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641. Despite disruptions, US-China trade is likely to grow

Author:
Megan Hogan and Gary Clyde Hufbauer
Publication Date:
10-2023
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The United States and China hit record trade levels in 2022, despite a prickly relationship, suggesting that calls for severe or even total economic decoupling between the world’s two economic superpowers may be ill-advised, say Hogan and Hufbauer. The dollar value of US-China trade grew significantly between 2019 and 2022, notwithstanding declines in trade flows of certain products such as semiconductors and aircraft due to the trade war. The persistence and even growth of the two countries’ total trade despite political and economic disputes reflects the mutual benefit that private firms see in this commercial relationship. The authors conclude that partial decoupling between the United States and China has not, so far, redrawn the world trade map. Nor does it seem likely to do so on an aggregate trade basis between now and 2025.
Topic:
Foreign Policy, Bilateral Relations, Trade Policy, and Semiconductors
Political Geography:
China, Asia, North America, and United States of America

642. Why China's housing policies have failed

Author:
Tianlei Huang
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
This working paper reviews the current housing crisis in China and explores the roles of supply-demand imbalances and local governments in the real estate sector. To prevent the housing downturn from further dragging down economic growth, Beijing suspended the financing restrictions on developers imposed in August 2020. These restrictions, known as the "three red lines" that limited new borrowing by developers, led Chinese property developers to default on a record number of debt obligations and triggered the most serious housing slump China has seen since 1998. The property sector saw its value added decline by more than 5 percent in 2022, even as the overall economy grew at 3 percent. But the current dynamics in the housing market reflect a repeated pattern: Loosening financing restrictions on developers and using housing as a macroeconomic stabilization tool risk reinforcing the boom-bust housing cycle. China's real estate sector is a systemic problem. Without serious reforms to address concerns such as supply-demand imbalances and local governments' deep connections with real estate, housing slumps like the one in 2022 may recur.
Topic:
Government, Real Estate, Supply and Demand, and Housing Crisis
Political Geography:
China and Asia

643. How trade cooperation by the United States, the European Union, and China can fight climate change

Author:
Chad P. Bown and Kimberly Clausing
Publication Date:
10-2023
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Recent efforts to reduce greenhouse gas emissions have revealed different policy priorities; the United States and China have emphasized subsidy-based approaches, and the European Union has emphasized carbon pricing. These divergent policy choices—some lowering energy costs, others raising them—raise concerns about industry competitiveness and have implications for upstream and downstream firms in supply chains. This paper identifies the trade tensions resulting from varying climate policy approaches and describes policy efforts to address them. It then describes the role of a rules-based trading system in tackling the challenges that these distinct policy approaches create, examining World Trade Organization (WTO) rules on subsidies, border measures, and export restrictions. The authors suggest that the United States, the European Union, and China prioritize reforms to those rules as a path forward for cooperation on trade and climate. Such an approach would be an important starting point toward creating a functioning multilateral system.
Topic:
Climate Change, European Union, Trade, Cooperation, and Energy
Political Geography:
China, Europe, and United States of America

644. Construction productivity and global inequality

Author:
Saumik Paul and Kunal Sen
Publication Date:
11-2023
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Two well established stylized facts of economic development are a strong correlation between investment and income, and large differences in investment rates across countries. Construction is the largest component of investment. This paper examines the implications of heterogeneity in construction productivity on cross-country income disparity. We estimate the 10:1 spread in construction productivity among 145 countries in 2005 as a factor of 61.7-fold. Based on a general equilibrium model with input–output linkages, we find that the 10:1 spread in income per capita declines by 45 per cent when the construction productivity gap is eliminated. Sectoral characterization of the aggregate effect of a change in construction productivity shows heterogeneous sectoral contributions to income convergence. Electrical equipment, metals, and transport equipment play stronger roles in transforming the effect of a change in construction productivity to the aggregate level in China compared with other countries.
Topic:
Inequality, Investment, Productivity, Construction, and Income
Political Geography:
China and Global Focus

