THE OTHER SIDE
Last week, the heads of government of the world’s two largest economies, the US and China, had their first summit meeting. The most important item on the agenda was bilateral trade – half the US’ total trade deficit is with China. During the US election campaign, then candidate Donald Trump had promised to brand China as a “currency manipulator” on the day he assumes office — and threatened levy of huge duties on US imports from China. To implement the agenda he had appointed an anti-China economist as the commerce secretary. Could the Summit between the twentieth century’s economic superpower and its likely successor in the twenty first century lead to a trade war? To be sure, the currency manipulation charge was unsustainable: China has been appreciating its currency to bring down its trade surplus for a decade, and has intervened heavily over the last two years to stem the currency’s fall from capital outflows. Also, import duties would have contravened the World Trade Organization (WTO) rules. No wonder, the head of the International Monetary Fund, in a public statement cautioned that global economic recovery could be cut off by the “sword of protectionism” now threatening trade. And a new book by Michael Green, “By more than providence”, about American power in the Asia Pacific since 1783 (when US gained independence), argues that “when new US administrations have failed to make the expansion of trade a central pillar of their strategic approach to Asia, they have invariably lost ground.”
Trump’s counterpart at the Summit, President Xi Jinping of China, has seen his country become the world largest trader and financial power in three decades. Other economic miracles in Asia like Japan and Korea had earlier followed the same route to rapid economic growth: increase in manufacturing and exports. No wonder, at the Davos World Economic Forum Conference just before President Trump’s inauguration, Xi had hailed the benefits of globalisation and told the conferees that China would “guide economic globalisation”. As for China’s financial power, it is today the largest cross-border lender, financing huge infrastructure projects in Asia, Africa and Latin America, the US’s backyard — even Europe. In some ways it is now playing a role which the US did at the end of the Second World War in reviving Europe and Japan. Clearly, there was a wide divergence between the “America First” goal of President Trump, and President Xi’s attitude towards globalisation. One wonders whether the former remembers how in the 1930s, what could have been a minor recession deepened into a global depression as a result of protectionism. Civilisationally, over the millennia, standards of living have improved through production of goods and services for exchange rather than for consumption by the producer himself — first at the individual level, then within villages, then within countries and finally globally.
But to come back to the Summit, it seems to have led to a “trade peace”, at least temporarily, rather than a trade war between the two largest economies. While no communique was issued after the meeting, and President Trump twitted that it was “a very difficult meeting”, he has also claimed that “we have made tremendous progress in our relationship with China... lots of very potentially bad problems will be going away”. On its part, China eased some restrictions on imports of US beef, and promised greater access for the US financial sector to the Chinese market. Perhaps the most important outcome was that the two Presidents agreed to a hundred day plan to address trade imbalances between China and the US. Later, the US announced that China is not a currency manipulator. Overall, a trade war seems to have been averted at least for the next three months.
But, should we keep our fingers crossed? After all, within the first three months of his Presidency, Donald Trump has made, or been forced to make, so many “about turns” on policy announcements — and not only about trade with China. To quote a few:
The bombing in Syria, within hours and on the basis of a news report, after being comfortable with President Assad until then;
The withdrawal of the health care Bill, and tax cuts for the “1 per cent”;
NATO, instead of being “superfluous”, has once again become very useful.
I could go on. But given that Mr Trump seems to find it difficult to be consistent, the “detente” with China could well unravel. Is his attention span Twitter-size, and cannot accommodate more than 140 characters?