
Jackson11111104
Cass10578143
Lawrence10529221
Huntington10523140
DeKalb10482132
Gibson10114127
Montgomery9671144
Harrison9471117
Knox9415125
Whitley902571
Steuben8934105
Putnam8542100
Miami8533135
Clinton849397
Jasper8462116
Jefferson8319127
Wabash8027140
Ripley7504117
Scott685787
Adams6829103
Daviess6825130
White638184
Greene6317112
Clay628975
Decatur6261121
Jennings619781
Wells6090121
Fayette6054122
Posey580148
LaGrange549097
Randolph5364129
Washington528071
Owen5211100
Fountain493681
Spencer467456
Sullivan462066
Fulton450993
Orange449784
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Rush433941
Jay432564
Perry409155
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Franklin394650
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Pike334246
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Tipton330475
Blackford282255
Pulaski281775
Brown239856
Newton239761
Benton228921
Crawford224932
Switzerland207914
Martin196722
Warren183922
Union178119
Ohio129216
Unassigned0763

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 2515949

Reported Deaths: 31987
CountyCasesDeaths
Franklin2719422100
Cuyahoga2606673087
Hamilton1758091756
Montgomery1177451651
Summit1089011418
Lucas935321193
Butler83907963
Stark771001431
Lorain64214809
Warren53428489
Mahoning51224930
Lake47591611
Clermont46928452
Delaware41107220
Trumbull39746790
Licking38790416
Medina38646427
Fairfield35828349
Greene34313435
Portage32429366
Clark32361453
Richland29653444
Wood29379301
Allen25875403
Miami24243408
Muskingum23564255
Columbiana23046409
Wayne22093365
Tuscarawas19637428
Marion18616235
Erie18608224
Ashtabula18569362
Scioto18159214
Ross17594260
Pickaway16419181
Hancock16115232
Geauga15511229
Lawrence15094186
Belmont14236248
Union1419584
Huron13908184
Jefferson13656261
Sandusky13268200
Athens12877107
Knox12160201
Seneca12055204
Darke11440202
Ashland11248184
Washington11152172
Auglaize10873147
Crawford10432178
Shelby10402160
Brown10094145
Highland9746151
Fulton9726154
Guernsey9683122
Defiance9567137
Logan9470147
Clinton9428132
Mercer9099112
Madison9032111
Preble8524170
Williams8305138
Putnam8069136
Champaign8040113
Ottawa7971123
Jackson7848121
Perry7514102
Coshocton7411136
Morrow729184
Fayette715992
Pike666689
Hardin6564133
Gallia638891
Adams6227127
Van Wert6065121
Henry602596
Hocking5918105
Wyandot503594
Carroll5009101
Holmes4880167
Paulding426465
Meigs400974
Monroe316468
Harrison299162
Noble296952
Morgan292748
Vinton258646
Unassigned08
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