KEEP­ING OR­DER

As US steps up tar­iffs, China is seen as strong­est de­fender of rules-based global trade

China Daily European Weekly - - Front Page - By AN­DREW MOODY an­drew­moody@chi­nadaily.com.cn

US Pres­i­dent Don­ald Trump’s lat­est move to im­pose tar­iffs on a fur­ther $200 bil­lion of Chi­nese im­ports is seen by many as a ma­jor chal­lenge to the rules-based sys­tem of global trade. The tar­iffs come on top of $50 bil­lion in tar­iffs al­ready an­nounced and are a clear in­di­ca­tion by the Trump ad­min­is­tra­tion that it in­tends to es­ca­late trade ten­sions.

The new tar­iffs will take ef­fect on Sept 24 at a rate of 10 per­cent and will be in­creased to 25 per­cent on Jan 1.

They have been met by an im­me­di­ate re­sponse from Bei­jing, which has slapped an ad­di­tional $60 bil­lion of

tar­iffs on 5,207 cat­e­gories of US prod­ucts. These will be levied at two rate lev­els — 10 per­cent and 5 per­cent — and also will take ef­fect on Sept 24.

Trump, who has al­ready threat­ened to pull the US out of the World Trade Or­ga­ni­za­tion, which he claims no longer acts in the in­ter­ests of the US, is seen as in­tent on dis­rupt­ing an in­ter­na­tional or­der that has been in place since the end of World War II.

The WTO, pre­ceded by the Gen­eral Agree­ment on Tar­iffs and Trade, was one of the three pil­lar in­sti­tu­tions to emerge as a re­sult of the Bret­ton Woods Con­fer­ence of 1944, along­side the In­ter­na­tional Mone­tary Fund and the World Bank (orig­i­nally the In­ter­na­tional Bank for Re­con­struc­tion and De­vel­op­ment).

With Trump’s tar­iffs af­fect­ing 2.5 per­cent of world trade, ac­cord­ing to Dutch fi­nan­cial group ING, many now see Trump’s ac­tions as a ma­jor as­sault on this or­der.

Mean­while, China, which played no role in the birth of the ex­ist­ing or­der and only joined the WTO in 2001, is now seen as one of its strong­est de­fend­ers, with Pres­i­dent Xi Jin­ping fre­quently ex­tolling the virtues of glob­al­iza­tion, most fa­mously at the World Eco­nomic Fo­rum meet­ing at Davos in Jan­uary 2017.

In ad­di­tion, Premier Li Ke­qiang has called for safe­guard­ing eco­nomic glob­al­iza­tion and ac­cel­er­at­ing the new in­dus­trial rev­o­lu­tion by pro­mot- ing more in­clu­sive de­vel­op­ment, in­no­va­tion and new driv­ers for eco­nomic growth.

The author­ity of the rule-based mul­ti­lat­eral trad­ing sys­tem, which is the foun­da­tion for glob­al­iza­tion and free trade, should be re­spected and safe­guarded as un­cer­tain­ties and anti-glob­al­iza­tion sen­ti­ment are on the rise, Li said at the open­ing cer­e­mony of the World Eco­nomic Fo­rum’s An­nual Meet­ing of the New Cham­pi­ons 2018, also known as Sum­mer Davos, in Tian­jin on Sept 19.

Uni­lat­eral ac­tion can­not solve prob­lems, and all na­tions should help boost the new in­dus­trial rev­o­lu­tion, Li added.

He Wei­wen, who was an eco­nomic and com­mer­cial coun­selor at the Chi­nese con­sulates in New York and San Fran­cisco at the time of China’s ac­ces­sion to the WTO, says Trump’s chal­lenge to the WTO or­der is un­prece­dented.

