Tensions are escalating between China and the US over trade. The Chinese government has announced retaliatory measures on a range of American products including cars and some American agriculture products after the US listed 1,333 Chinese products to be hit by punitive tariffs of 25%.
Yet a trade war does not make economic sense for either side. Bilateral trade between the US and China was worth about US$711 billion in 2017 and Boeing’s single deal with China signed during Donald Trump’s visit to Beijing in 2016 was worth about US$37 billion alone.
The jobs and livelihoods at risk are huge. So why is there no particular desire, especially from Trump, to ease the tension and find a new solution?
There has been much talk about the US trade deficit with China and allegations that China steals US intellectual property. But the answer could lie in US fears of the Chinese government’s “Made in China 2025” initiative and how it signals the growing threat of China as an economic rival. That the official US Trade Representative’s recent investigation into Chinese trade practices mentioned the Made in China 2025 initiative more than 100 times, suggests this is the case.
Made in China 2025 was launched by the Chinese government in 2015 to upgrade the country’s manufacturing capabilities. It is a plan to transform what China produces from a low-cost, labour-intensive model to advanced and smart manufacturing. Certain key industries such as aerospace, robotics and high-tech medical equipment have been prioritised. The hope is that China will gradually match developed countries’ manufacturing capabilities and become industry leaders.
A lot of the products from these key industries, such as industrial robots, aviation and aerospace equipment, new energy and power supplies and advanced rail machinery were all included in the tariff target list published by the US Trade Representative. So it would seem that the current situation is not simply a trade issue aimed to reduce America’s trade deficit with China. Instead, it is likely targeted at the future competition China will pose.
China’s Made in China 2025 strategy makes perfect sense in my field of research, which concerns where products are manufactured and how this effects their popularity in the global market place. A strong and positive image of a country can generate what economists call “halo effects” on its products. So, Germans have built good reputations for their cars and engineering, France and Italy for their wine and fashion, and the US for their innovative products.
This worldwide reputation brings with it prestige and higher price premiums. Although there is still debate around whether brand origin could be more important than where the product is produced (Apple, for example designs its products in the US but manufactures them in China), there is no doubt that “Made in China” suffers from an image problem.
Chinese products have long been associated with a cheap and cheerful perception that they are not good in terms of quality or ingenuity. The Chinese government has long been aware of this view and keen to change it.
At the turn of the 21st century, it set up a policy called “Going Out” to encourage leading Chinese firms to expand internationally, acquire new technology and the tools to innovate. The two big examples were IT firm Lenovo’s takeover of IBM’s personal computer division in 2005 and Geely automotive’s purchase of Volvo in 2010. Made in China 2025 serves the same purpose – to boost China’s technology and innovation capabilities and to improve the image of Chinese products.
There is no doubt that China has come a long way since the 1990s. It has built 22,000km of advanced high speed rail network within the last decade, which is more than the rest of the world combined. It is also considered as the global leader in renewable energy and technology, patent filings, commercial drones, industrial robotics and e-commerce and mobile payments.
Chinese telecommunications company Huawei typifies the transformation of Chinese products in recent years. Within the last decade, Huawei has surpassed Ericsson and Nokia to become the world’s biggest telecom equipment supplier and has just overtaken Apple as the world’s second largest smartphone maker, behind Samsung.
What’s more remarkable about these statistics is that Huawei has transformed itself from a cheap phone maker to an accepted premium brand that can compete with Apple and Samsung. Its latest releases the top of the range Huawei P20 Pro will retail for US$1,100 and its top end model Huawei Porsche Design Mate RS will sell for US$2,109 – even more than the iPhone X.
There is no doubt that some in the US are uncomfortable with China’s impressive growth and feel threatened by it. It suggests the current trade dispute is not just about imports and exports, but also an incumbent superpower feeling the threat of a growing challenger.
Chinese President Xi Jinping promised on Tuesday to open the country's economy further and lower import tariffs on products like cars, in a speech seen as an attempt to defuse an escalating trade dispute with the United States.
While much of his pledges were reiterations of previously announced reforms that foreign businesses say are long overdue, Xi's comments sent stock markets and the U.S. dollar higher on hopes of a compromise that could avert a trade war. Xi said China will widen market access for foreign investors, addressing a chief complaint of its trading partners and a point of contention for U.S. President Donald Trump's administration, which has threatened billions of dollars in tariffs on Chinese goods.