645. Reimagining Africa’s role in revitalizing the global economy

Author:
Amin Mohseni-Cheraghlou
Publication Date:
10-2023
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
The world economy now finds itself at a critical juncture, facing a series of extraordinary setbacks that have pushed down growth. Reigniting growth requires a unique combination of targeted policies, robust international cooperation, and a renewed look at the global economy, with a particular focus on Africa. Due to its burgeoning and youthful population, abundant natural resources, and a strategic geographical location that can facilitate global trade, Africa can play a major role in—and should be front and center of—any renewed efforts for revitalizing the global economy. A decade-long robust, inclusive, and green growth in Africa will not only move hundreds of millions living in the continent out of poverty but will also accelerate a global rebound and recovery. However, for this to materialize, Africa needs substantial investments in its failing and inadequate physical and social infrastructure. With access to basic infrastructure, alongside efficient institutions as well as its young population, massive natural endowments, and strategic location Africa can seize its economic potential and act as an engine of growth for the global economy for decades to come. Therefore, it is crucial to support Africa to unleash its immense economic potential, through massive and focused investments in the continent’s human capital and its physical and social infrastructure.
Topic:
Development, International Organization, Reform, European Union, Regulation, Finance, Economy, and Economic Growth
Political Geography:
Africa, China, Europe, and United States of America

646. Investigating China’s economic coercion: The reach and role of Chinese corporate entities

Author:
William Piekos
Publication Date:
11-2023
Content Type:
Special Report
Institution:
Atlantic Council
Abstract:
China’s economic statecraft has expanded in line with Beijing’s vision for an international environment that is more conducive to its interests. Chinese President Xi Jinping and the Chinese Communist Party (CCP) are willing to use every means at their disposal to achieve this goal, bringing the full force of the party-state to bear in support of Xi’s objectives abroad and against perceived enemies of the Chinese government. Economic statecraft—the use of economic means to pursue foreign policy goals—has been a consistent feature of Xi’s dealings with CCP competitors and adversaries. Intensifying US-China strategic competition and Beijing’s increasingly overt attempts to assert its preferences only further emphasize the importance of confronting China’s use of economic coercion and influence and understanding the reach of Chinese companies. The deliberate use of economic ties to achieve geopolitical objectives is underpinned by corporate entities that facilitate trade, investment, and financial flows.1 Beijing’s preference for plausible deniability and nontransparency in theory makes corporate entities an attractive mechanism through which to signal its displeasure and to achieve strategic goals. Understanding the reach and role of such entities is, therefore, key to identifying where Beijing might be best positioned to advance its economic statecraft. To that end, this report explores avenues through which researchers can investigate these issues, considers industries that could be vulnerable to future coercion and influence, and offers policy recommendations to counter China’s economic statecraft.
Topic:
Diplomacy, Politics, Global Markets, Economy, Trade, Norms, and Coercion
Political Geography:
China, Asia, and Indo-Pacific

647. The role of nuclear weapons in a Taiwan crisis

Author:
Gregory Weaver
Publication Date:
11-2023
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
The potential for a conflict over Taiwan is increasing due to China’s nuclear and conventional military buildup and the threat of two simultaneous conflicts with China and Russia, which would severely stress the ability of US and allied conventional forces to win in both theaters. Nuclear weapons will cast a long shadow over a Taiwan conflict and could play multiple roles in the deterrence and warfighting strategies and operations of both the United States and the People’s Republic of China (PRC). A conflict over Taiwan has a number of attributes that will shape those roles. Those attributes make the potential for limited nuclear escalation real and uncontrolled nuclear escalation possible. In order to prevent war and escalation in war, US policymakers and military planners must take the role of nuclear weapons in a Taiwan conflict seriously. The United States should communicate four focused deterrent messages to China and reassure its allies and partners that it can deter Chinese nuclear use. The United States should reevaluate its theater nuclear capability requirements for a Taiwan conflict and carefully analyze options to defeat a Chinese amphibious invasion of Taiwan with limited nuclear strikes if necessary. Finally, the United States must credibly address the potential for collaborative or opportunistic aggression by China and Russia in an environment in which both are peer nuclear adversaries. This requires determining what the US strategy should be to address the two-peer threat, optimizing US and allied conventional forces to address it, and reshaping US nuclear capabilities if necessary. The United States needs to know now whether it is going to require a nuclear force that is larger, or different, or both, because changing the current modernization program requires immediate action to address the threats in time.
Topic:
Defense Policy, National Security, Conflict, and Deterrence
Political Geography:
Russia, China, Taiwan, Asia, and United States of America

