Trade Wars


  Trade and GDP Growth after WWII 
 1945 - 1982

US became more open since 1980.

Since 1945 and before 1982, the US experienced 7 recessions in 35 years, about once every five years.

 1982 -

Since 1982, the US had three recessions, about once a decade. US economy was much more volatile before 1982, but has since been growing at a much more stable rate. But the growth rate has declined probably due to trade deficits.

 

Unemployment

In 1982 US unemployment peaked at about 11%, and has since declined especially after NAFTA (1994).

 

Trade Wars 1. Trojan War

 Trojan war



Trojan war was probably a trade war. It was supposedly waged by the Greeks over one woman, Helen, according to Homer, around 1200 BC, about the time of Moses' exodus from Egypt. (Queen Helen of Spart was kidnaped by Trojan prince Paris, or they eloped together. Helen's husband Menelaus convinced his brother Agamemnonto lead a fleet of more than 1000 ships from the Hellenic world.)

It is a romantic story, but it is difficult to believe that a King would mobilize a thousand ships just to bring back one woman. There may have been an economic motive; Apparently, Troy was a trading port. There were some trade between Mycenaeans and Trojans, and Troy was a major trading post as the people of Troas controlled the trade routes to the Black Sea.

(copyright free)

The real motive of the Greeks to destroy Troy may have been to control the maritime trade in the Aegean Sea. That is, Trojan War was probably a trade war.


Agamemnon's death mask, Archeological Museum of Athens



Greek helmet, British Museum

 


Achilles and Patroclus, Altes Museum, Berlin


Abduction of Helen, Guido Reni 1631, Louvre Museum



A grinding stone used by Trojan women.


Alabaster figurines from Troy (Anatolia)

 

  2. The Fourth Crusade (1202-1204)
The first three crusades

Kingdom of Heaven (2005) is a fictionalized account of the Battle of Hattin and the siege of Jerusalem in 1187 before the third crusade. Hattin was located between Sephoris and Tiberias.

First crusade (1095-1099): crusaders captured Jerusalem. Knights Hospitaller was founded in 1070 to aid injured pilgrims. After the crusade, it was turned into a military order. Subsequently, Knights Templar was created in 1119 (dissolved by Pope Clement V in 1312).

Second crusade (1145-1149): The French and German armies were defeated separately by Nur ad-Din (sunni) in 1146.

Afterwards, Nur ad-Din took Antioch (1149), Damascus (1154), and Egypt (1168). After the death of his uncle Shirkuh, Saladin (sunni Muslim) became the visier of Egypt, but abolished Fatimid Caliphate and changed Egypt's allegiance to the Sunni. After defeating the Zangid army at the Battle of Hama (1075), Saladin became the Sultan (political head) of Egypt and Syria. He abolished the Fatimid Caliphate in 1171, and changed his alliance to sunnis.


Saladin Citadel of Cairo. Saladin became the calif of Egypt in 1174.

Following the capture of Jerusalem by the crusaders in 1099, Knights Hospitaller was officially recognized as a religious order to take care of pilgrims by Pope Paschal II in 1113 AD. Subsequently, it was turned into a military order in 1120.

Knights Templar was founded as a military order in 1119, and was soon recognized by the pape. Knights Templar was stationed at the Solomon's temple, consisting of poor knights. The poor knights were popular in Europe, and the Templar soon became the favorite charity organization in Europe. It became the the world's first multinational banker.

In 1187 the battle of Hattin took place near Tiberias. Raynald of Chatillon, together with all 200 of the Templar and Hospitaller Knights (except Guy of Lusignan) were executed on Saladin's orders. Saladin recaptured Jerusalem from the Christians. (see Kingdom of Heaven)

The third crusade (1189-1192) resulted in a truce between King Richard (the Lionheart) and Saladin, but Saladin died of typhus shortly thereafter, in 1193.