Trump struck a conciliatory tone in response to Xi's speech, saying in a post on Twitter that he was "thankful" for the Chinese leader's kind words on tariffs and access for U.S. automakers, as well as his "enlightenment" on the issue of intellectual property.
"We will make great progress together!" Trump tweeted.
Washington charges that Chinese companies steal the trade secrets of American companies and force them into joint ventures to get hold of their technology, an issue that is at the center of Trump's current tariff threats.
The latest comments from both leaders appear to reinforce a view that a full-scale trade war can be averted, although there have been no talks between the world's two economic superpowers since the U.S. tariffs were announced.
"President Xi’s speech appears to have struck a relatively positive tone and opens the door to potential negotiations with the U.S. in our view. The focus now shifts to the possible U.S. response," economists at Nomura said.
"But of course actions speak louder than words. We will keep an eye on the progress of those opening-up measures."
The speech at the Boao Forum for Asia in the southern province of Hainan had been widely anticipated as one of Xi's first major addresses in a year in which the ruling Communist Party marks the 40th anniversary of its landmark economic reforms and opening up under former leader Deng Xiaoping.
Xi said China would raise the foreign ownership limit in the automobile, shipbuilding and aircraft sectors "as soon as possible" and push previously announced measures to open the financial sector.
"This year, we will considerably reduce auto import tariffs, and at the same time reduce import tariffs on some other products," Xi said.
He said "Cold War mentality" and arrogance had become obsolete and would be repudiated. His speech did not specifically mention the United States or its trade policies, which have been assailed by Chinese state media in recent days. Vice Premier Liu He had already vowed at the World Economic Forum in January that China would roll out fresh market opening moves this year, and that it would lower auto import tariffs in an "orderly way".
Chinese officials have promised since at least 2013 to ease restrictions on foreign joint ventures in the auto industry, which would allow foreign firms to take a majority stake. They currently are limited to a 50 percent stake in joint ventures and cannot establish their own wholly owned factories.
Tesla's Chief Executive Elon Musk has railed against an unequal playing field in China and wants to retain full ownership over a manufacturing facility the company is in talks to build there.
"This is a very important action by China. Avoiding a trade war will benefit all countries," Musk tweeted after Xi's speech.
Foreign business groups welcomed Xi's commitment to reforms, including promises to strengthen legal deterrence on intellectual property violators, but said the speech fell short on specifics.
"Ultimately U.S. industry will be looking for implementation of long-stalled economic reforms, but actions to date have greatly undermined the optimism of the U.S. business community," said Jacob Parker, vice president of China operations at the U.S.-China Business Council.
EASING OF TENSION
Jonas Short, head of the Beijing office at Everbright Sun Hung Kai, said the market was cheered by Xi's speech because it was framed in more positive terms which could ease trade tensions, but he voiced caution about promised reforms.
"China is opening sectors where they already have a distinct advantage, or a stranglehold over the sector," Short said, citing its banking industry, which is dominated by domestic players.
Xi's renewed pledges to open up the auto sector come after Trump on Monday criticized China on Twitter for maintaining 25 percent auto import tariffs compared to the United States' 2.5 percent duties, calling such a relationship with China not free trade but "stupid trade."
Analysts have cautioned that any Chinese concessions on autos, while welcome, would be a relatively easy win for China to offer the United States, as plans for opening that sector had been under way well before Trump took office. But Vice Commerce Minister Qian Keming said at the forum on Tuesday that China's economic reforms were driven by domestic factors and not due to external pressures.
Xi said China would accelerate opening up its insurance industry, with Shanghai Securities News citing a government researcher after the speech saying foreign investors should be able to hold a controlling stake or even full ownership of an insurance company in the future.
Trump's move last week to threaten China with tariffs on $50 billion in Chinese goods was aimed at forcing Beijing to address what Washington says is deeply entrenched theft of U.S. intellectual property and forced technology transfers from U.S. companies. Chinese officials deny such charges, and responded within hours of Trump's announcement of tariffs with their own proposed commensurate duties.
