The Strategist

Expert: Beijing may win in US-China trade war

12/30/2016 - 06:29

Next year, the US and China could start a trade war, and Beijing might win, says James Wang, a City University of Hong Kong professor in his monthly comments for Pine River China Fund.

Mstyslav Chernov
Mstyslav Chernov
"Alignment of forces in the world is now much more uncertain than at the beginning of the twentieth century. Players such as China and India created a new political centers of gravity. While economic and political paralysis is affecting the developed world, a trade war is the most likely outcome."

He says that in the event of a trade war, the Chinese authorities will have a better position than the US, because they can freely dispose of public resources to help its exporters. At that, private Chinese companies will be more vulnerable than state-owned enterprises, since the latter have more political influence in Beijing, said Wang.

During his election campaign, Donald Trump threatened to declare China a currency manipulator and raise trade tariffs on products from China. According to Goldman Sachs Group Inc.’s estimates, if the US does impose sanctions tariffs next year, China's GDP will fall by 3%. This will trigger a sharp decline in China's economic performance, and damage the world economy, said Bloomberg.

Product range of stores such as Walmart includes made-in-China goods. In case the sanctions are imposed, the products would disappear from the shelves. With regard to telecommunications equipment, the consequences would be less obvious. The lion's share of profits from production goes to American Apple, not to its Chinese suppliers, Wang points out.

China may answer with cancelled orders for Boeing airplanes, as well as restricted import of cars and agricultural products from the United States. As for the latter, a possible trade war could trigger inflation and reduce domestic consumption there.

Trump could start cooperation with China from a scratch as legacy of Obama can be set aside. However, there is a disturbing trend. Throughout his election campaign, Trump has made many loud statements with regard to the US-China relations. Many experts said President-elect made a serious mistake by accepting a telephone conversation with President of Taiwan Tsai Ing-wen. This event jeopardized the "one China" strategy and all the Sino-American policy, which has been carefully constructed since the beginning of the seventies.

Was Trump understanding what he was doing ? Was this move of an inexperienced politician, who wanted to send a clear signal to China? Or he simply does not have political outlook, and didn’t mean anything? Shaken and surprised China has adopted a wait-and-see attitude, not knowing what to expect from new American president.

On the one hand, Trump appointed an experienced and well-treated man as Ambassador to China. Chinese media lapped it up: after all, there is still a possibility that Trump won’t make good on his treats.

On the other hand, Trump is seriously ready to abandon the "one China" principle. The claim that Taiwan is not part of China can lead to very serious consequences. It would mean not a break, but most serious cooling of bilateral ties and would probably result in withdrawal of ambassadors.