The US-China Trade War Comes with a Convenience

Image via Flickr by alobos life

With the US trade war against China intensifying, Chile’s economic leaders have reason to worry. But politically the trade war is not only bad news. It comes conveniently when the economy is transitioning to digital services, shedding many traditional jobs.

In March 2018 US President Trump imposed tariffs on Chinese imports to supposedly protect the US economy and jobs, and stick a finger in the eye of a foreign power. This was a central promise of his presidential campaign. More recently, Trump even vowed to raise tariffs to 10% on US$300 billion in Chinese imports. Moreover, his obvious mental deterioration, coupled with rising megalomania, show that the trade rests increasingly on Trump’s impulse. So all bets are off.

If more tariffs come, US growth could fall drastically next year. But that’s not the point. Trump’s tariffs are not only popular with his base, but also force US firms that shipped jobs to China to restructure supply chains. Although this restructuring rarely brings jobs back to the US, it creates bluster that further inflames the propaganda to keep the Trump cultists agitated. Under the trade war umbrella Trumpworld cowers cozily in the Fox-News-hole and resents reality. Such bonding helps also to rationalize and justify the damage these policies inflict not only on the US economy generally, but also on Trump voters particularly.

Chile’s Stake

Chilean policymakers could not hope to influence this situation, even if the country would be led by a president who wouldn’t diminish himself and his country’s flag before Trump and the world. (Had the socialist anti-Christ Bachelet pulled just half that gaffe, the collective right-wing would have hauled her before a kangaroo court.)

Analysts are clear-eyed about the economic consequences of a clash between the world’s major economies. The head of Universidad Católica’s international studies center, Jorge Sahd, said that since the US and China are Chile’s biggest trading partners, any sustained negative effects in their economies would reverberate through Chile’s eventually, specifically via the copper price. If tariffs hurt US demand for Chinese produce, China’s economy will need less materials like copper. That will hurt Chilean exports but also mining investments, and affect the public purse and private accounts as staff is laid off or not hired in the first place.

If exports fall, with no end in sight, and consumption drops because of less private income, ratings agencies take note and claim Chile is losing economic muscle. Economic diversification and digital services are by far not advanced enough to cushion that impact, so rating agencies could downgrade the credit rating. This means Chile would have to pay higher interest for funds from capital markets with further negative impacts on businesses big and small.

In a nutshell, anything that influences copper prices and consumption will affect negatively an economy like Chile’s.

Political Convenience

But so far, the damage the trade war has caused has been far less than analysts predicted. That will change if it drags into 2020, but for now the trade war serves as one scapegoat to dismiss the massive restructuring of Chile’s economy. No less than 10 signature companies have closed down for good within just 12 months, with over 36,000 jobs lost. In 2018, 33% more companies started a bankruptcy process than in 2017. These numbers should give decision-makers pause, even more so as among the dead are companies that stood firm throughout decades. These jobs won’t come back, trade war or peace.

The TPP and Chile’s Foreign Policy Options

Many jobs were lost in manufacturing as technological advancement and free trade agreements made even the rather low wages paid in the segment economically unfeasible. But the government and analysts just shrug. For them plant closures are a ‘normal occurrence in the economy,’ which is not wrong – but then what? Decision-makers don’t see the social consequences of plant closures as worthy of attention. For them work is simply and economic and individual process and does not connect to forces individuals could or should influence.

But globalization, free trade and technology aren’t natural forces. They are political decisions. Before Trump (and Bernie Sanders), Republicans and Democrats alike hid the political agency that influences the march of history under bloomy language of exports and openness. Back then, it was unthinkable that someone would rise who would dare to confront the US’ most important trade partner and hurt the home economy in the process.

Similarly, Chilean politicians left and right have been creating the conditions that led to these massive plant closures without giving much thought to the workers that would lose out. They preach ‘insertion into the global economy’ as especially the current government compensates for the sovereignty loss inherent in free trade agreements with xenophobia. For the president and his circle, foreigners put more pressure on Chile than developments in the global economy to which Chile has to adapt but can scarcely influence.

Instead of easing the free trade problem by expanding the social safety net and make education more accessible, Chile’s leaders stoke resentment against immigrants. They are walking the same path Democrats and Republicans did, which – unthinkable three years ago – led to support for a leader who does away with the free-trade mantra.
Chile’s establishment has planted similar seeds long ago and the current government is cultivating them. Somebody will come to harvest.

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