The move prompted Trump last week to threaten tariffs on an additional $100 billion in Chinese goods, which have yet to be identified. None of the announced duties have been implemented yet, offering room for negotiation.
Beijing charges that Washington is the aggressor and spurring global protectionism, although China's trading partners have complained for years that it abuses World Trade Organization rules and practices unfair industrial policies that lock foreign companies out of crucial sectors with the intent of creating domestic champions.
While U.S. officials, including Trump, have recently expressed optimism that the two sides would hammer out a trade deal, Chinese officials in recent days have said negotiations would be impossible under "current circumstances". Dallas Federal Reserve Bank President Robert Kaplan, on a visit to Beijing, said he was optimistic that very few if any of the proposed tariffs by the United States and China announced in recent weeks will actually be implemented.
"I think it’s so clearly in the interest of both countries that we have a constructive trading relationship and that we have substantive talks to redress these issues.”
U.S. President Donald Trump said in a statement thisweek that he has instructed U.S. trade officials to consider $100 billion (71.4 billion pounds) in additional tariffs on China "in light of China's unfair retaliation" against earlier U.S. tariff actions.
The statement said the U.S. Trade Representative has determined that China "has repeatedly engaged in practices to unfairly obtain America’s intellectual property."
China's state media says U.S. tariff action will be defeated
China's state media has rallied against the United States warning its trade protectionism actions would end in defeat and that the only option now was to hit the United States hard enough so it will "remember the pain".
"If the U.S. says that it will pay any price, it must be firmly attacked," China's official Xinhua news agency said on Saturday.
China warned on Friday it was ready with a "fierce counter strike" of fresh trade measures if the United States follows through on President Donald Trump's threat to slap tariffs on an additional $100 billion of Chinese goods.
On Wednesday, China imposed $3 billion of tariffs on U.S. fruits, nuts, wine and pork, just hours after the Trump administration proposed duties on some 1,300 Chinese industrial, technology, transport and medical products. Rising trade tensions between the world's two largest economies follows a U.S. finding that China was engaging in unfair trade practices in connection with intellectual property protections. China rejects the charge.
China's media, which is strictly controlled by the government, has come out in defense of the country, painting the country as a victim of an overly aggressive United States bent on taking illegitimate unilateral action.
"The White House has completely lost its sense of reality!," said the ruling Communist Party's People's Daily newspaper in a Friday commentary, alleging the United States is acting unilaterally and engaging in trade protectionism.
Meanwhile, the nationalist Global Times said in an editorial published late on Thursday that the "Chinese are aware that the only option now is to hit the U.S. hard enough so that it will remember the pain."
Rex Tillerson has been removed as the Secretary of State, ending a tumultuous tenure as America’s top diplomat that was marked by a series of public disagreements with his boss — President Donald Trump.
Trump plans to appoint CIA Director Mike Pompeo to replace the former Exxon Mobil chief executive. The president picked deputy CIA Director Gina Haspel to run the spy agency. Just on Monday, March 12, Tillerson visited Nigeria on the last leg of his official visits to Africa, being the first high-ranking official under the Trump administration to do so.
He met President Muhammadu Buhari during the visit, where they discussed issues of mutual interest to both countries. The ex-Secretary of State had also warned Nigeria and the rest of Africa against accessing financial help from China.
Trump announced Tillerson’s sacking via his verified Twitter handle:
As reported by the CNBC, since Tillerson took the post in February 2017, mixed messages repeatedly came out of the White House and a State Department with diminishing relevance. The intramural clashes between the president and secretary of State came amid major international crises, including a potential nuclear showdown with North Korea.
Official reactions from Africa were appropriately critical of President Donald Trump’s credibly reported comments about not wanting more immigrants coming to the US from “shithole” countries. This included all those south of the Sahara. A few reactions even included constructive suggestions.
The African Group of United Nation ambassadors unanimously dismissed the comments as “outrageous, racist and xenophobic”. They demanded Trump retract them and apologise. Botswana, Senegal and South Africa summoned US local representatives to be served with a demarche. In normal diplomatic practice this is a stern request for an explanation and is tantamount to a formal protest.
But in dealing with Trump, normal protocols are beside the point.
More than a year after he took office Trump has yet to announce an Africa policy, or even fill important diplomatic positions. He has yet to nominate an Assistant Secretary of State for Africa or an ambassador to South Africa. This means that African leaders lack any policy context in which to frame and guide traditional diplomatic reactions.
