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.”
They say home is where the heart is. But for a large proportion of the world’s population, home is where the work is. Or the food is. Or safety. 14% of the world’s adults – nearly 710 million people – said they want to permanently migrate to another country, according to analytics company Gallup.
Conflict, famine and disaster are driving large numbers of people from countries such as Syria, South Sudan and Congo, while chronic high unemployment is at the root of people’s desire to leave Albania.
And where do they want to go? The US primarily: one in five potential migrants named the country as their preferred destination. Meanwhile, Germany, Canada, the United Kingdom, France, Australia and Saudi Arabia appeal to at least 25 million adults each. Roughly 20 countries attract more than two-thirds of all potential migrants worldwide.
Gallup interviewed approaching 587,000 people aged over 15 in 156 countries between 2013 and 2016 to come up with its figures.
The US has been the preferred destination for potential migrants for years. However, Germany’s popularity rose significantly after Chancellor Angela Merkel promised “no limit” to the number of refugees her country would accept. The period of Gallup’s survey covered the height of the European migrant crisis.
By contrast, the UK lost some of its allure during the lead-up to the Brexit vote, with 35 million potential migrants naming it as their desired destination between 2013 and 2016, down from 43 million between 2010 and 2012.
In 31 countries throughout the world at least three in 10 adults say they would like to move permanently to another country if they could.
Desire to migrate increased the most in non-European Union countries in Europe, in Latin America and the Caribbean, and in the Middle East and North Africa. This is in contrast to Asia, the US and Canada where the desire to move remained pretty constant.
The figures also show that following the global financial crisis, the desire to migrate diminished. But with an improving economic climate, alongside increasing unrest in some parts of the world, the number of people wishing to move is once again on the rise.
The views expressed in this article are those of the author alone and not the World Economic Forum.
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.
Qatar Airways said Saturday it would fly passengers to the United States from seven previously barred Muslim-majority countries after a US judge temporarily halted a controversial travel ban .
A travel alert posted on the Doha-based airline’s website said the carrier would comply with the new orders as long as passengers had a valid visa.
“As directed by the US Customs and Border Protection, nationals of the seven affected countries listed below and all refugees seeking admission presenting a valid, unexpired US visa or (Green Card) will be permitted to travel to the United States and will be processed accordingly upon arrival,” read the statement.
The decision was taken after Seattle US District Judge James Robart announced a temporary suspension of President Donald Trump’s travel ban. The White House said the ban — introduced via executive order last week — was placed upon nationals from Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen as a security measure.
Qatar Airways had complied with the ban, which also suspended refugee arrivals. The Gulf carrier flies to at least 15 American cities including New York, Atlanta and Chicago .
Chinese industry called on Saturday for talks with the United States to seek an end to anti-dumping duties imposed on its exports of large washing machines, state news agency Xinhua reported.
The U.S. International Trade Commission last month made a final finding of harm to a U.S. manufacturer after a Commerce Department probe found some large residential washers were being imported from China at below fair value.
"The move hurts not only Chinese manufacturers, but also the interests of U.S. consumers," the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME) said, according to Xinhua. "The chamber is concerned about the U.S. use of trade remedy measures to protect its own market, and hopes to solve the issue through negotiations to gain win-win results."
The investigation followed a petition by Whirlpool Corp over imports of washers manufactured in China by two South Korean companies, Samsung Electronics Co Ltd and LG Electronics Inc. The ITC decision imposed of final duties of up to 52.5 percent.
In 2015, U.S. imports of such washers from China were valued at an estimated $1.1 billion (£880.8 million).