A week ago, in “China Making Preparations For (Trade) War With Trump,” I flagged incoming headlines from Bloomberg (they hit after market hours) that suggested officials deep within the Politburo are preparing themselves for a trade war with Washington.
Allegedly, Beijing is contemplating the following set of counter measures:
- antitrust actions
- tax probes
- tighter scrutiny over imported goods from the U.S.
- limiting Chinese government procurement of U.S. products
- launch of WTO-compliant
China, it appears, isn’t going to sit on its hands in the face of pressure from the new administration.
But beyond a tit-for-tat trade battle (which, I maintain, is a lose-lose scenario), Beijing is preparing itself to take the reins from the US when it comes to serving as the torchbearer for globalization and open trade. In short, Xi Jinping is set to take advantage of the West’s epochal shift towards nationalism and protectionism.
As I noted on Wednesday, next week Xi will become the first Chinese President to make an appearance at the World Economic Forum in Davos where some observers say he’ll be treated like royalty.
By contrast, Trump’s team will have nothing to do with the gathering.
“President-elect Donald Trump’s administration will have minimal to virtually zero presence at Davos,” Bloomberg reported on Friday, adding that a Trump spokeswoman said “no one will be attending.” Bloomberg continues: “Senior Trump transition sources said Trump thought it would betray his populist-fueled movement to have a presence at the gathering of global elites.” One is reminded of the following clip:
“It’s a conspiracy of global elites!”
In any event, Beijing is infamous for pushing their agenda through “op-ed” pieces in what amount to Party mouthpiece newspapers and websites. Below, find one such article that appeared in the Global Times on Friday:
China is expected to face increasing trade frictions, especially under the upcoming Donald Trump presidency, and while they should not be exaggerated, the country should be prepared. China should also play a bigger role in pushing forward the multilateral global governance, experts said on Thursday.
The comments were made after US President-elect Donald Trump stated, at his first press conference since the election on Wednesday (US time), that the country was losing hundreds of billions of dollars on a yearly basis on trade and trade imbalances with China, Japan, Mexico and other countries. “We don’t make good deals anymore,” he said.
It is not the first time that Trump has blamed China for the US’ trade deficit, which should not be taken seriously, as the US is one of the major beneficiaries of global trade and will not abandon WTO rules, Sang Baichuan, director of the Institute of International Business at the University of International Business and Economics, told the Global Times on Thursday.
“When it comes to bilateral trade friction, both China and the US, as members of the WTO, will follow its dispute settlement mechanism. Anyone who imposes tariffs without respecting the related rules is driving itself away from commonly recognized international standards,” Sang said.
“Since China’s accession to the WTO, the US has brought 20 WTO cases against China, more than twice as many WTO cases as any other WTO member has brought against China,” according to the 2016 annual report on China’s compliance with WTO obligations that the Office of the US Trade Representative (USTR) presented to Congress on Monday.
The report also cited “the Chinese government’s interventionist policies and practices, and the large role of State-owned enterprises in China’s economy, which are the principal drivers of trade frictions.”
“We disagree with the report, as China has been strictly obeying WTO regulations after its accession to the organization,” Sun Jiwen, spokesman of the Ministry of Commerce, told a press briefing on Thursday.
The US government intends to file a complaint against aluminum subsidies with the WTO on Thursday, Reuters reported, citing a person familiar with the matter. The complaint will likely cite artificially cheap loans from Chinese banks and low-priced inputs for aluminum makers, according to Reuters.
Protectionism is sure to become a major aspect of the upcoming Trump presidency, considering his firm attitude toward trade-related issues, Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times. “China should be the first to start an anti-protectionism campaign, but we also have to be well-prepared, and fight against protectionism,” he said.
Although the US is targeting countries such as Japan and Mexico, China is facing more pressure considered its bilateral trade volume with the US, Bai noted. “The way we fight the rising protectionism should echo the pressure we undertake,” he added.
US exports of goods to China totaled $116 billion in 2015, representing an increase of 505 percent since 2001, according the USTR report, which makes China the US’ “largest goods export market outside of North America.”
As a large trading partner, China is dealing with increasing trade frictions, which is normal, Sang noted. “As a member of the WTO, China has accumulated experience in dealing with remedy measures, and we have talents in this aspect, which could help us easily handle rising disputes,” he said.
A US-led trade war, would mainly hurt its own multinational companies, which would accelerate division in its society, according to Sang.
Chinese President Xi Jinping will discuss the latest developments in China’s economy and more inclusive globalization during his first visit to the Davos summit, which will run from January 17 to 20, in Switzerland.
Some defects exist in global governance today. For example, free trade is overstressed but fair trade is ignored, interests of developed countries are overprotected and there is a lack of active participation from emerging economies in global affairs, Sang noted. “Also, as an important platform of multilateral governance, the G20 still lacks legitimacy,” he said.
Western countries still play advantageous roles in current multilateral organizations such as the IMF and World Bank, Bai said, noting that BRICS nations should be involved more.
“Fortunately, we are seeing progress in some developing countries-led initiatives, including ‘One Belt, One Road’ and the Asian Infrastructure Investment Bank, and China is becoming a leader instead of a follower,” he said.
So the point here isn’t that you should take anything that’s printed in a policy newspaper seriously. The Politburo uses these news outlets just like the PBoC uses policy banks – to push the Party agenda.
Rather, you should note that Beijing is making a concerted effort to present China as the new champion of global governance. So to the extent Trump believes he’s undercutting the Chinese, he’s actually creating a kind of power vacuum that Xi is more than happy to fill.
On that note, I’ll close with the latest from Goldman on protectionism in 2017:
The most immediate risk is that the incoming Trump administration will raise import tariffs in an effort to boost the US trade position. Mr. Trump proposed tariffs on China and Mexico of 45% and 35%, respectively, during his campaign and his recent appointments for trade policy suggest that trade restrictions may play an important role in his policy agenda. While we do not expect tariffs of this magnitude to be enacted—which would reverse about 70 years of trade liberalization—we expect some trade restrictions to be imposed in 2017. It is hard to know whether and how trading partners would respond to, for example, an increase in US import tariffs, but our best guess would be that trading partners would retaliate in response