By Alejandro A. Tagliavini *

 

After a truce, until March 1, agreed at the G20 meeting in Buenos Aires, the first two global economies resume the conflict, with more virulence.

In response to the decision of Washington to raise tariffs in US $ 200,000 million to Chinese products, Beijing announced others for US $ 60,000 million for US goods, they are products that, from June 1, will be taxed with tariffs of between 5% and 25%. Then, the USA published another list of products that could be taxed with 25% for a total of US $ 325,000 million, although the decision is not taken yet.

USA exported in 2018 for US $ 120,000 million to China and imported for 540,000 million. This deficit of US $ 420,000 million is the one invoked by Trump who demands that Beijing increases its purchases to balance the commerce, takes measures to “protect intellectual property”, eliminates the forced transfer of technology and allows access to Chinese financial markets, among other things. China, on its part, aims to “align with its general position of reform and opening, and the need for high quality development.”

Trump, and his Chinese counterpart, Xi Jinping, will meet next month in Osaka during the G20 summit. Meanwhile, the rest of the world is preparing for a slowdown in global growth given a conflict with a harder and longer escalation.

“The US tariff initiatives … will cause a lot of self-harm …”, says the Chinese newspaper The Global Times. While an official said that China “will turn the crisis into an opportunity.”

Now, these fears would be justified if the primitive mercantilist theory was true, according to which the wealth of a country depends on trade. When, strictly speaking, it depends on its production and, above all, on its creativity: technological and scientific development. And to maximize this creativity and production the only thing necessary is that the sum of the millions of human brains work, and join, without being restricted by state regulations and taxes.

In short, what enriches a country is the freedom of its internal market, and not the external conditions since creativity, precisely, serves to skip obstacles. So, it’s not really the war between the US. and China the basis of the problems of the global economy, but the increase of the weight and the regulations of the States on their markets, the people. Thus, as The Global Times pointed out, tariffs on Chinese products – and vice versa – will hurt those who have to pay them: Americans.

As the US fiscal deficit that amounted to US $ 970,000 million in 2018 (4.6% of GDP) and would be around US $ 1 billion in July 2019, when the fiscal year ends. Record level that is covered – in addition to taxes that are resources extracted from the market – with state debt that climbs sidereal, taking funds away from the private sector.

China, goes the same way. The Government tries measures that will deepen the crisis: credits and investment in infrastructures financed by banks and state companies. That is, the greater weight of the State bulking up its stratospheric debt, which is around 300% of GDP. Zhang Weiying, of the University of Beijing, warned that the problems began before Trump. “Moving towards a larger state sector … will lead the economy to stagnation,” he said.

 

* Member of the Advisory Board of the Center on Global Prosperity, Oakland, California

@alextagliavini

http://www.alejandrotagliavini.com

 

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