Jacques de Molay, the grand master of the Knights Templar, was executed in March 1314. Rumor has it that he cursed both Philip IV and pope Clement V. Within a year of his execution, both of them died, and in 14 years, Philip's 3 sons and his only grandson also died. The Carpetian dynasty perished with them.


well used for initiation ceremonies by Knights Templar

The 4th Crusade

map

 

 

 


Blue mosque in Istanbul (as shown in Skyfall)

During the Middle Ages, and thereafter, trade wars became more vicious. In the 13th century, there were two international trade centers in the West, Venice and Constantinople. (Italy then was not a nation state yet but was dominated by a few city states such as Venice, Rome, Milan and Florence).

From the previous two campaigns Crusaders realized that to conquer Jerusalem and establish a kingdom there it is necessary to conquer Cairo first. Six French envoys (knights) came to Venice and begged the doge to supply them with war galleys and transports.

After some negotiations, Venetians (The Great Council of Forty) agreed to build ships to move 4,500 knights and their horses, and 9,000 squires. They would supply provisions for 1 year. The total cost would be 85,000 silver marks. Venetians would also provide 50 armed galleys of their own and receive half of the loots.

In October 1202, 12,000 troops gathered in Venice (1/3 of the expected 35,000), but they could pay only 51,000 silver marks, not the full amount of 85,000 silver marks which they had agreed to pay for the voyage to Cairo. (The intent was to conquer the Moslem-controlled city of Jerusalem. Venetians constructed 50 war galleys and 200 ships for transportation.) While they stationed in Zara during the winter to wipe out local pirates, Alexius Angelos, a young Byzantine prince, offered 200,000 silver marks plus 10,000 Byzantine soldiers to divert the crusade to Constantinople and restore his father to the throne. (Pope Innocent III, John Moore)

Enrico Dandolo, the founder of Venetian colonial empire, supported Alexius IV, and diverted the fourth crusaders to Zara to wipe out the pirates, and then to Constantinople, a rival trading center. Constantinople fell on April 12, 1204, and the fourth crusade ended then and there. Most of the crusaders returned home with the loots. The total amount of loots was estimated to be about 900,000 silver marks. Venice got the first pick, and Venetians brought the booties from Constantinople to Venice, which were used to embellish Basilica di San Marco. See Virtual History of Venice. Venetians: 200,000 silver marks, Crusader knights kept 500,000 marks.


Basilica di San Marco, Venice.

Bronze horses looted from Constantinople, now in the Basilica.

Minneapolis Institute of Arts


 Today Only in recent years (post-World War II era) traders have become much more civilized. Modern trade wars are waged when governments erect tariffs and nontariff barriers (e.g., import quotas and voluntary export restraints). Aggrieved nations often file a complaint with a dispute settlement body of the WTO, against the importing countries that raise trade barriers. Representatives of the trading countries argue in a civilized manner and submit evidence to the WTO.
   

 

  3. Opium Wars
First Opium War (1839-1842)

The war was inevitable because Britain wanted to import silk, porcelain and tea from China, but there was nothing Britain could export to China. As a result, silver flowed into China to pay for Britain's trade deficit. (Today, China holds about $3 trillion as foreign exchange reserve).

This is not a tenable situation. (Even if opium trade had been excluded, Britain would have found some other excuse to invade China.) As it happened, Britain grew opium in India, which was transported to the coast of China.

China's viceroy Lin Zexu confiscated 20,000 chests (1200 tons) of opium. In 1839, Britain occupied Hong Kong, and in 1842 the Treaty of Nanking was signed, ending the war. As a result, five cities were open to the British, including Shanghai. In 1898, Britain was granted an additional 99 years of rule over Hong Kong. In 1997, Hong Kong was returned to China.

Second Opium War

The British wanted the opening of all of China to British merchants, legalization of opium trade, and tariff exemption (i.e., free trade).

In October 1860, the British and French troops entered the Forbidden City, and Prince Gong signed Convention of Beijing, accepting the validity of the Treaties of Tianjin (1858), which allowed the US, Great Britain, France and Russia to establish legations in Beijing, and opening ten ports for trade. He agreed to open Tianjin as a trade port, allow religious freedom, and legalize the opium trade. (The Summer Palace, instead of the Forbidden Palace, was burned down).