“Dur­ing my time in the US (19972003) nei­ther (pres­i­dent Bill) Clin­ton nor (pres­i­dent) Ge­orge W. Bush went to­tally against WTO rules. They were not pur­su­ing an ‘Amer­ica First’ pol­icy. Un­der Bush, there was a case of steel im­port sur­charge, but that was an iso­lated case,” he says. “The Trump ad­min­is­tra­tion has not only chal­lenged China but also the mul­ti­lat­eral trade sys­tem, launch­ing hos­tile con­flicts against Mex­ico, Canada, the Euro­pean Union and oth­ers.”

He says China is right to re­spond to the uni­lat­eral US ac­tion with its own tar­iff sanc­tions and must steer clear, un­like South Korea, of be­ing in­tim­i­dated into cav­ing in to ne­go­ti­at­ing sep­a­rate trade deals.

US Com­merce Sec­re­tary Wil­bur Ross said in March that South Korea would not have made con­ces­sions — al­low­ing US au­tomak­ers greater ac­cess to its mar­ket and re­duc­ing steel ex­ports to the US — if there had not been the threat of tar­iffs on steel and alu­minium ex­ports.

“This goes against the whole sys­tem of trade rules,” says He. “If we all be­have like South Korea, then what is the point of the WTO? When its rules are un­der­mined like this, the whole world trade or­der is in jeop­ardy.”

Paul Cheng, a busi­ness­man and former Hong Kong politi­cian as well as au­thor of On Equal Terms: Re­defin­ing China’s Re­la­tion­ship With

Amer­ica and the West, says Trump’s ac­tions are in­dica­tive of the US now show­ing the same dis­re­spect for the WTO as it has for coun­tries it has pre­vi­ously backed and then dumped.

“Amer­ica would sup­port some coun­try and when they didn’t want to sup­port it any­more, they would just drop it. Now this is not a coun­try but the WTO. They were a big sup­porter of the WTO at the be­gin­ning, but now that the power is shift­ing, they don’t like it. They are no longer call­ing the shots,” he says.

Wang Huiyao, founder and pres­i­dent of the Bei­jing-based in­de­pen­dent think tank Cen­ter for China and Glob­al­iza­tion and coun­selor for the State Coun­cil, China’s Cabi­net, says the re­cent US trade ac­tions sug­gest it is be­com­ing more uni­lat­eral, while China is be­com­ing in­creas­ingly mul­ti­lat­eral on the world stage.

“It is not that China can­not see the faults in the cur­rent global gover­nance sys­tem. There are nu­mer­ous prob­lems. These in­clude in­equal­i­ties be­tween rich and poor and multi­na­tional com­pa­nies out of con­trol in terms of ju­ris­dic­tion. The so­lu­tion, how­ever, is not to tear ev­ery­thing up.”

Wang, how­ever, says he does not be­lieve it is just the US that is un­der­min­ing the global trad­ing or­der, with there now be­ing a sense of the de­vel­oped world as a whole, in­clud­ing the Euro­pean Union, want­ing to act in its own in­ter­ests.

“The US and EU are try­ing to talk about a zero-tar­iff agree­ment. Both Ja­pan and Canada have reached free trade agree­ments with the EU. It looks — par­tic­u­larly from China’s and other emerg­ing na­tions’ per­spec­tives — that the de­vel­oped world is try­ing to cre­ate some sort of al­liance of its own,” he says.

“This is very un­wise, be­cause the emerg­ing mar­ket coun­tries will pro­vide the growth en­gine for the world econ­omy over the next three or four decades.”

Stephen Roach, se­nior fel­low at Yale Uni­ver­sity’s Jack­son In­sti­tute of Global Af­fairs and au­thor of Un­bal­anced: The Code­pen­dency of Amer­ica

and China, says that de­spite Trump’s threat of pulling out of the WTO, he does not be­lieve it sig­nals “a ma­jor move in the pen­du­lum against a rules-based trade or­der”.

“I do not see the United States in large part ab­di­cat­ing its global lead­er­ship role,” he says.

“What I think the Trump ad­min­is­tra­tion is all about is main­tain­ing lead­er­ship, but on dif­fer­ent terms than have been ev­i­dent over the past 10 years.”

