Competitive edge can aid China in trade war

By Bai Ming Source:Global Times Published: 2016/12/7 23:53:39

Illustration: Peter C. Espina/GT

Illustration: Peter C. Espina/GT


It is no surprise that many observers are concerned about where China-US trade relations will head in the wake of Donald Trump's win in the US presidential election. His recent tweets criticizing China for manipulating its currency and unfairly taxing US products reinforce such concerns. It seems that Trump is playing for real and will get tough on China unlike previous US presidential candidates who played the "China-bashing card" while campaigning but acted pragmatically after being elected.

While campaigning for the presidency, Trump threatened to slap a 45 percent tariff on Chinese goods. Given Trump's continuous provocations of China recently, it almost seems certain that Trump will enforce trade protectionist measures against China even if it does not consist of the forementioned tariff. Trade protectionism against China isn't just a tactic exclusively used by Trump. Trade remedy measures such as punitive tariffs on tire, solar panel and steel imports from China and the barring of Chinese firms - Huawei and ZTE - from accessing the US market occurred under George W Bush and Barack Obama's administrations. Trump will definitely take up the relay of trade protectionism but may go even further. If that scenario materializes, it will fatally damage China-US trade. In this regard, we shouldn't underestimate the difficulty.

Bilateral trade is at the centerpiece of China-US economic relations. If Trump really gets tough on China, his tricks will be diverse. Trade remedy measures will be his regular practice against China, while his optional practices will be even more diversified. 

It is also worth noting that unlike Obama who was keen on using monetary policies such as quantitative easing, Trump favors fiscal policies, such as cutting the corporate income tax rate by more than half to 15 percent and a one-off tax holiday allowing US firms to repatriate overseas cash back to the US with only a 10 percent payment instead of the current 35 percent. Trump's tax plan will increase the practical cost of US firms investing in China. It will, to a large extent, shake the industrial foundation of China-US trade. 

Meanwhile, Trump has also threatened to label China as a currency manipulator. His administration will probably press China to appreciate the yuan as the US government did previously or even reinforce pressure if the yuan strengthens too slowly.  

Facing provocations and challenges from Trump, China should be well prepared. It is not hard to discern that if Trump plays tough with China-US trade after he takes office, the consequences will be serious. There is no justifiable reason for a trade war with China and Trump will inevitably embarrass himself if he is capricious and insists on getting it his own way in dealing with China. In terms of added value generated from the bilateral trade between China and the US, the money that the US firms make from China will not necessarily be less than the amount Chinese firms earn from the US given that the majority of US exports to China are accounted for by high-tech products. Besides, a significant part of China's exports to the US are produced by US firms in China. If Trump seeks to suppress Made in China products, many US firms in China will suffer. If Trump triggers a trade war, high value-added US firms that export to China will suffer. China will also retaliate tit-for-tat and have more leverage to do so if the worst scenario occurs.

In coping with the pressure of a possible trade war, the Chinese government and firms should prepare bargaining chips and seek effective ways to fight back. Chinese firms should make greater efforts to improve their competitive edge and change their passive position in the global value chain. China's One Belt, One Road initiative will open up more space for Chinese firms to explore the international market and gain more bargaining power and confidence for Chinese firms facing trade protectionism.

China and the US are mutually dependent in the global value chain. As long as Chinese firms remain competitive, the cost Trump will have to pay for trade protectionist measures will grow greater. Opportunities generated from trade protectionism are transient. If Trump is to be a trusted president, we believe that he will not risk losing out on a big slice of the economic cooperation pie for a trade war.  

The author is deputy head of the Research Institutes of International Markets under the Chinese Academy of International Trade and Economic Cooperation.


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