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China stands to lose more than US under a Trump administration: academic
US president-elect Donald Trump is to be sworn into office tomorrow, and among many of the possible disruptive initiatives his administration may launch is a trade war with China.
According to professor of government at Claremont McKenna College and author of China's Crony Capitalism (2016), Minxin Pei, some people may still harbour hopes that pragmatists in his administration could counterbalance the anti-trade China hawks, but former Exxon CEO Rex Tillerson, Mr Trump's pick for the Secretary of State, should dispel such illusions, the Fortune Insiders reported.
During his confirmation hearing, Mr Tillerson took a hardline on China over its trade practices, expansionist moves in the South China Sea, and unwillingness to punish North Korea for its nuclear and missile programmes even as he prevaricated on Russia.
Since Mr Tillerson would play a key role in determining policy toward Beijing if he is confirmed, his remarks suggest that he would not stand in the way if Mr Trump wants to launch a costly trade war with China.
The president-elect knows that the US is in a stronger position than China, since America is much less dependent on trade than China (total foreign trade is equivalent of 28 per cent of GDP for the US in 2015 while it is 41 per cent of GDP for China).
In addition, China sells far more to the US than the other way around. In 2015, US exports to China totalled US$116 billion while Chinese exports to the US were more than triple that at $483 billion. Most importantly, with full employment, low inflation, and a healthy financial system, the US economy is at its strongest since the financial crisis of 2008. The Chinese economy, by comparison, is weighed down by a mountain of bad debt, overcapacity, and capital flight.
Economically, China may be highly vulnerable and will suffer worse consequences than the US in a trade war, but as the world's second-largest economy, it can still deliver a powerful counter punch.
In all likelihood, Chinese leaders will respond to the actions taken by Mr Trump by targeting vulnerable American firms and sectors and following a strategy that minimises costs to China while maximising pain to the US. For example, cancelling orders of Boeing aircraft (China accounts for nearly 12 per cent of Boeing's sales in 2015) will have no adverse impact since Boeing employs few workers in China and Beijing can buy from Airbus. Cutting the imports of American wheat, soybeans, and other agricultural products will not cause starvation in China because there are alternative producers (Canada, Brazil, and Argentina).
Restricting Chinese investments in the US is another retaliatory measure attractive to Beijing. According to the Rhodium Group, an American consulting firm, Chinese companies invested $45.6 billion in the US in 2015. Curtailing such investments would not only hurt the American economy, but also help Beijing slow down capital outflows.
Since the US runs a large surplus in its exports of services to China, $33.3 billion in 2015, Beijing would be highly tempted to single out this sector for retaliation as well. In terms of US services exported to China, the bulk consists of Chinese tourists dollars (1.8 million Chinese tourists visited the US in 2014 and spent $21 billion). Cutting down America-bound Chinese tourists can both send Mr Trump a message and help plug the leakage of precious foreign currency.
There are, of course, other options available to Beijing. But these measures are less attractive because these American targets, vulnerable as they are, all employ large numbers of workers in China. They include Apple and Foxxcon, while GM and Wal-Mart also belong in the same category. They may be on Beijing's target list, but Chinese leaders are less likely to go after them first unless their trade war with Mr Trump escalates to a more vicious level.
What is clear is that such a war will do little to help Mr Trump's core supporters (manufacturing workers without college education) because companies hit with Mr Trump's punitive tariffs will simply move their production facilities to other countries in Asia. Worse still, both China and the US will lose ?the idea that China will lose more than the US is no consolation for those whose lives and jobs are upended in a totally needless and self-destructive trade war.
According to professor of government at Claremont McKenna College and author of China's Crony Capitalism (2016), Minxin Pei, some people may still harbour hopes that pragmatists in his administration could counterbalance the anti-trade China hawks, but former Exxon CEO Rex Tillerson, Mr Trump's pick for the Secretary of State, should dispel such illusions, the Fortune Insiders reported.
During his confirmation hearing, Mr Tillerson took a hardline on China over its trade practices, expansionist moves in the South China Sea, and unwillingness to punish North Korea for its nuclear and missile programmes even as he prevaricated on Russia.
Since Mr Tillerson would play a key role in determining policy toward Beijing if he is confirmed, his remarks suggest that he would not stand in the way if Mr Trump wants to launch a costly trade war with China.
The president-elect knows that the US is in a stronger position than China, since America is much less dependent on trade than China (total foreign trade is equivalent of 28 per cent of GDP for the US in 2015 while it is 41 per cent of GDP for China).
In addition, China sells far more to the US than the other way around. In 2015, US exports to China totalled US$116 billion while Chinese exports to the US were more than triple that at $483 billion. Most importantly, with full employment, low inflation, and a healthy financial system, the US economy is at its strongest since the financial crisis of 2008. The Chinese economy, by comparison, is weighed down by a mountain of bad debt, overcapacity, and capital flight.
Economically, China may be highly vulnerable and will suffer worse consequences than the US in a trade war, but as the world's second-largest economy, it can still deliver a powerful counter punch.
In all likelihood, Chinese leaders will respond to the actions taken by Mr Trump by targeting vulnerable American firms and sectors and following a strategy that minimises costs to China while maximising pain to the US. For example, cancelling orders of Boeing aircraft (China accounts for nearly 12 per cent of Boeing's sales in 2015) will have no adverse impact since Boeing employs few workers in China and Beijing can buy from Airbus. Cutting the imports of American wheat, soybeans, and other agricultural products will not cause starvation in China because there are alternative producers (Canada, Brazil, and Argentina).
Restricting Chinese investments in the US is another retaliatory measure attractive to Beijing. According to the Rhodium Group, an American consulting firm, Chinese companies invested $45.6 billion in the US in 2015. Curtailing such investments would not only hurt the American economy, but also help Beijing slow down capital outflows.
Since the US runs a large surplus in its exports of services to China, $33.3 billion in 2015, Beijing would be highly tempted to single out this sector for retaliation as well. In terms of US services exported to China, the bulk consists of Chinese tourists dollars (1.8 million Chinese tourists visited the US in 2014 and spent $21 billion). Cutting down America-bound Chinese tourists can both send Mr Trump a message and help plug the leakage of precious foreign currency.
There are, of course, other options available to Beijing. But these measures are less attractive because these American targets, vulnerable as they are, all employ large numbers of workers in China. They include Apple and Foxxcon, while GM and Wal-Mart also belong in the same category. They may be on Beijing's target list, but Chinese leaders are less likely to go after them first unless their trade war with Mr Trump escalates to a more vicious level.
What is clear is that such a war will do little to help Mr Trump's core supporters (manufacturing workers without college education) because companies hit with Mr Trump's punitive tariffs will simply move their production facilities to other countries in Asia. Worse still, both China and the US will lose ?the idea that China will lose more than the US is no consolation for those whose lives and jobs are upended in a totally needless and self-destructive trade war.
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