The Trump administration’s incompetence makes it difficult for African countries to engage Washington in seeking meaningful explanations, much less substantive negotiations. Even at lower working levels sustaining routine relations are complicated by a lack of policy guidance, budgetary uncertainty, and inter-agency management. This affects complex development, environmental, trade or security issues.
Africa’s limited resources, institutional capacities and vulnerabilities add to the risks associated with the current state of affairs.
Challenging racism with reason
Ebba Kalondo, chief spokesperson for the African Union said Trump’s comment “flies in the face of accepted behaviour and practice”. But she then sounded a possibly hopeful note. She added that the US
remains a global example of how migration gave birth to a nation built on strong values of diversity and opportunity. We believe that a statement like this hurts our shared global values on diversity, human rights and reciprocal understanding.
Kalondo’s appeal to what Abraham Lincoln famously called “the better angels of our nature” also recalls how Trump’s predecessor, Barack Obama, sought to transform troubling moments into what he suggested could be “teachable moments”.
In this spirit prominent African Americans, such as popular TV news pundit Joy Reid, have responded to Trump with positive reminders. Reid informed her viewers that her mother is a professor who immigrated from Guyana and her father a successful Congolese-American geologist. Other successful Africans are also speaking out. This affirms that Kalondo’s reference to enduring shared global values may not ring as hollow as Trump’s bigoted comments might cause us to fear.
This does not deny the immediate danger posed by Trump. As a New York Times editorial reminded readers the day after the reported comment and his attempt to retract it:
Mr Trump is not just a racist, ignorant, incompetent and undignified. He is also a liar … And still supporting Trump are a substantial number of the 63 million voters who elected him. It is these people, albeit not a national minority, who he continues to court, with his denigration of immigrants and especially those of African origin.
Trump’s comments can be viewed as a reflection of his personal animus and a conviction that they will play well with his political base.
Further complicating any effort to hold Trump and his supporters to account is that he’s repeatedly said he “is the least racist person he knows”. Polling suggests that most of his political supporters also believe they’re not racists.
Such denials have a long history in US politics. They are at the heart of America’s ongoing struggle for racial justice as recounted in “The Nationalist’s Delusion” by Adam Serwer.
Trump and his white nationalist supporters will also never concede that the history of slavery and colonial exploitation perpetrated by their own American and European ancestors contributed to Africa’s problems of economic underdevelopment and political balkanisation.
Time to break with protocol
African governments and non-governmental groups are right to voice outrage in reaction to Trump’s outbursts, and to criticise his behaviour.
But they need to do more. They can encourage and cooperate directly with those in Congress, African-Americans and the growing network of civil society groups opposed to Trump. This may bend, or even violate, traditional diplomatic practice. But Trump’s own disregard for international principles and norms justifies using alternative methods and interventions.
Having America as a more politically capable, willing and acceptable partner is surely in Africa’s long-term interests. This aspiration can be rooted in the same values as the pan-African democratic vision enshrined in the AU’s Constitutive Act. The vision was championed more than a decade ago under the banner of an African Renaissance. It is based on shared commitments to democratic cooperation, greater collective self-reliance and eventual democratic integration. But it is floundering and could founder.
If Americans succeed in resisting Trump and reconsolidating their democracy, then this could lend critical support for African democrats who still believe in the shared vision that the AU’s Kolondo refers to.
The U.S. stopped short of branding China a currency manipulator, but urged the world’s second-largest economy to let the yuan rise with market forces and embrace more trade.
No major trading partner is manipulating its currency for an unfair trade advantage, according to the first foreign-currency report released by the Treasury Department under President Donald Trump. It kept China, South Korea, Japan, Taiwan, Germany and Switzerland on its foreign-exchange monitoring list.
“China currently has an extremely large and persistent bilateral trade surplus with the United States, which underscores the need for further opening of the Chinese economy to American goods and services,” as well as quicker reforms to boost household consumption, according to the Treasury report.
Trump declared that he’ll back away from a campaign promise to name China a currency manipulator, a move that would have created friction between the world’s largest economies as they try to boost trade cooperation and address North Korea’s nuclear threat. Trump, in a Wall Street Journal interview, said China hasn’t manipulated the yuan for months, while accusing nations that he didn’t identify of devaluing their currencies and saying the dollar is getting too strong.
