20 May 2019   Leave a comment

The trade war between the US and China shows little sign of abating soon. We tend to think about the trade war as a static situation and analyze the first-order effects of higher tariffs on both sides. But if producers and consumers suspect that the tariffs are not going to go down soon, they will make decisions that will change where goods are produced to avoid the higher fees. We are beginning to see these second-order effects as producers begin exploring places in Southeast Asia to make their goods, and these alternatives sites will enjoy higher growth rates. Countries such as Malaysia, Vietnam, Bangladesh, and Indonesia are enjoying this windfall. If these alternative sites work out, then the trade patterns will remain different and production will return to its previous levels. The two big losers in such a transition will be the US and China. Politico estimates some of the losses for the US:

“The numbers just keep rolling in showing there is no winning a full-scale trade war with China. Just lots and lots of losing. Via Gary Hufbauer, senior economist at the Peterson Institute for International Economics: ‘[T]he cost to an American family of three would be about $2,200 if Trump’s full package of 25% tariffs on $500 billion of merchandise imports from China is implemented.

“‘In the case of the latest 15% additional tariffs on $200 billion, from 10% to 25%, that go into effect by the end of May … the direct cost is $30 billion and the likely indirect cost, through higher US producer prices, will be another $30 billion. Together, that’s $60 billion … about $550 per family.’ China will absorb ‘no more than 5%’ of the tariffs.”

The Indian national election is a very long affair and the final round of voting ended on Sunday. Up to now, Indian law prohibits the publication of exit polls so that the final votes are not distorted. The exit polls after this final round, however, suggest that Prime Minister Narendra Modi and his National Democratic Alliance (NDA) will have a sizable majority in Parliament. According to Reuters:

“Modi’s National Democratic Alliance (NDA) is projected to win anything between 339-365 seats in the 545-member lower house of parliament with the Congress party-led opposition alliance at a distant 77 to 108, India Today Axis exit poll showed.

“To rule, a party needs to win 272 seats. Modi’s alliance won 336 seats in the 2014 election. The exit polls showed that he not only held to this base in the northern Hindi belt but also breached the east where regional groups traditionally held sway.

“Only the south largely resisted the Hindu nationalist surge, except for Karnataka, home to software capital Bengaluru.”

If these exit polls prove to be accurate, it is likely that Prime Minister Modi will believe that his interpretation of Hindu nationalism should guide his administration. Many of the non-Hindus in India fear this outcome.

Posted May 20, 2019 by vferraro1971 in World Politics

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