Forbidden Palace, Beijing


A porcelain mural in Tianjin (天津), depicting the Second Oppium War.

   

 

  How Much China Loses from the Low Yuan Policy
Is CM a trade policy?

Currency manipulation is not yet treated as a protective instrument by WTO .

 US trade deficit: $366 billion with China, and $566 billion trade deficit overall in 2017.

In October 2011, the Senate passed the controversial currency bill, designed to punish the so-called "currency manipulators."

Low yuan policy of China has been viewed as an attempt "to take unfair advantage" over its trading partners.

 Suppose US-China bilateral trade is balanced at 3 yuan per dollar, and that China pegs the exchange rate at 6 yuan per dollar in order to maintain a trade surpluse. As a result, China's trade surplus rises to $3 trillion during the past 5 years. Suppose China continues this policy for another 5 years, and its trade surplus rises to $6 trillion during the next 5 years.

When is the best time for China to use surplus dollars?

(i) Never? This amounts to burning USD.
(ii) a decade or two later? The US economy would have reached full employment. China's spending of $6 trillion will only cause a huge inflation in the US. The purchasing power of $6 trillion then would be much less.
(iii) Now? yes.

Why China would lose?
(buy high, sell low policy)


At some point, China has to stop accumulating USD at high prices. When it does, RMB appreciates (and $ falls) to its equilibrium value (3 yuan per dollar). 

 China's International reserve asset

 


Suppose China continues the currency policy and doubles its international reserve asset (to $6 trillion). China may purchase real estates, land or financial assets in America, but the total value of China's assets in America would be $6 trillion.
Cost  China buys high (and sells low). China would have paid $6 trillion × 6 yuan/$ = 36 trillion yuan. 
Value of China's assets in America When China stops accumulating USD, the dollar depreciates and the yuan appreciates. The total value of China's dollar assets is $6 trillion (Interest rate is close to zero in the US), but its yuan value now drops to $6 trillion  × 3 yuan/$ = 18 trillion yuan.
China's profit from Investment in America profit = Revenue (18 trillion yuan) - Cost (36 trillion yuan) = - 18 trillion yuan (or US profited $6 trillion).
 

Any more delay in using these surplus dollars will increase China's loss, as RMB can only rise further.

Investment is profitable only when the investors buy low and sell high.

China does just the opposite.

Also, China's public and private debt is $34 trillion (260% of GDP).

   

 

  III. Arguments for Protection
 Problem Economic theory states that free trade is better than Autarky. In practice, no countries practice free trade policy.
Why protectionism?  A few arguments are valid, but most are faulty.
 Fallacy of Composition

"What is good for our industry is also good for the whole country."

Protect our industry, please. 

You can easily see how domestic industries might persuade the government to protect them from foreign competition. In presenting their case to the public and government, protectionists would not get very far if they were to argue in terms of their own private gains. Accordingly, most of their arguments assert that protection benefits the national interest.

In so many words, protectionists would argue that what is good for my industry is also good for the country. This constitutes a fallacy of composition. Protectionists usually appeal to the patriotism and nationalistic attitude of fellow citizens.

 

  1. "Keep Money at Home" Argument
What The proponents of this argument claims that when domestic residents buy imported goods, the country gets the goods and the foreigners get the money. On the other hand, when the residents buy domestic goods, the country keeps both the goods and the money. Hence the country gets richer by preventing imports.
 "If you import foreign goods..."  
 "If imports are blocked..."

 

When domestic consumers buy goods from domestic firms, and hence money does not flow out of the country. Foreign exports only bring money into the home country, or so they argue.

 Why this argument is false

The sheer fallacy of this argument is rooted in the crude mercantilistic theory, which maintained that money is wealth itself.

Money paid for foreign imports must return sooner or later in the form of payments for imports or as investment in the US. Money has no ultimate redemption value except in the country of its issue.

China's three options Suppose China does not want to spend the surplus on American goods. Then a surplus country (for example, China) has three options.

