See More on Facebook

Analysis, Economics

Trade war will hurt all sides; Deutsche Bank

A trade war between the United States and China will seriously hurt both sides, according to a report by the Deutsche Bank Research.


Written by

Updated: April 4, 2018

The trade imbalance between the United States and China is grossly misleading and a trade war between the two will seriously hurt both sides, according to a report by the Deutsche Bank Research.

The report was released at a time when tensions between the world’s two largest economies escalated following a series of protectionist tariff measures unveiled by the Trump administration, raising concern for a trade war.

The Dow Jones Industrial Average plummeted 450 points on Monday, the day China started to slap new tariffs on 128 US products in response to the US steel and aluminium tariffs imposed on March 23 in the name of national security.

“The US business interests in China are much larger than what the trade data show. The looming trade war puts these interests at risk,” said the Deutsche Bank Research report.

Using “aggregate sales balance” which includes both trade balance and sales generated through subsidiaries Foreign Direct Investments (FDI) in destination countries, the research found that the actual bilateral imbalance is much smaller.

The total sales of US firms based in China reached $372 billion in 2015, including $223 billion by their subsidiaries in China and $150 billion through exports from the US to China, according to the report, citing figures from the US Bureau of Economic Analysis (BEA).

Meanwhile, US data show that Chinese companies sold $402 billion of goods and services to the US in 2015, including $10 billion through Chinese subsidiaries in the US and $393 billion through exports.

“This suggests a net balance of -$30 billion from the US perspective in 2015,” said the report dated March 26.

US President Donald Trump has often blamed other nations for US trade deficits and described the deficits as a loss for the US and win for trade partners, a view that is dismissed by most economists and trade experts.

The Deutsche Bank Research report also showed that both the trade balance and the aggregate sales balance between US and China, though widened before 2009, have since diverged, driven by the surge of sales by US subsidiaries in China.

China accounted for a third of the incremental sales by US subsidiaries globally between 2010 and 2015. Firm-level data shows the US firms’ sales in China continue to outpace their global sales in 2016 and 2017, according to BEA data.

The report pointed out that trade balance is misleading, citing the example of Apple and General Motors. There were 310 million active iPhones running in China in 2016 and Apple generated $48 billion revenue from China in 2016, mostly from iPhones. But it was not reflected in the trade balance since China only imported $1 million of cell phones from the US in 2016.

Meanwhile, China exported $26 billion of cell phones to the US, counted as US deficit. But a study conducted a few years ago showed that $334 of iPhone sold at $549 went to the US. The rest are distributed among various suppliers, and only $10 goes to China as labour costs, according to the report.

For General Motors, the largest US automaker sold 4 million cars in China and 3.6 million cars in the US in 2017. But China only imported 1.2 million from all countries in 2017, so GM likely sold its cars through its subsidiary in Shanghai.

The whole manufacturing and distribution process happened in China, hence it does not show up in trade statistics, the report said, concluding that it is misleading to judge economic exposure between two countries by looking only at the trade balance.

“This report helps illustrate the deeply intertwined nature of the US-China economic relationship, which some of the most frequently cited statistics do not fully capture,” said Colin Grabow, a policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.

“Any trade war between the US and China would provide the two sides with ample opportunity to inflict considerable pain on both themselves and each other,” he said.

Economists at the Deutsche Bank Research said that each side has a lot to lose from a trade war. “The most damaging retaliation from China would be to punish the US business interests in China,” they said.

They warned that a policy mistake on either side could escalate the tension and cause significant disruption to the global economy and financial markets.

“It is indeed mutually beneficial if China and the US avoid a full blown trade war. The aggregate sales balance is set to shift into surplus for US firms,” said the report, citing words by Chinese Premier Li Keqiang on March 20 to further open the nation’s service sector and strengthen the protection of intellectual property.

(This article originally appeared in the China Daily)



Enjoyed this story? Share it.


China Daily
About the Author: China Daily covers domestic and world news through nine print editions and digital media worldwide.

Eastern Briefings

All you need to know about Asia


Our Eastern Briefings Newsletter presents curated stories from 22 Asian newspapers from South, Southeast and Northeast Asia.

Sign up and stay updated with the latest news.



By providing us with your email address, you agree to our Privacy Policy and Terms of Service.

