China has emerged as an economic powerhouse projected to have the largest economy in the world in a little over a decade and is taking an ever-increasing role on the world stage.
China's Rise: Challenges and Opportunities will help the United States and the rest of the world better comprehend the facts and dynamics underpinning China's rise—an understanding that becomes more and more important with each passing day. Additionally, the authors suggest actions both China and the United States can take that will not only maximize the opportunities for China's constructive integration into the international community but also help form a domestic consensus that will provide a stable foundation for such policies.
Filled with facts for policymakers, this much anticipated book's narrative-driven, accessible style will appeal to the general reader. This book is unique in that it analyzes the authoritative data on China's economy, foreign and domestic policy, and national security.
The expert judgments in this book paint a picture of a China confronting domestic challenges that are in many ways side effects of its economic successes, while simultaneously trying to take advantage of the foreign policy benefits of those same successes.
China's Rise: Challenges and Opportunities from The China Balance Sheet Project, a joint, multiyear project of the Center for Strategic and International Studies and the Peterson Institute, discusses China's military modernization, China's increasing soft power influence in Asia and around the world, China's policy toward Taiwan, domestic political development, Beijing's political relations with China's provincial and municipal authorities, corruption and social unrest, rebalancing China's economic growth, the exchange rate controversy, energy and the environment, industrial policy, trade disputes, and investment issues.
There's lots here, but clearly presented, with a great chronology. There is no better place to find a compact overview of recent developments in China, through mid, both with respect to economic developments and with respect to China's foreign and national security policy. Democracy with Chinese Characteristics? Domestic firms lose competitiveness in foreign markets, and exports and activity fall as a result. As such, rising trade distortions imply higher trade costs for all countries involved, which may hinder the optimal allocation of resources.
All economies involved are, in the end, worse off. In a trade dispute involving two countries, third countries may temporarily benefit from rising protectionism. Specifically, third countries can gain market share in countries where tariffs have risen. This stems from the fact that higher tariffs make US goods more expensive in China and Chinese goods more expensive in the United States, with bilateral trade flows between the two eventually declining. The extent to which third countries benefit from this trade diversion depends on how easily a country can substitute imported products from different countries.
Higher substitutability implies more trade diversion. Notes: The latest observation is for The chart shows the breakdown of gross nominal exports to the United States into value added components.
For the euro area aggregate, only extra-euro area countries are considered as other countries. While the pace of expansion might have slowed in recent years, GVCs remain highly fragmented and can amplify the impact of tariffs on trade and activity. GVCs have become increasingly complex, with goods crossing borders multiple times during the production process.
This is well illustrated in Chart 5, which considers the GVC linkages embodied in exports of goods to the United States from several trading partners. In the case of the euro area, only around one-third of exports are consumed in the United States see the blue parts in Chart 5. In fact, a significant share of euro area exports to the United States consists of intermediate goods which are used in the production of goods in the United States and then re-exported to third countries see the yellow parts in Chart 5.
In turn, domestic production and exports include intermediate inputs from third countries. For example, euro area exports to the United States include goods from countries that are closely embedded in European production chains, such as, for instance central and eastern European countries in the automobile sector see the grey parts in Chart 5. Euro area exports also include value added from the United States itself see the red parts in Chart 5. Finally, euro area exports are sometimes first shipped for processing to third countries, such as Mexico, before being exported to the United States see the blue-shaded parts in Chart 5.
In a world characterised by complex GVCs, goods cross borders several times and tariff costs accumulate owing to the cascading effect. This occurs when tariffs are applied to intermediate goods. Intermediate inputs incur tariff costs every time they are shipped to another country for further processing. By the time the finished goods have reached the final consumer, the final price may have risen significantly.
Moreover, imported intermediate goods are often used in domestic production.
When these goods are subject to tariffs, domestic producers in the country imposing the tariffs may also suffer. Higher production costs are likely to be passed on through the various stages of the value chain, with demand, production and investment being negatively affected in all phases.
Therefore, if foreign inputs account for a large share of exports, a low nominal tariff can translate into a high value-added tariff for the exporter. Compared with a situation in which the entire value added of goods is produced domestically, tariffs may have a proportionally larger impact on the profits of exporting firms, thereby increasing the incentive to pass the higher costs on through the value chain. Third countries involved in intermediate stages of production may also face higher production costs, reducing the possible benefits of trade diversion.
An increase in uncertainty, coupled with financial stress, could also amplify the impact of rising protectionism on economic activity. There are several ways in which elevated uncertainty about future trade policies can dampen demand. For example, households may delay spending when economic prospects become more uncertain.