(i) China can pile up trade surpluses year after year and never spend them. In this case China never returns USD to buy imports from the US, and its trade surplus amounts to losing USD or donating to the US.

(ii) China can pile up USD and buy US Treasury bills for a long period (say ten years) and spend all its investment in a single year. In this case, the US would enjoy low prices for a decade but would face inflation in the year when China spends it all. (a) Due to inflation, the actual volume of goods China can purchase will be much smaller. (b) This option means China buys dollars at high price and sells at low price. According to Jin and Choi (2012) China lost about $140 billion since 2006.

(iii) China can use the surplus to buy American goods during the same year. This option would be the best way to protect the value of China's exports. True, China can use the surplus to invest in the US, but it would be more profitable for China to invest it in China, rather than in the US.

 Japan's mistake in the 1980s  Japan had been accumulating a huge bilateral trade surplus, which was used to buy assets in the US. Eventually, dollar depreciated and yen's value more than doubled in 1985. All foreign assets must perforce be converted into Japanese yen for Japanese consumers. Accordingly, Japan's assets in the US lost roughly half of their value (in yen).
   

 

  2. Home Market Argument
What it says  This argument claims that "the domestic producers should have a home market for their products. By eliminating foreign imports, more jobs can be created."
 Why false

Farmers in the South should produce no more than is needed to supply the home market (autarky).

The fallacy of this argument can be seen from noting that any shifts from imports to domestic production is offset by a contraction of the output in the export sector. The importing industry can increase its output only by attracting more resources from the export industry.

  This argument amounts to saying that we should not specialize in the commodities in which we have a comparative advantage.

   

 

  3. Equalization of Costs Argument
 What it says

"We need to neutralize any advantage the foreign producers have over the domestic producers, in lower taxes, or cheap labor."

"We need to equalize the costs of production between foreign and domestic producers." In this way, we level the playing field.

Some protectionists have favored the so-called the "scientific method of tariff making." This argument carries the spirit of fair competition. However, if costs of production are equalized by tariffs, then the very reason for international trade disappears.

  The logical consequence of this pseudo-scientific method is the elimination of trade between nations. This argument is totally fallacious, and is one of the most deceitful ever advanced in support of protection in the U.S.
 What is wrong? Problems: A close examination of this argument reveals practical problems. Producers in any country have different costs for the same product. If the goal is to protect all domestic producers against all foreign producers, we must equalize the cost of the most efficient foreign producers and the cost of the least efficient domestic producers by adding a tariff. In this case, a relatively efficient domestic producer reaps above normal profit.

 How high a tariff?


Representative Hawley and Senator Smoot

 
 In practice

 Despite these objections, a tariff provision to equalize the costs of production were actually incorporated in the US Tariff Act of 1922 (Fordney-McCumber Act) and the Hawley Smoot Act of 1930 (t = 100%).

 Did HS cause the Great Depression?

Probably not, but it did not alleviate the pain.

US exports of agricultural products declined from $7 billion in 1929 to $2.4 billion in 1932. US exports of iron and steel exports declined by 85% by 1932 due to retaliation by Canada.

   

  4. National Security Argument
 What it says

"A nation dependent on foreign sources of supply is in a vulnerable position during a war."

This is a military or political argument, but it has economic implications.

Few people disagree with the need to maintain an adequate national defense. Even Adam Smith wrote in 1776 that "defense is more important than opulence."

Japanese people were trained to defend the country with bamboo spears (April 1945).

What is wrong

Likely to be abused by industries.

The problem is in defining the requirements of national defense. Otherwise, the national security argument can be used to justify complete self sufficiency or protection of any industry.

Since most producers consider their outputs are essential to the defense of their country, this argument is subject to abuse. In the US, manufacturers of peanuts, candles, thumbtacks, gloves, umbrellas, and many other sundry products of ordinary consumption goods have all asked for protection on the grounds of national security.

Technological changes (AI, 5G, graphene, etc.)

During the cold war, military experts were inclined to view future wars in terms of an all-out thermonuclear war and accepted the doctrine of Mutually Assured Destruction (MAD).

