China can take advantage of Trump’s trade policy

By Mei Xinyu Source:Global Times Published: 2018/7/11 22:23:41

Illustration: Luo Xuan/GT


Does this Sino-US trade tension mean there will be a comprehensive and fierce confrontation between China and the US? Actually, in the foreseeable future, the possibility of this is quite low.

Despite his aggressiveness in international affairs, US President Donald Trump is not seeking a strategic expansion, but a strategic contraction. China should keep in mind that Trump's actions do not always match his goals.

The next 10 years could be a critical period for Sino-US relations. If China can deal with it properly, there could be a new peaceful chapter. To deliver a proper response to the US hostility, China needs to consider its tactics.

China must prepare for extreme conditions. If tariffs were placed on all Chinese products exported to the US, would China be able to withstand the impact? I have faith that it would.

Even extra tariffs would not drive all the Chinese products out of the US market. Many of China's exports have a high market share in the US and global markets and it will be hard for the US to find substitutes. US consumers would have to purchase the same products at higher prices.

Also, if the US and China stop at a scale of tariffs on $50 billion-worth of goods on both sides, there will only be a limited economic impact. But if this number becomes $250 billion or more, people will start to suffer.

According to the economic cycle of the US, even without a large-scale trade conflict, it will end its current boom and move toward recession around 2020. If there is still trade tension at that point, it could lead to a depression.

China needs to take advantage of this situation to create new opportunities, as Trump's policy has already brought countless negative effects for the US.

First, it has greatly added to the uncertainty over US relations with the international community. Early in the 2016 election campaign, Trump repeatedly said that he would make the US unpredictable so that the best deal could be made. Unfortunately, he has taken this strategy to an extreme and the uncertainty has undermined his credibility.

Second, amid the trade friction with other countries, certain US sanctions can only bring short-term effects. The credibility of the US high-tech industry in the market will be seriously damaged in the long run, and other countries like China will be stimulated to double their efforts to develop their own key technologies and components. It will also encourage companies worldwide to find non-US suppliers.

The US sanctions against Chinese tech firm Huawei may have the effect of driving China's high-tech industry to a higher level.

The trade friction provoked by the US may also create more investment opportunities for China. Large scale investment growth in China now sounds more appealing for automakers whose revenue is mainly driven by exports. Chinese industry and China's national investment promotion departments will need to seize this opportunity.

The trade friction could have some further effects on China's economic development strategy. For instance, there is now a public belief that our economic development should rely more on domestic demand.

However, I believe that for China, too much emphasis on domestic demand would be unsustainable, and it would harm our manufacturing sector and real economy. As for the entire world economic system, China's excessive dependence on domestic demand could also bring risks.

China must also control its investment abroad. If China's resources are excessively spent overseas, it would weaken China's national strength and leave space for countries seeking to overtake China.

Finally, what kind of result of this trade tension would be satisfactory? As long as it does not interrupt China's continued development, and China's growth rate still exceeds that of the major Western powers, then China will still be doing well.

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


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