Trump would be unwise to battle China

DONALD Trump, with his America First policies and tariff threats, could bite off more than he can chew if he picks a fight with China.

It is not rational to ascribe anything other than huge benefit to the post-war experience of global trade.

Since 1981 the share of trade in world Gross Domestic Product has risen from under 25 per cent to over 40 per cent whilst world real GDP has grown more than six-fold, showing how intimately linked and beneficial globalisation has been to wealth creation.

The developed world benefits from cheap consumer goods and has low unemployment.

The emerging world has urbanised and lifted many hundreds of millions of people out of poverty, creating a viable “middle class” in both India and China.

Aside from the cost to the environment, there have been no “losers”. Hence, in the litmus test of pragmatism versus populism, initiating (or not) a trade war with China, pragmatism should surely prevail.

But if a trade war were to happen, China would win.

Its growth is no longer export driven, its absolute total trade with the US is not that significant at around five per cent of GDP, not everything it exports is substitutable, shutting the door on direct Chinese imports with tariffs would probably just see them enter the US indirectly – profiting an extra middle man, not US jobs, China has a higher “pain threshold” than the US given the Communist Party’s tighter hold on power than the Republican Party, and picking a fight with your banker is a bad idea – China holds a large amount of US debt and is the recipient of far greater direct investment from America than is true in reverse.

I have long argued that, contrary to frequent reports, China was not about to implode under a mountain of debt and an unsustainable growth model, wreaking havoc on the world economy in the process. Some old China hands are clearly very nervous, but most appear to accept that uncertainty is part of life when riding the Dragon. John Wyn-Evans is head of investment strategy at Investec Wealth & Investment