Finally, elevated uncertainty may push up borrowing costs for households and firms as investors demand greater compensation to protect themselves against future risks. Higher trade costs can also weigh on productivity. The tighter financing conditions associated with rising uncertainty can raise the cost of capital, with a negative impact on investment that could hinder productivity growth in the countries affected by the tariffs. Trade barriers can also lead to the misallocation of production factors across firms and countries.
Less-open markets diminish global competition, thereby reducing incentives for innovation and technological advances, and keeping less-productive firms in the market. As a result, aggregate productivity may decline. In the United States, firms operating in the targeted sectors seem to have initially circumvented part of the adverse impact of tariffs by frontloading their imports. US imports from China of products targeted by the US tariffs increased before the tariffs came into effect and declined in the aftermath see Chart 6.
The increase was associated with a surge in inventories, while business investment declined. Although this suggests the presence of frontloading effects, the sharp rise in imports may also reflect buoyant US domestic demand on the back of procyclical fiscal stimuli and strong labour market conditions.
Every day and everywhere, China figures prominently in global attention: companies and banks weigh billions in investments; hedge fund managers assess and speculate on downside risks; commodity traders. David Shambaugh (ed.), Charting China's Future: Domestic and International Challenges. London and New York, Routledge, , pp. Ding Hui. p.
Sources: Census and ECB staff calculations. Note: The data shown in the chart are for nominal imports. Trade diversion effects may also be at play. While total Chinese imports of vegetable products mostly soybeans remained broadly stable following the announcement, imports from the United States were significantly lower than usual.
Assessing Options for Spurring Digital Trade Growth There is currently no framework to govern global digital flows, and there are a variety of competing approaches to data privacy and security. Despite being the most visible use of freshwater, domestic demands for most countries are small relative to agricultural and industrial applications. Even transshipment operations into Vietnam are no longer going according to plan as Vietnam — out of fear of being tariffed next — is getting stricter on rules of origin. It is driven in part by a new generation of young activists, and by mounting evidence that global warming is accelerating, which is increasing the odds of severe heatwaves in Europe , deadly fires in the western United States and massive tropical storms fuelled by increasingly warm oceans, among other things. Chen Xingcan, head of the Institute of Archaeology of the Chinese Academy of Social Sciences, said majors in archaeology and cultural heritage conservation are now offered by more than Chinese universities. Charting a Path for a Stronger U. Here we see large variations geographically and by income level.
However, imports from Brazil, which are unaffected by additional tariffs, have been rising more sharply than usual see Chart 7. Notes: The shaded areas show the range of values for imports of vegetable products from the United States and Brazil for each month of the year in the period , in order to show the typical seasonal pattern. The latest observation is for September The impact of rising tariffs on financial markets appears to have remained confined to the targeted sectors. Global financial markets have generally been resilient to the announcements of new tariffs.
This may reflect the fact that they have thus far targeted only a small fraction of global trade. At the same time, US companies potentially affected by higher tariffs, such as those highly exposed to regions outside the United States in terms of revenue generation, have clearly underperformed see Chart 8. An analysis by the ECB indicates that underperformance in the affected sectors can almost always be traced back to changes in risk premia, whereas fundamentals — such as earnings expectations and credit risk — do not change much.
Notes: The chart shows the cumulated shares reaction following six major US and China tariff announcements since the beginning of Sectoral trade openness is calculated as the sum of imports and exports divided by gross value added in the respective sub-industry in The latest observation is for 5 October Besides its impact on financial markets, rising protectionism can also affect sentiments more broadly.
Recent survey-based indicators point to some tangible moderation in activity in China, with trade disputes often being identified as one of the factors contributing to the weak Chinese investment seen in recent quarters. However, this decline in investment might also have been driven by tighter domestic credit conditions. As discussed in Section 4.
In the United States, consumer and business confidence indicators have fallen somewhat in recent months, although they remain close to historically high levels. US firms, however, have become increasingly worried about the effects of trade tensions, and a number of companies report that they have reassessed their capital investment plans in the light of tariff concerns.
Uncertainty related to rising protectionism might also have been affecting external demand for euro area goods. Extra-euro area exports have been particularly weak since the start of , with the decline being driven mainly by a sharp deterioration in the manufacturing, machinery and transport equipment sectors see Chart While this suggests that uncertainty related to rising protectionism might have affected euro area exports, it is difficult to disentangle this possible effect from other factors, including the introduction of new emission standards in Europe, specific adverse changes to regulations in the car sector in China, financial turbulence in emerging markets and Brexit.