648. The Economic Impact of China PNTR Repeal

Author:
David Schockenhoff and Michael Kleiman
Publication Date:
11-2023
Content Type:
Special Report
Institution:
Oxford Economics
Abstract:
As scepticism towards China is rising among policymakers, businesses grow more concerned about the potential economic fallout from an escalation in US-China tariff policy. Oxford Economics was commissioned by the US-China Business Council (USCBC) to help inform the policymaking process by examining two scenarios that could materialize if China’s Permanent Normalized Trade Relations (PNTR) status was revoked – including the increase of US tariffs on Chinese goods to column 2 rates as well as a Chinese retaliation imposing pre-WTO rates on US goods. Our analysis incorporates state-of-the art trade and economic models, including the Oxford Economics GEM, and finds that the US could lose up to $1.9trn in output over the five-year period following a China PNTR repeal. This is our third study for USCBC after examining the impact of the US-China relationship and associated scenarios in two previous reports (2017 and 2021).
Topic:
Economics, Politics, Bilateral Relations, Regulation, Tariffs, Trade, Supply Chains, Policymaking, Decoupling, and Goods and Services
Political Geography:
China, Asia, North America, and United States of America

649. The Comeback of Industrial Policy. The Next Geopolitical Great Game

Author:
Alessandro Gili, Davide Tentori, and Paola Magri
Publication Date:
12-2023
Content Type:
Special Report
Institution:
Italian Institute for International Political Studies (ISPI)
Abstract:
Industrial policies are the key element underlying today’s geopolitical scramble and a pillar of national security. Reacting to Western weaknesses and bottlenecks in the global supply chains, highlighted by multiple shocks such as the pandemic, the war in Ukraine, and the recent Israel-Hamas war, the US in first place and the EU later have started to introduce new industrial legislation aimed at making up for lost ground with respect to other industrial powerhouses, such as China. Besides being policy tools to accelerate the green and digital transitions, however, the US Inflation Reduction Act and the Net Zero Industry Act, as well as the US and the EU Chips Acts, entail subsidies, local content requirements and export controls targeted at strengthening the domestic industrial base for critical technologies, fostering strategic autonomy and de-risking from excessive foreign dependencies. This race poses risks for the weaponisation of industrial policies and fragmentation of international trade and also potentially jeopardises technological development. How can we strike a balance between economic security and efficiency? Which sectors are the most critical and which ones are the leading global powers pursuing? What will the consequences be for global value chains and international trade? Is it possible to reach an agreement on rules for a new level playing field to prevent economic competition turning into economic warfare?
Topic:
Development, Industrial Policy, National Security, Science and Technology, European Union, Geopolitics, Trade, and Supply Chains
Political Geography:
China, Europe, and United States of America

650. Third time lucky? China’s push to internationalise the renminbi

Author:
Alessia Amighini and Alicia Garcia-Herrero
Publication Date:
11-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Western concerns that the renminbi could rival the dollar as an international currency contrast with underwhelming numbers in terms of global settlements in renminbi and with the experience of China’s two main previous failed attempts to achieve renminbi internationalisation. However, China is moving towards a more realistic plan for renminbi internationalisation, focusing on China’s strengths in trade and financing. China is now the main trading partner for a very large number of countries and has become a major creditor for a good part of the Global South. This, together with the increasingly frequent restrictions on the use of the dollar, is strengthening the renminbi. The cross-border use of the renminbi for trade settlements and financing (Chinese banks’ overseas loans denominated in renminbi and official renminbi swap lines offered by the People’s Bank of China) has been on the rise since 2022, coinciding with Russia’s invasion of Ukraine and the related Western sanctions. The increase is notable considering that the renminbi has been depreciating since January 2023 and China’s economic performance has been underwhelming. However, the use of the renminbi as investment currency has declined since 2022, in terms of both the share of foreign-exchange reserves denominated in renminbi and the share of Chinese onshore assets held by foreign investors. The current push is so far proving successful compared to previous attempts, but it remains hard to tell if China will succeed in this renewed attempt to internationalise its currency through use of its heavy weight among trading nations. Obvious constraints remain that could hold back full internationalisation of the renminbi, especially the absence of full capital account convertibility. Nevertheless, China’s somewhat heterodox approach to internationalising its currency could succeed given the ongoing placing of restrictions on use of the dollar. How the dollar, the euro or the international monetary system may be further affected by the rise of the renminbi is a major policy question that must be explored further.
Topic:
Finance, Currency, Trade, and Internationalization
Political Geography:
China and Asia