Welcome to the eighth edition of Trade War. Obviously the big—and alarming—news out of China is the rapid spread of the Coronavirus. And while the clear focus is on slowing its transmission and helping those who might already have it, the virus is also likely to have a huge impact on China’s economy and China’s trade with the world.

Shave about 1 percentage point off China’s 2020 growth rate?

The Wall Street Journal appears to be first out of the block to look at the economic impact with this interesting article from January 26. Key point: back during the SARS virus of 2003, China’s economy was hit hard, even though then the economy was even more investment-driven, and most consumption came via purchases by the state and its companies. This time the impact will be worse, with an economy much more dependent on individual’s consumption, where the virus’ spread will surely inhibit buying, even if some purchasing can still happen online. The article lays out where the impact is/will be severe:

-- Tourism: During this busiest season of all for tourism, the Lunar New Year, the virus is keeping most Chinese—sometimes involuntarily—in their homes. Shanghai Disneyland closed on Friday, offering refunds to ticket holders.

--Entertainment: “China’s movie business typically does nearly one-tenth of its $9 billion-plus annual box office during the weeklong holiday. Seven film premieres are canceled, including “Leap,” a biopic starring Gong Li as the coach of the national volleyball team that was expected to fare especially well.”

“The current coronavirus outbreak could cost more than 40 billion yuan ($5.77 billion), which would shave about 1 percentage point off China’s 2020 growth rate,” one economist tells the Wall Street Journal, basing his estimate on a comparison with SARS.

“Your Chinese factory might shut down tomorrow”

For those sourcing goods from China, now is the time to start coming up with some serious contingency plans, writes China investment lawyer Dan Harris:

"If your company has its widgets made in China, you need to realize that your Chinese factory might shut down tomorrow or next week or next month. If your Chinese factory is within or near ground zero for the virus, it has probably already shut down."

Harris predicts that the coronavirus is sure to accelerate the ongoing decoupling already happening with the trade war, with global factories moving production out of China to Southeast Asia and elsewhere.

“Will SARs rejuvenate the Communists?”

And from the vault with a piece from 2003: yours truly considering what the ultimately successful tamping down of SARS meant for the Communist Party some 17 years ago (spoiler: it arguably made the Party even stronger - And Xi Jinping is likely to push for even more centralization and control, in the eventual aftermath of this latest health crisis too.)

Free Trade Is Dead. Long Live Managed Trade

On to trade: smart economist and former colleague Peter Coy from Bloomberg Businessweek announces the onset of a new era of “managed trade” in an interesting piece.

Soviet-style managed trade

Over at PIIE, Gary Clyde Hufbauer argues that the only way for China to reach its purchasing commitments is “to resort to Soviet-style managed trade,” which will lead to “distortions, lots of favoritism, and inevitable corruption.”

Apparently part of “managed trade” is a looseness with the numbers. In a speech at Davos, Trump unilaterally added an additional $100 to what purportedly the Chinese have promised to buy (like many of Trump’s numbers, best to ignore.)

Dealmaker is a better look than arsonist

And some words of caution in a tweet from David Henig, the UK director of the European Centre For International Political Economy: despite the “phase one” deal and other trade truces, don’t expect frictions to fall away. “The global system and WTO is still under serious threat, but there’s an election to be won, and dealmaker is a better look than arsonist.”

Historic tech war in an era of techno-nationalism

Meanwhile, any signs of truce in the trade war are likely to be overshadowed by an intensifying tech war, with semiconductor production at the heart of it, warns a new report from the Hinrich Foundation. “The United States and China are in the early stages of a historic tech war in an era of techno-nationalism.”

“The intensifying nature of the US-China tech war, combined with the scale and depth of China’s market — and the massive economic gains it provides to American and foreign semiconductor companies — creates a collision of vested interests that has sparked a flurry of protectionist policies in Washington and elsewhere.”

Notable/In Depth

A very good blog by the Peterson Institute’s Chad Bown on why the purchase promises of "phase one" are extremely unlikely to be met, and how the deal is sure to have serious negative consequences.

This site has lots of data with very cool graphics showing US-China investment flows; From the Rhodium Group and the National Committee on US-China Relations.

And here are two charts showing how China usurped the US as the world’s trading partner of choice, in the years from 1980 to 2018.