Kerry Brown, di­rec­tor of the Lau In­sti­tute at King’s Col­lege Lon­don, says that to un­der­stand the cur­rent trade sit­u­a­tion, it is im­por­tant to re­flect on the writ­ings of Carl von Clause­witz, the Prus­sian military strate­gist.

“Clause­witz said in his great trea­tise On War that if the bat­tle­field is dom­i­nated by con­fu­sion, then things are of­ten not what they re­ally look

like. I ac­tu­ally don’t think the US is walk­ing away from the WTO. It is just cre­at­ing an enor­mous amount of faff just to get what it sees as a fairer deal. It may be as a re­sult that China has to re­cal­i­brate the way it does trade with the world.”

Rana Mit­ter, di­rec­tor of the Uni­ver­sity of Ox­ford China Cen­tre, says the cur­rent US stance does not make a great deal of sense, since the US has largely ben­e­fited from the cur­rent sys­tem.

“It is not log­i­cal, be­cause the United States is the coun­try that has done the best out of the global in­ter­na­tional or­der over the past 70 years or so. It may have many flaws, but it seems es­sen­tially to pro­duce sta­bil­ity and pros­per­ity, and to turn against it does not quite add up.

“I don’t think it is strange, ei­ther, that China is now such a de­fender of the cur­rent sys­tem. China’s im­pres­sive de­vel­op­ment over re­cent years is partly a re­sult of it in­cor­po­rat­ing it­self into that or­der, par­tic­u­larly since join­ing the WTO.”

One of the ma­jor ques­tions is to what ex­tent the Bret­ton Woods sys­tem is now un­der threat by the cur­rent trade dis­pute.

Roach, also a former chair­man of Mor­gan Stan­ley Asia as well as its chief econ­o­mist, says the world could de­scend into a dark place if this is the case.

“What we are see­ing now is skir­mishes, but if we get into a full-blown trade war, then you can con­jure up all sorts of dra­co­nian sce­nar­ios. What is not clear to me is what would emerge to re­place it, if any­thing. The world might be a very frag­mented and disor­derly place for a while.”

Brown, also au­thor of the just-pub­lished China’s Dream, be­lieves the di­rec­tion of travel of a new global or­der will not be one that more fa­vors the US, but one that ac­com­mo­dates the rise of China as a ma­jor eco­nomic power.

“China even­tu­ally will want more of its own space. It has set up the Asian In­fra­struc­ture In­vest­ment Bank, launched the Belt and Road Ini­tia­tive, set up the Shang­hai Co­op­er­a­tion Or­ga­ni­za­tion, and these are set­ting out the stall for al­low­ing it more space. It will be just a re­flec­tion that China is such a huge econ­omy. There is clearly go­ing to be some grow­ing pains over this change.”

Mit­ter at Ox­ford Uni­ver­sity says the Bret­ton Woods sys­tem has been tested be­fore, not least in 1971 when then US pres­i­dent Richard Nixon ended the di­rect con­vert­ibil­ity of the US dol­lar into gold, which had been the main­stay of the former sys­tem.

“The clas­sic Bret­ton Woods sys­tem was blown up rather sud­denly by Nixon at the same time as he was open­ing up to China. So it is not the first time the sys­tem has faced chal­lenges,” he says.

“Cur­rency is still key to the global or­der. Un­til China or any other in­ter­na­tional ac­tor has an in­ter­na­tion­ally trad­able cur­rency that is seen as safe and sta­ble across the en­tire fi­nan­cial and trad­ing world, then it is very dif­fi­cult to see who could take that rap­proche­ment role the United States cur­rently has in be­ing at the cen­ter of the global or­der.”

Former Peo­ple’s Bank of China gov­er­nor Zhou Xiaochun has said that Trump’s ac­tions could, how­ever, drive in­vestors to the Chi­nese yuan.

