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Why the US and China are ready to negotiate – Economic policy

The air is familiar: during wars business goes on! The US and China, weakened or losing power, are ready to negotiate. World peace and the settlement of markets and thus conflicts should come out strengthened.

The air is familiar: during wars business goes on! Europe trades with Russia and Belarus. Less certain, but still. Companies are trying to circumvent boycotts that paralyze markets. And while Joe Biden and Xi Jinping see themselves on the sidelines of the summit of the most industrialized countries (therefore powerful and rich, apparently), other states seek and succeed in pulling the chestnuts out of the fire.

The air is familiar: during wars business goes on! Europe trades with Russia and Belarus. Less certain, but still. Companies are trying to circumvent boycotts that paralyze markets. And while Joe Biden and Xi Jinping see themselves on the sidelines of the summit of the most industrialized countries (therefore powerful and rich, apparently), other states seek and succeed in pulling the chestnuts out of the fire. When Donald Trump launched a trade war with China four years ago, it was not clear that this decision would have spectacular consequences for trade flows, as the Chinese and American economies then appeared to be intertwined in the global value chain. Today, however, the effects of these tariffs imposed by Trump appear significant. And the withdrawal – real! – from China undoubtedly benefits all the other states and especially the new or developing countries in Asia, which have therefore seen their trade surplus increase with… the United States. Having said that, China’s zero covid policy equally explains this reconfiguration of trade between the US and China, especially due to the latter’s difficulties in supplying the world market, and therefore the US, which caused the country to close or slow down its production lines. In recent years, the Chinese middle class has sought to take advantage of these gains, and wages have risen significantly, causing China to lose its comparative advantage in the assembly industry that was the source of its success. The country has begun to shift some of its production, particularly to other Asian countries, where large multinationals are following suit. Consequence: what China exported yesterday will increasingly be exported by Vietnam, India, Thailand or Malaysia. There is production in Asia that is likely to replace Chinese goods, which have become more expensive due to the increase in tariffs. In addition to the traditional sectors such as textiles, we find electrical equipment and electronic equipment, the mechanical industry, clothing. But there is a tropism that our statistics do not convey. In fact, China specializes in the final stage of production (assembly, sewing), even if that means importing its raw materials, intermediates and components from Japan, Korea, Taiwan or… the US. According to all the studies, this leads to a much lower Chinese added value than what we typically record. Clearly, if the price of these intermediate products had been attributed to their country of origin, the US bilateral deficit with China would have been significantly reduced and that with Japan or Korea increased significantly. As we have already said and recalled here, the Chinese economic situation looks set to become more complex. As economist Robin Brooks points out, for example, capital outflows are now as large as during fears of the renminbi devaluation in 2015-2016. And China can certainly still experience some enviable growth rates, but without deeper questions these will become increasingly rare. All of this is ultimately good news: the US and China, weakened or losing power, are therefore ready to negotiate. World peace and the settlement of markets and thus conflicts will be strengthened. Mektoub!

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