Photo/Shetuwang

Apr. 27 (NBD) -- Concerns of a full blown trade war surge after the U.S.'s probes into Chinese telecom firms.

On 16 April, the U.S. Department of Commerce announced that the country will ban American firms from selling parts, products, software and technology to smartphone maker ZTE Corp in the coming 7 years. 

Later on Wednesday, Chinese technology giant Huawei was reported under investigation by the U.S. Department of Justice for the breach of sanctions in relation to Iran, Wall Street Journal said. 

For trade tensions between two economies, Robert E. Scott, senior economist and director of Trade and Manufacturing Policy Research at Economic Policy Institute, accepted NBD's exclusive interview, saying that U.S.'s ban on ZTE's purchase is not a "trade war".

Trade policy decision-making based on strategic analysis

Scott pointed out that making strategic choice regarding commercial relations with Chinese telecom firms does not constitute a "trade war," but rather a long-overdue recognition of threats posed by China's telecommunications development.

According to Trend Force, an industry research institution, the new list of Chinese imports under the U.S. tariffs revealed the U.S.'s worries about the emerging tech industry in China, especially the integrated circuit (IC) tech.

Scott told NBD that the conflict is, to some extent, concentrated in high-tech industries where China has invested hundreds of billions of dollars to penetrate plans to dominate in sectors where it has no natural competitive advantage.

The conflict will definitely hit firms in both China and the U.S. The new ban on sales to ZTE is believed to cause losses for the U.S. suppliers. Qualcomm, for example, is predicted to face a loss of 754 million U.S. dollars every year due to the ban.

With regard to the decision that the U.S. has made, Scott explained that the trade policy decision-making should be based on strategic analysis, not on transactional concerns of particular companies. 

Addressing trade deficit an urgent problem?

"Now we have a trade deficit of 500 billion U.S. dollars a year, with intellectual property (IP) theft of another 300 billion U.S. dollars. We cannot let this continue," U.S. President Trump said on Twitter in early April.

Is the trade deficit an urgent issue for the U.S.?

In Scott's opinion, the large U.S. trade deficit, especially the deficit in non-oil manufactured goods, which reached 734.3 billion U.S. dolllars and represented 3.8 percent of GDP in 2017, is a major barrier to the recovery of U.S. manufacturing industries, which have stagnated for the past 20 years. China is responsible for about one-half of that trade deficit. Other major contributors include Japan and Germany (and the EU, more generally). 

In general, Trump is wrong to focus on bilateral deficits, but in practice those are closely correlated with the global trade and current account surpluses of those countries, he noted.

In terms of problems in the economic growth of the U.S., Scott commented that the country faces many other significant problems at the moment, including massive tax cuts for the wealthy that threaten to erode fiscal support for key government programs, rising inequality, declining health care and pension coverage and related social ills. 

America's failed trade and industrial policies have contributed to many of these problems. There is no one "biggest problem," these problems are inter-related, Scott noted.

Email: zhanglingxiao@nbd.com.cn