Who will win the trade war between China and the U.S.?
Flip a coin, because even some chief economists who have been tracking the ongoing dispute and potential additional tariff increases aren’t sure.
FN sister publication Sourcing Journal on Monday caught up with two chief economists at the National Retail Federation’s 2019 Big Show at the Jacob K. Javits Convention Center in New York, and they had differing viewpoints on the trade war.
Jack Kleinhenz, chief economist for NRF, said: “I’m hopeful it doesn’t go forward.”
Kleinhenz’s concern is that another round of tariffs would result in cost increases for consumers, who are already pressured and feeling the pinch by current prices. As for the retail sector, he said larger firms would likely try to absorb the increase, while smaller businesses — with fewer than 10 employees — would have a harder time doing so.
But it isn’t just consumers who could get pressured.
“There’s going to be a pushback on the supply chain. Companies will try to get by without price increases to consumers. It will become a vise where they will tighten up as much as they can first with their suppliers,” he said. That’s a move aimed at cutting costs on the back end if they can so they don’t have to resort to price increases at the consumer level, Kleinhenz explained.
Steven Blitz, chief U.S. economist at TS Lombard, a firm focused on economic, political and market research, believes the issues will get worked out. Given his background in labor management negotiations with unions, Blitz sees the back-and-forth between the two countries as posturing. According to Blitz, the real debate still to be determined is, “Who will own the next round of technology, such as 5G, artificial intelligence and machine learnings? The dispute will come down to that — this isn’t about making T-shirts in China. The U.S. wants to own 5G, but China needs natural liquefied gas.”
According to Blitz, China is already part of the U.S. supply chain. While it doesn’t want to lose production, the world is moving toward automated factories. For Blitz, that will mean greater reliance on robotics and AI, with the big question more on: “Who will own it, and where is it going to be?” He thinks that over the next five years, the “big trend will be on the creation of decentralized production centers that will be closer to the [location] of final demand.”
Another round of tariffs on $200 billion worth of goods from China had been slated to rise to 25 percent on Jan. 1. Following a meeting between U.S. President Donald Trump and China’s President Xi Jinping at a G-20 summit last month, the two countries agreed to delay the increase for 90 days and keep the current tariff rate of 10 percent.
For the 90-day period, the two countries are negotiating over a range of issues that include intellectual property, cybersecurity and non-tariff matters, among other topics. If they can’t reach a resolution within the 90 days, the increase in the tariff rate could go into effect unless there’s a further-agreed-upon delay by both sides.
Editor’s Note: This story was reported by FN’s sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.