“Populism Leads To War And Poverty”: Chinese President To Deliver Stark Warning In Historic Visit To Davos

Next week, Xi Jinping will become the first Chinese President to make an appearance at the World Economic Forum in Davos.

That may not sound like a big deal, but it is. Politburo mouthpiece The People’s Daily contends that Xi’s visit will position China as the “torchbearer of the open trade system” and the most powerful proponent of “global governance” left standing in a  world increasingly infatuated with populist ideologies and nationalism.

Essentially, Xi sees the US election and the political turmoil in Europe as an opportunity for China to usher in a new era of bipolarity on the way to -perhaps – unipolarity with China as the world’s only superpower. 

“It’s going to be very tempting for China to imagine for itself that it’s gained much more status after this election in a whole array of global endeavors, including trade and on climate change and possibly other issues,” Orville Schell, director of the Center on U.S.-China Relations at the Asia Society told the New York Times. “If the U.S. is going to absent itself more – and we don’t know if that’s the case yet – nature does abhor a vacuum. When a father grows old, the son is sometimes able to fill the space.”

According to Jiang Jianguo, head of the State Council Information Office, Xi will emphasize the need for development, cooperation and economic globalization. The world, Xi will say, should be working towards “a human community with a shared destiny.”

Speaking at a symposium hosted by the World Trade Organization in Geneva, Jiang warned that “with the rise of populism, protectionism, and nativism, the world has come to a historic crossroad where one road leads to war, poverty, confrontation and domination while the other road leads to peace, development, cooperation and win-win solutions.”

Well, that interpretation will be a tough sell with the Trump administration. As The New Yorker wrote back in October, Donald Trump and his trade czar Peter Navarro see trade as a zero-sum game:

The phrase “zero-sum game” is a powerful one in economics; it refers to a situation in which one party to a transaction can only gain if the other party loses. This is in contrast to most other market transactions, in which both parties can be made better off by exchanging with each other. For Navarro, the U.S. is a loser–a passive victim, whose prosperity is in the hands of the leadership of China and Mexico.

Now obviously, that’s a ridiculously simplistic way to conceptualize global trade, but hey, what do you expect from an administration that welcomes the likes of Steve Bannon with open arms?

Ahead of Xi’s Davos speech, China’s Vice Foreign Minister Li Baodong said his country is prepared to defend the world against a shift towards protectionism by “steer[ing] economic globalization toward greater inclusiveness.” Commenting on Trump, Li cautioned that “trade protectionism will lead to isolation and is in the interest of no one.”

There’s a lesson here which should be readily apparent. You can’t simply stop globalization in its tracks. The world will continue to try and push forward even if the most powerful nation on the planet (along with the whole of Europe) is pulling in the other direction.

Beijing is fully prepared to take the reins from Washington when it comes to driving the globalization sleigh. If the United States turns over the reins, it’s not entirely clear we’ll be able to get them back should we decide later on down the line that this whole isolationism thing was a really bad idea (which the graph in the right pane below suggests is likely):

(Charts: Morgan Stanley)

Whatever the case, one thing is certain. The balance of power is shifting already.

As the above-mentioned Orville Schell puts it, “[Xi] will be received as the number one citizen at Davos.” 

Below, find some additional color from Stratfor on the consequences of a possible trade war between Washington and Beijing.

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Via Stratfor

At first glance, the United States appears to have the upper hand in its trade partnership with China. Beijing ostensibly has more at stake in the relationship than Washington, in part because China’s economy relies more heavily on exports. In 2015, exports made up about 22 percent of China’s gross domestic product, compared with 12.5 percent of U.S. GDP. Furthermore, exports to the United States – China’s largest single-country trade partner – accounted for roughly 3.8 percent of China’s GDP that year, while exports to China totaled just 0.65 percent of U.S. GDP. And though the United States imports a larger share of goods from China than China does from the United States, imports play a smaller role in the U.S. economy. This breakdown lends credence to the idea that the U.S. economy has less to lose in the unlikely event that trade with China comes crashing to a halt.

But trade figures alone do not reflect the complexities of the two countries’ trade ties or the leverage that they give each side over the other. A look at the kinds – and not the quantities – of goods traded offers a more complete picture. In order of value, electronics and electrical equipment, machinery, furniture, clothing and toys make up China’s top five exports to the United States. But even in most of these categories (except toys), exports to the United States account for at most 30 percent of China’s total exports. In fact, the United States takes in just 15.9 percent of China’s electronics exports, although electronics make up nearly one-quarter of U.S. imports from China. Doubtless, new trade barriers from the United States would hurt China, but Beijing could mitigate the damage by encouraging domestic consumption or increasing its exports to other markets.