Gulf News

In the trade spat, it’s advantage Xi

It’s the increasing breadth of China’s influence that has put it in the box seat and that strength can be used to either defuse a war or wage it

- By Daniel Moss

For the first time since the Opium Wars of the 19th century, China’s borders and territory are unchalleng­ed. No conflict frays the country’s edges. This stability has allowed for rapid industrial­isation, foreign investment and the rise of an urban Chinese middle class. Why would China jeopardise this in a trade spat with the United States?

Hard-won political unity created the conditions in China for the reforms of the Deng Xiaoping era and the country’s huge economic success. Those gains, in turn, make China confident and strengthen its hand in talks with the Trump administra­tion that will ultimately come.

The advances are also the biggest thing China has to lose. The stronger China’s position, the more it has the scope — and necessity — to offer concession­s to stave off a conflict.

The convention­al wisdom is that the United States has a lot to lose as President Donald Trump pressures Beijing with tariff threats and Beijing responds in kind. At the Harvard College China Forum in Boston last week, speakers pointed out that China isn’t entirely unassailab­le.

China’s current geographic security, especially in contrast to the past two tumultuous centuries, may offer a potential route out of a trade conflict that would injure both countries. After all, Beijing has a much greater strategic game to play: The Belt & Road Initiative. This trillion-dollar vision would open new connection­s to Asia, Europe and Africa, via railways, roads, ports and power grids.

That sort of long-term investment is what political unity — however it is garnered — enables. In contrast, the US looks more like a nation of divided tribes where decision making is increasing­ly messy.

In particular, with almost two months until a proposed $50 billion (Dh183.9 billion) of tariffs go into effect, Americanba­sed multinatio­nals that anchor global supply chains can lobby to their heart’s content. Keep at least one eye on Congress, which has ultimate authority over trade. Trade wars that hurt constituen­ts are rarely loved on the Hill.

The broadest measure of China’s trade picture, the currentacc­ount surplus, is diminishin­g to the point of being almost negligible. It was about 1.3 per cent of gross domestic product at the end of 2017. The country’s economy is increasing­ly dominated by services, consumptio­n and technology. Despite broadsides from the White House assailing China’s predatory approach on technology and Beijing’s defiance, their interests have already begun to align.

Chinese companies overtook Japan last year as the world’s second-largest filers of patents, according to the World Intellectu­al Property Organisati­on. On current trends, it will overtake the US within three years.

China may then be looking for strong protection of intellectu­al property, according to Fred Hu, founder and chairman of Beijing-based Primavera Capital. One of Trump’s central complaints about China is what the White House calls state-led efforts to coerce the transfer or even theft of intellectu­al property.

On this, China’s and America’s shared interests may help provide grounds for a broader compromise on trade, Hu told the Harvard gathering.

It’s the strength and increasing breadth of China’s influence that put it in the box seat. Strength can be deployed to defuse a trade war, as well as wage it. Advantage: Xi. ■ Daniel Moss writes on economics for Bloomberg View.

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