1/7
"The EU restrictions on export of high-tech products to China in recent years directly limited the EU’s ability to tap the potential of export to China and led to unbalanced trade," according to China's MoFA.
This is a very common misperception.
bloomberg.com
"The EU restrictions on export of high-tech products to China in recent years directly limited the EU’s ability to tap the potential of export to China and led to unbalanced trade," according to China's MoFA.
This is a very common misperception.
bloomberg.com
2/7
The claim is that the if the EU didn't restrict the export of certain controlled goods to China, the EU's exports to China would be higher and its deficit with China would be lower.
But while this might sound reasonable, this is not how trade and trade imbalances work.
The claim is that the if the EU didn't restrict the export of certain controlled goods to China, the EU's exports to China would be higher and its deficit with China would be lower.
But while this might sound reasonable, this is not how trade and trade imbalances work.
3/7
If the EU relaxed export controls, then of course the EU would export more controlled goods to China, and if you think incrementally, you'd expect that this would be the end of the story.
But for trade you must think systemically, not incrementally.
If the EU relaxed export controls, then of course the EU would export more controlled goods to China, and if you think incrementally, you'd expect that this would be the end of the story.
But for trade you must think systemically, not incrementally.
4/7
A country's trade surplus is a function of the excess of domestic savings over domestic investment. Its external imbalance is always consistent with its internal imbalance, and if one doesn't change, the other cannot change.
A country's trade surplus is a function of the excess of domestic savings over domestic investment. Its external imbalance is always consistent with its internal imbalance, and if one doesn't change, the other cannot change.
5/7
Because the removal of EU export controls won't affect the gap between Chinese savings and Chinese investment (or will do so in a very small and unpredictable way), it cannot incrementally affect China's overall trade surplus.
Because the removal of EU export controls won't affect the gap between Chinese savings and Chinese investment (or will do so in a very small and unpredictable way), it cannot incrementally affect China's overall trade surplus.
6/7
To the extent that China imports more controlled goods from the EU, in other words, these will be balanced in China with higher exports or with lower imports of other goods. Goods traded will shift, in other words, but the trade balances of China and the EU won't be affected.
To the extent that China imports more controlled goods from the EU, in other words, these will be balanced in China with higher exports or with lower imports of other goods. Goods traded will shift, in other words, but the trade balances of China and the EU won't be affected.
7/7
One of the big problems with trade discussions is that most people, even trade "experts", assume that changing one component of trade will have a linear and predictable effect on overall balances. But that is never how trade works.
One of the big problems with trade discussions is that most people, even trade "experts", assume that changing one component of trade will have a linear and predictable effect on overall balances. But that is never how trade works.
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