Trump’s trade war with China will backfire

By Zhang Tengjun Source:Global Times Published: 2017/1/19 17:33:39

Illustration: Liu Rui/GT

Illustration: Liu Rui/GT

As US President-elect Donald Trump is set to take office on Friday, seismic changes are expected to happen in the US domestic and foreign policy. Although Trump hasn't set out his foreign policy, his cabinet lineup suggests toughening up of trade relations with China is expected in the future.

Billionaire Wilbur Ross, nominated by Donald Trump to serve as the secretary of commerce, called China "the most protectionist" major economy in the world and vowed to level the playing field with China on trade, especially in reducing overcapacity in its steel industry.

"China is the most protectionist country of very large countries," Ross said in a testimony on Wednesday in Washington before the Senate Commerce Committee, which will vote on his nomination. "They have both very high tariff barriers and very high non-tariff trade barriers. So they talk much more about free trade than they actually practice."

The nominees for secretaries of state, treasury and commerce all share Trump's ideas. In addition, the newly created National Trade Council inside the White House will be headed by Peter Navarro, an economist who has advocated for a hard line on trade with China. And Trump picked lawyer Robert Lighthizer, a harsh critic of China's trade practices, to be his chief trade negotiator. In this context, speculations about possible trade war with China by the new US government are not groundless.

Trump has to understand that starting a trade war is not the only option he has in trade policies with China. He needs to carefully balance the gains and costs of rashly launching economic attacks on its biggest trading partner just in a bid to meet the agenda of domestic politics.

China and the US have forged unprecedentedly close and extensive ties in trade. In 2016, the bilateral trade volume approached nearly $600 billion. In such a highly interdependent trade relations, a trade war won't be a zero-sum game and will benefit no one.

It is widely speculated that if Trump wants to launch a trade war with China, he would brand China as a currency manipulator, levy high tariffs on imports from China and set more rigorous restrictions on Chinese investments in the US.

Unfortunately, these steps are double-edged. As Chinese President Xi Jinping said Tuesday at the 2017 annual meeting of the World Economic Forum in Davos, "No one will emerge as a winner in a trade war."

As a trade war between the two largest economies concerns not only their interests, but also those of the world economy, China needs to let the Trump administration clearly know that it will bear much graver consequences than expected.

Since the reform and opening-up, China has been an active participant in and a beneficiary of the international economic and financial system led by the US. China's economic success has made considerable contributions to the US and the global economy.

In today's world, with the backlash against globalization, Xi made his first overseas trip in 2017 to the Davos meeting, showing China's courage to take the lead in stimulating globalization. China is showing the Trump administration through its actions that any trade war or trade protectionism will only isolate the US.

Today's China is strategically confident and strong enough to handle any challenge with ample means. In the meantime, a trade war is not as dreadful as many expect it to be, since the initiator will bear most of the burden. China needs to stay calm and strike back with deterring actions when necessary. In this way, the Trump administration will suffer self-inflicted losses.

According to statistics, direct Chinese investment in the US in 2016 reached $45.6 billion, tripling that of 2015. From 2000 to the present, Chinese investment in the US has an overall total of $109 billion, creating more than 100,000 jobs for Americans. As Chinese companies are increasingly eager to invest in the US, staging a trade war with China will first and foremost impact the development of some US industries.

In addition, as China is a crucial export market for US agricultural products, any retaliatory action from China will trigger strong boycott in agricultural states against the Trump government.

US consumers have long enjoyed a convenient life made possible by Chinese goods. Yet they will see a rapid rise in their cost of living if China bars its exports to the US. This will cripple Trump's public support. The Trump administration will also face pressure from a number of US multinationals to whom China is a major market and where the future of their company lies. Trump's cabinet must be clearly aware of the situation.

After entering the White House, Trump will need to learn that the US cannot separate itself from the international system and US economy cannot keep developing if its ties with China are severed. A trade war in any form will eventually backfire.

The author is an assistant research fellow at the China Institute of International Studies.

Posted in: VIEWPOINT

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