“If the US uses too much fi­nan­cial sanc­tions against the other coun­try, it drives (in­vestors) to con­sider the other cur­rency,” he told CNBC.

Zhou has also said that China is in a strong po­si­tion to with­stand any trade war, even if Trump im­poses tar­iffs on all its $506 bil­lion of im­ports from China.

“We used a math­e­mat­i­cal model to cal­cu­late the neg­a­tive im­pact of the trade war. It is not very large, it is not sig­nif­i­cant. It is less than half a per­cent (of an) im­pact to the Chi­nese econ­omy,” he said in an­other in­ter­view with CNBC.

“The worst-case sce­nario is that China is no longer go­ing to ex­port $500 bil­lion of goods to the US mar­ket, and then it’s de­pen­dent on how quickly you can di­ver­sify those ex­port goods to the other coun­tries. Ac­tu­ally, I think China could act quickly.”

The prospect of a trade war be­tween the US and China also has reper­cus­sions for Europe.

Her­man Van Rom­puy, former pres­i­dent of the Euro­pean Coun­cil and former prime min­is­ter of Bel­gium, told a meet­ing in Brus­sels of the Bel­gian think tank Bruegel on Sept 17 that it was im­por­tant that trade dis­putes were set­tled peace­fully.

“There is no life with­out com­pro­mise, even in every po­lit­i­cal sys­tem. The (Euro­pean) Union is more than oth­ers a liv­ing ex­am­ple of a con­tin­u­ous con­ver­sa­tion be­tween 28 mem­ber states.

“End­ing dis­putes, also trade dis­putes, end­ing con­flicts, wars can only be achieved by ne­go­ti­a­tion and talks.”

Clau­dia Ver­notti, founder and di­rec­tor of the China-EU As­so­ci­a­tion for Dig­i­tal, speak­ing at the same meet­ing, says trade wars do not gen­er­ate any win­ners.

“The global sup­ply chain is so com­plex, there are so many in­ter­con­nec­tiv­i­ties around it that make even third party coun­tries prob­a­bly not have much to gain, so the EU also will not be bet­ter off from a trade war be­tween the US and China,” she says.

How­ever, Cheng, the Hong Kong busi­ness­man, says it is clear that the big­gest losers are likely to be US con­sumers.

“If you go into Wal­mart or Costco to­day, a large per­cent­age of the prod­ucts will be made in China, so con­sumers will un­doubt­edly be hit,” he says.

“You will also be hit­ting the US com­pa­nies who make these prod­ucts in China. If you are mak­ing large volumes, you can’t switch pro­duc­tion away from China, be­cause nowhere else has the same scale of man­u­fac­tur­ing ca­pa­bil­ity.”

SONG CHEN / CHINA DAILY

XU JINGXING / CHINA DAILY

Shi Guang­sheng, then China’s min­is­ter of for­eign trade and eco­nomic co­op­er­a­tion, and Char­lene Barshef­sky, then the US trade rep­re­sen­ta­tive, sign an agree­ment in 1999 re­gard­ing China’s en­try into the World Trade Or­ga­ni­za­tion in 2001.

NICK J.B. MOORE / FOR CHINA DAILY

Rana Mit­ter, di­rec­tor of the Uni­ver­sity of Ox­ford China Cen­tre

PRO­VIDED TO CHINA DAILY

Her­man Van Rom­puy, former pres­i­dent of the Euro­pean Coun­cil and former prime min­is­ter of Bel­gium

PRO­VIDED TO CHINA DAILY

Zhou Xiaochuan, former Peo­ple’s Bank of China gov­er­nor

YU FANGPING / FOR CHINA DAILY

Con­tain­ers of goods are un­loaded at the port in Qing­dao, Shan­dong prov­ince, on Aug 8.

FENG YONGBIN / CHINA DAILY

Paul Cheng, busi­ness­man and former Hong Kong politi­cian

ZHANG WEI / CHINA DAILY

He Wei­wen, a former China trade diplo­mat

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