View Today's Newsletter Here

Analysis, Economics

Bangladeshis will be richer than Indians by 2030

This according to a new report by Standard Chartered bank. Bangladeshis will be richer than Indians by 2030 as the country’s per capita income will grow nearly four times throughout the 2020s, according to Standard Chartered — in yet another endorsement of its tremendous growth momentum. The per capita income of Bangladesh will rise to $5,734.6 in 2030. India’s will edge up to $5,423.4 after growing less than three times, according to a research note from Madhur Jha, Standard Chartered India’s head of thematic research, and David Mann, the bank’s global chief economist. Last year, Bangladesh’s per capita income stood at $1,599.8 and India’s $1,913.2. The note highlights the economies around the world that are likely to grow the fastest in the 2020s. The threshold for the list is 7 percent, the approximate growth rate at which an economy can double in size every 10 years.


By Daily Star
May 17, 2019

Analysis, Economics

Jobless rate hits 19-year high in Korea

Rate rises on back of youth unemployment. South Korea’s job market prolonged its downswing in April, with unemployment reaching its highest point in 19 years, government data showed Wednesday. The increasing pace of job creation also slowed further, especially in the retail and manufacturing sectors and among the economically active 30-40 age group. According to job figures released by Statistics Korea, the total number of jobless people surpassed 1.24 million as of April for the first time since the government started compiling the data in June 1999. The jobless rate stood at 4.4 percent, up 0.3 percentage point from a year earlier and marking the highest for any April since 2000, when Asia’s fourth-largest economy was reeling under the aftermaths of the Asian Financial Crisis. The jobless rate for young adults — those aged between 15 and 29 — also rose to a record-high 11


By The Korea Herald
May 16, 2019

Analysis, Economics

Beijing stresses equality in trade talks with Washington

World market confidence dampened by escalation, Chinese state media says. Consultations between China and the United States are not a one-way street, and should be conducted amid a spirit of equality, State Councilor and Foreign Minister Wang Yi said on Monday in Russia. Wang said that it is pointless for one side to blame the other, or even to absolve themselves from responsibility. Wang stressed if one side is trying to place extreme pressure on the other, it will cause a legitimate counterattack. “The measures from us are not only to safeguard China’s own rights, but to protect the basic rules of the current multilateral trading mechanism,” Wang said. Wang made the remark in a joint news conference with his Russian counterpart Sergei Lavrov during his visit to the Black Sea coastal city of Sochi. Experts warned that the rising US tariffs on Ch


By China Daily
May 16, 2019

Analysis, Economics

South Korea jobless rate rises to 4.4% in April

Weak job markets and uncertain macroeconomics have contributed to increased unemployment. South Korea’s jobless rate rose to 4.4 percent in April, government data showed Wednesday, in the latest sign of a weak job market amid an economic slowdown in Asia’s fourth-largest economy. The unemployment rate increased 0.3 percentage point from a year earlier, according to the data compiled by Statistics Korea. It also marked the highest level for any April since 2000, when the corresponding figure stood at 4.5 percent. The number of employed people reached 27.03 million in April, an increase of 171,000 from the same month in 2018.


By The Korea Herald
May 15, 2019

Analysis, Economics

Beijing vows retaliation on US trade

Ministry expresses ‘deep regrets’ in wake of added tariffs on Chinese goods. The Ministry of Commerce expressed “deep regrets” on Friday at the United States’ move to impose additional tariffs on Chinese imports and vowed to take necessary countermeasures. The comments came shortly after the US increased the rate of additional duties on $200 billion worth of Chinese imports from 10 percent to 25 percent, a move that economists said amounts to “typical trade bullying” that will backfire to hurt its own interests. The commerce ministry said in a statement that the 11th round of China-US high-level economic and trade consultations are underway, and China hopes the two sides can work together to resolve existing issues cooperatively. Foreign Ministry spokesman Geng Shuang said at a daily news briefing that a healthy and stable Sino-US relationship serves the


By China Daily
May 13, 2019

Analysis, Economics

Pakistan reaches agreement with IMF

The country will receive $6 billion over 3 years. The technical teams of the government and the International Monetary Fund (IMF) have reached an agreement on a bailout package for Pakistan, Adviser to Prime Minister on Finance, Revenue and Economic Affairs Dr Abdul Hafeez Shaikh announced on Sunday. “After months of discussions and negotiations, a staff-level agreement has been reached between Pakistan and the IMF,” he said while speaking on state-run PTV News. Dr Shaikh revealed that Pakistan would receive $6 billion worth of assistance under the IMF programme over a period of three years. He said the staff-level agreement, which must still be approved by the IMF board of directors in Washington, would show that


By Dawn
May 13, 2019