Trump’s protectionism will dent confidence in US

By Mei Xinyu Source:Global Times Published: 2018/4/9 22:48:39

Illustration: Luo Xuan/GT


US-China trade friction will not cause capital flight from China. On the contrary, investors know how the friction has arisen and they have a clear view on where it is going. The wise will put their money on China instead of the US.

The trade friction will give China the motivation to break the glass ceiling of industrial upgrading, eliminating the risks of unreasonable trade disputes.

China is the victim of trade protectionism, being the biggest target of anti-dumping and anti-subsidy protectionism measures for more than 30 years.

External trade disputes have become the top risk for Chinese industries, especially emerging ones, since the volume of trade involved in the disputes has hit a record high.

Even though there will be some sacrifice, China will have to fight back and hurt the provoker in the same amount and scale, if not more.

This way, it can deter trade protectionism in the US and other trade partners, raising the cost of waging a trade conflict and creating a more stable market environment for Chinese industries. It will also provide more predictable investment returns for capital.

China is developing an emerging market that is opening to the world, not pinning its hopes on a closed domestic market with trade barriers. So it is important to curb the moral hazard posed by its trade partners.

The trade dispute has made market participants realize that China is more motivated to abide by international laws and regulations.

Investors all over the world can expect treatment within the framework of international rules.

The so-called legal grounds for the US' Section 301 investigation are merely a clause under the Trade Reform Act of 1974, and the special 301 mechanism created by the Omnibus Trade & Competitiveness Act of 1988 that covers intellectual property rights (IPR) issues.

China has been a member of the WTO for more than 16 years. The US selectively neglected its commitment to comply with the WTO agreement, using the obsolete 301 clause against China.

The US is being arrogant and peremptory, toying with the WTO rules and employing unreasonable treatment to the world's second-largest economy.

How can investors from other countries expect respect and protection from the US?

More noteworthy is that the trade friction has showed investors the US President Donald Trump's diplomatic style will hit the markets with uncertainties.

Trump made it very clear when he gave a speech on foreign policy on April 27, 2016, saying "…we must as a nation be more unpredictable."

There is some truth to that. A country will lose the initiative if it reveals all the stakes and actions in international competition and negotiations. But it seems that Trump has gone too far on that front, which has caused huge uncertainties for the US market.

Most investors are risk-averse. The big selling point for the US market is to provide investors with the security and stability other countries cannot offer.

So the US has been attracting capital inflows. Capital flees to the US to avoid risks during times of global economic turmoil.

Trump's policies not only deprive investors of the stability and security the US used to offer, they also have cast uncertainties over the market.

Now, given the same conditions, risk-averse investors are likely to prefer other options, such as China.

The author is a research fellow with the Chinese Academy of International Trade and Economic Cooperation.


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