The report contains an implicit threat that unless China gives U.S. exporters greater market access and further rebalances the economy, the U.S. could act to rectify the trade imbalance, according to Eswar Prasad, former head of the IMF’s China division and author of “Gaining Currency: The Rise of the Renminbi.”
“While China now meets only one of the three criteria for currency manipulation listed in the report, the text makes clear that China’s large bilateral trade surplus with the U.S. is by itself enough to warrant careful scrutiny of China’s trade and currency practices,” said Prasad, a professor at Cornell University in Ithaca, New York.
The Treasury report said that for a decade China engaged in one-way, large-scale interventions to hold down the currency, and then only allowed it to strengthen gradually -- a practice that imposed “significant and long-lasting hardship on American workers and companies.” While China has been intervening to prevent a depreciation of the yuan, its selling of foreign currency reserves abated early this year, Treasury said.
Now, China needs to show that its lack of intervention in the currency markets “to resist appreciation” over the past three years is a “durable” policy by allowing the yuan to strengthen “once appreciation pressures resume,” the Treasury said.
China’s Ministry of Foreign Affairs didn’t immediately respond to an email Saturday seeking comment on the report.
Treasury avoiding the manipulator label reflects that China’s current-account surplus as a share of output is much reduced, and currency intervention now supports yuan strength, according to Bloomberg Intelligence economists Tom Orlik and Justin Jimenez. China has burned through almost $1 trillion of its foreign reserves, or about a quarter of the total stockpile, since mid-2014 to help support the currency.
“After much hoopla, and with a few extra bells and whistles, the Treasury’s position is completely unchanged,” Orlik and Jimenez wrote in a report. “Treasury does have some choice words for China, accusing it of causing ‘long-lasting hardship’ to American workers. And there’s what looks like a change in the criteria, opening the possibility that China’s outsize trade surplus alone will be enough to keep it on the watch list.”
Like the last report by the Obama administration in October, China met only one of the three criteria -- for having a large trade deficit -- that’s used by the Treasury as a threshold for manipulation. China’s $347 billion goods trade surplus with the U.S. was the largest of major trading partners last year, according to the report.
Taiwan also met one condition, while the other four met two.
The Treasury said Germany has a “responsibility” to help balance global demand and trade flows. Europe’s biggest economy should use fiscal policy to encourage strong domestic demand, which would put “upward pressure” on the euro. Switzerland “could increase reliance on policy rates in order to limit the need for foreign-exchange interventions, which should be made more transparent.”
In Asia, Taiwan, Japan and South Korea were urged to keep interventions to a minimum, and aspire to have flexible and transparent exchange rate policies.
“The United States cannot and will not bear the burden of an international trading system that unfairly disadvantages our exports and unfairly advantages the exports of our trading partners through artificially distorted exchange rates,” the report stated. “Treasury is committed to aggressively and vigilantly monitoring and combating unfair currency practices.’’
The department is required by law to report to Congress twice a year on whether America’s major trading partners are gaming their currencies. The report is the government’s formal channel to impose the manipulator designation, leading to a year of negotiations for a solution and penalties if the practice continues.
The U.S. hasn’t branded any country a manipulator since 1994.
A senior Bank of Korea official said South Korean foreign-exchange authorities maintain their stance that the exchange rate is to be determined by the market as the report emphasized fair competition. The official asked not to be identified because the central bank hasn’t issued a statement the report.
A spokesman for Taiwan’s presidential office referred a request for comment to the central bank. An official at the monetary authority, who asked not to be identified, said Saturday that the central bank is in continued contact with the U.S. and has good communication channels with Washington.
The Treasury left the criteria for manipulation unchanged at having a trade surplus with the U.S. above $20 billion; having a current-account surplus amounting to more than 3 percent of gross domestic product; repeated currency depreciating by buying foreign assets equivalent to 2 percent of output over the year.
Commerce Secretary Wilbur Ross has said that the issue of “currency misalignment” -- which could also include unintentional devaluations -- will be addressed in a study of trade abuses by nations that run large surpluses with the U.S., which is due to be ready in June.