However, the notion of MAD has become obsolete due to recent technological advances. Targets can be removed without using nuclear weapons.

(i) Laser Weapon System (LaWS): LaWS uses an infrared beam (whose wavelength is 880 nm). When increased to 30kw, it can fry sensors, burn out motors and detonate explosive materials. According to the Navy, the cost of a single laser shot is about $1, compared to $1.87 million of Tomahawk missile. Improved accuracy.

(ii) Kinetic weapons: bombs dropped from satellites. Its destructive power is comparable to that of nuclear weapons. But The kinetic energy will not detonate the nuclear heads of incoming missiles. Hence,

(iii) Terminal High Altitude Area Defense (THAAD) missiles were deployed in Korea to blockade South China Sea. 80% of China's energy imports passes through the South China Sea (Range: 125 miles, 100% success rate in tests). One battery consists of 6 launching trucks, each equipped with 8 missiles, and costs $800 million per battery. THAAD was deployed in South Korea, resulting in retaliation measures from China.

Aegis combat system (produced by Lockheed Martin) has been used by US, Japan and South Korea (80% success rate).

In this case, protection of the so-called "strategic" industries can make no contribution. Moreover, the need for maintaining nuclear strike capability has declined since the end of the cold war in 1991.

The need for constant readiness for local or regional wars and accuracy of hitting non-civilian targets is now more emphasized.

(iv) Export control of these high-tech weapons is all the more important.

Environmental hazards

Nuclear and chemical weapons also pose enviromental hazards. These weapons become unstable over time and need to be dismantled later, a costly operation. (Remember the Fukushima Daiichi disaster in 2011.)

 subsidies are better

Direct subsidies are better policy tools than import restriction because they are more precise in their effects and less costly to the nation. 

Control exports

It is more important to control exports of goods that are strategically important to national security.

Military supplies intended to aid an ally may fall into the hands of terrorists. An ally today may turn into an enemy later (e.g., Afghanistan).

Cyber warfare: modern wars are becoming more complex. Nuclear wars are less likely, but cyber wars are surreptitious and not easily detected.

North Korean hackers reportedly are stealing blueprints of fighter jets or stealth bombers of the US or its allies.

Find alternative sources of Imports


Chinese boats exporting rare earth elements.

Cobalt supply is limited. The largest producer is Democratic Republic of Congo (more than 60%, 64,000 MT)

Cobalt is needed in Lithium batteries (cars, smart phones)

Find alternative sources of imports. China dominates the market for rare earth elements.

Example

(i) Commercial aircraft producers such as Boeing were considering the production of engines for an aircraft in a third country (e.g., Canada) to export to Japan at the time to avoid government regulations. But the plan was soon aborted by the surprise attack on Pearl Harbor.

What is controlled now

Export Control Act 1949 required the denial of export licenses to items that contribute to military or economic potential of a communist-bloc country. Before this act, scrap metals were exported to Japan and were used to produce war materials to attack the United States.

Export Administration Act of 1969 eliminated "economic potential" criterion.

Uranium Production and Reserves

 

Production

(thousand MT)

Reserves (million metric tons)
Australia 5

1.7million MT

(metric tons)

Kazakhstan 24 0.6
Russia 3 0.5
Canada 13 0.5
USA 1.6 0.2
China 1.3 0.2
   

 

  5. Infant Industry Argument
 What The infant industry argument asserts that "a new industry having a potential comparative advantage may not get started in a country unless it is given temporary protection against foreign competition. Protection gives local producers the time to improve their skills in production, management and marketing. Once competitive strength is built up, protection would be abandoned for free trade."
 Who?


Alexander Hamilton, Shutterstock

The IIA argument was first initiated by Alexander Hamilton, the first secretary of the Treasury of the US. (His portrait appears in our $10 bills.) In his famous "Report on Manufacturers" in 1791, he urged the use of tariffs (i) to foster the growth of manufacturing, and (ii) to strengthen the American economy.

Government aid would expedite the growth of manufacturing. Government assistance is a temporary departure from the free trade doctrine, but it is a small price to pay for a speedy development of manufacturing.

 Problems Economists have long accepted the theoretical validity of IIA. However, we have raised many questions regarding the practical application.

It is not self-evident that an infant industry requires protection to get started. Many new enterprises are able to compete successfully with well established domestic companies. International competition is no different. If the long run outlook of an infant industry is so bright, there would be domestic entrepreneurs who would be willing to invest in that industry. If there are no domestic entrepreneurs, then the remedy is not protection, but state enterprises or foreign investment.

It is most difficult for the government to identify an industry that deserves infant industry protection. The search requires a careful study. In light of historical experience, the probability of a mistake is very high. One example is the US woolen/worsted industry. Started in the early years of the U.S. as an infant industry, it must still be protected against foreign competition. See Congressional Updates 2002 on apparel (copy). And it shows no signs of overcoming its comparative disadvantage.

The example also indicates that a mistake tends to become irreversible. Once a new industry is protected, the industry exerts a pressure not to remove protection even when it becomes competitive.

Temporary protection almost always turns into permanent protection.

Remedy: If a proper choice of an infant industry is made, the best way to promote that industry is direct subsidy. It has several advantages over tariffs. Subsidies are less likely to end up as permanent protection, because they require annual appropriations from government. Subsidies distort only production, not consumption. IIA argument does not apply to most industries in a developed nation such as the US.

 WTO rule

Today, tariff rates are governed by WTO. A country cannot unilaterally impose tariffs on imports from members of WTO (safeguard such as balance of payments difficulty is an exception). If it is groundless, the US is likely to be forced to rescind such tariffs, or suffer retaliation from other members.

   

 

  6. "Imports are Harmful" Argument
WTO

WTO stipulates that import bans must be based on scientific evidence .

WTO ruled: Korea's import ban on Fukushima fishery products are legal.

EU regulation

EU requires pre-market authorization for any genetically modified (GM) or transgenic food to enter Europe.

EU imports 30 million tons of GM crops for animal consumption.

Spain is the largest producer of GM crops.

Member states may invoke a safeguard clause to temporarily prohibit sale of GMO crop within their territory if GMO crop poses a risk to human health.

EU regulations are somewhat arbitrary. Germany's ban was based on "expert opinions," while France accepted EU laws on growing GMOs. French ban of MON 810 (toxic to corn eating insects) was ruled illegal. (need for harmonization within EU)
GMOs may be imported subject to passing domestic tests on a case-by-case basis (meaning arbitrary).

US regulation

three agencies: EPA, FDA and DOA

Safety is regulated by FDA. FDA regards most GM crops as safe, and do not require pre-market authorization, but reserves the right to apply more stringent regulation if GMO crops are potentially harmful.

   

  7. Antidumping Argument
Is dumping harmful? Dumping is selling a product in an importing country at a price below that prevailing in the exporting country. Dumping may be harmful or beneficial to the importing country, depending on circumstances. Dumping is beneficial to the importing country, if it does not have domestic industry competing with the dumped product. Even if the importing country has a domestic industry, dumping is beneficial, since consumer surplus exceeds producer surplus. Dumping is a decline in the price of the importable.
Predatory dumping   Predatory dumping is harmful. "Some foreign firms prey on domestic producers. These predatory foreign firms cut prices to put a competing domestic industry out of business and to raise price afterwards."
 Remedy Impose antidumping duties when predatory dumping occurs.  
 Problem

It is difficult for government to distinguish permanent and predatory dumping. The latter is sporadic.

Domestic producers often use this argument to obtain permanent protection.

Practice Antidumping duties are subject to WTO rules. When a country imposes duties in violation of WTO rules, the aggrieved nation is allowed to retaliate. (For example, President George Bush imposed a steel tariff on imported steel products in 2003 to protect the domestic steel industry, but subsequently rescinded it when it was deemed to be in violation of the WTO rules.
 US

Two-stage process.

(i) In the US, whether dumping has occurred or not is determined by the US Department of Commerce.

(ii) To receive antidumping duties, one also needs to show the extent of injury.

Injury is determined by the US International Trade Commission.

 US vs Foreign firms

The definitions of domestic and foreign firms are often blurred for multinational firms. Since they produce diverse products, one company may be treated as a domestic firm that deserve protection, while for another product it may be treated as a foreign firm. (American corportion = more than 50% ownership by Americans.)

In 1974, Smith-Corona charged Japan's Brother with dumping portable typewriers, but International Trade Commission ruled against it. Brother had 51% Japanese ownership, but incorporated in Delaware, hiring American workers.

In contrast, Smith-Corona had an American ownership, but their typewriters were produced throughout Asia. Which of the two is an American company that deserves protection of US government? In another case, Brother was considered an American firm which needs protection against unfair foreign competitors like Smith-Corona. Does ownership matter? (It rarely does!)

   

 

  8. Reciprocity Argument

Reciprocity argument says

 

"The U.S. market is more open to imports than foreign markets. We need equal access to foreign markets."

Unless a foreign country grants equal access by lowering its tariffs to US goods, the U.S. should retaliate with higher protection against that country's goods.

"free and fair trade" ⇒ fair international trade (balanced trade). This differs from "fair trade" promoted by fair trade organizations that promote the commerce of developing nations (reduced environmental hazards, no child labor, etc.).

 

Fair trade

The slogan that decorates US Department of Commerce.

 This argument is deceptive because it appears to support free trade. The purpose of reciprocity is to gain access to foreign markets comparable to that given to the foreign producers by the U.S.

This application will lead to higher U.S. protection and counter-retaliation by other countries.

Problems

What does "equal" or "comparable access" mean? How does one measure equal access? Traditional measures: tariffs and NTBs. Tariffs are already low, and hence inadequate to measure access. The proportion of markets covered by NTBs.

equal access = balanced trade

Equal access appears to be measured by U.S. trade deficit with a foreign country.

Large bilateral trade deficits or surpluses may be a result of currency manipulation.

The imposition of new tariffs on countries not satisfying the equal access requirement would trigger retaliation which would close markets for U.S. exporters. But our trade deficits are so large, the US may not mind foreign retaliation.

China's Foreign Exchange Reserve

If one country has a large trade surplus vis-à-vis all other countries, it is probably the result of undervaluation of one currency, e.g., Renminbi.

Proof of undervaluation is in the inordinate amount of foreign exchange reserve in excess of transactions demand for foreign exchange for normal trade activities, say 50% of import value. China's debt surpassed 300% of GDP while holding Forex reserve of $3 trillion.

   

 
  9. Forced Technology Transfer
Export control Act vs NDAA

Export Control Act limits exports of goods that would enhance the military potential of our enemies.

Foreign entities may not acquire US high-tech firms. Foreign acquisitions of high tech firms are likely to transfer the technologies that are essential to national security.

National Defense Authorization Act 2019 strengthens the Export Administration Act of 1969, and prohibits foreign acquisition and mergers of US high-tech firms.

Example: Trump issued an executive order barring Broadcom (Singapore) from acquiring Qualcomm (a semiconductor designer for mobile phones)

Europe European (and other foreign) companies are required to transfer technology in exchange for market access in China, especially in joint ventures.
US

"Tech should not leave the country and go to China" (Andrew Hunter)

Qualcomm is a crown jewel of the US tech industry (produces snapdragon, the fastest mobile processors with 5G modem). Broadcom is a Singpore-based tech company with entanglements in China. It is trying to buy Qualcomm or another American tech company to acquire US telecommunications technology (5G).

Wassenar Arrangements

42 countries participate in WA, including the US and UK.

The basic list composed of ten categories.

Sensitive

Very sensitive-stealth technology, including submarine detection, advanced radar, and jet engine technologies.

   

David Hume (1711-1776): In a gold standard, a mercantilist country piles up gold bullions, which stimulates inflation. Higher price of exports will reduce exports and increase imports. Thus, a trade surplus shrinks and disappears.