De Jong decries protectionism in U.S.
‘It behooves us to look outward ... and we have the tools to do it’: De Jong
B.C. Finance Minister Mike de Jong fired a shot across the bow of American politicians and presidential candidates on Wednesday, saying that Canada will look elsewhere for trade if the “seep” of protectionism in the United States continues.
De Jong, speaking in Vancouver at the annual Pacific Finance and Trade Summit (which promotes North American banking and other business interactions with Asian partners such as China and India), levelled thinly veiled criticism at the current U.S. presidential candidates.
“I remember when U.S. presidents talked about tearing down walls, not building them,” de Jong said, referring to Republican hopeful Donald Trump’s promise to build a barrier along the Mexican border. “I remember when America was great when it was the country helping other countries tear down walls. That does not seem to be the prevailing sentiment being expressed by political leaders, or those who want to be political leaders in the U.S. right now.
“If the U.S. decides to look in- ward, it behooves us to look outward ... and we have the tools to do it. It will be a benefit for generations if we take advantage of the new opportunity.”
All three remaining hopefuls in the U.S. presidential race (Hillary Clinton and Bernie Sanders for the Democrats, and Trump on the Republican side) have spoken out against free-trade deals such as the 12-nation Trans-Pacific Partnership.
The trade summit is focused on Canada’s renminbi (RMB) trading hub, which was launched last spring. De Jong said the currency hub and B.C.’s status as one of the first jurisdictions to issue Panda Bonds (bonds in renminbi issued in the Chinese market) has helped the province secure economic stability through diversification.
Attendees at the summit, however, cautioned against being too enthusiastic about the potential for the RMB hub and other Chinese investment.
“I think that while there are certainly opportunities involved in both of these things, some perspective is in order,” said Patrick Chovanec, chief strategist and New York-based Silvercrest Asset Management.
Chovanec noted that China’s foreign investment strategy is similar to Great Britain’s during the 19th century — running trade surpluses, then using the proceeds to invest in foreign economic projects that promised big returns.
“The difference is in the world’s economy, today, the world is awash with savings, looking for places to go,” he said. “The danger is that you get capital flowing out of China, and it bids up asset prices — hint, the Vancouver real estate market — but it doesn’t drive the underlying demand that generates returns on those assets. So what you get is high valuations, which is great for people who already own those assets, but you get low returns on those assets, which is very bad for investment.”
Chovanec added that is ultimately why many American companies such as Apple are sitting on cash reserves: They are reluctant to invest where the returns are questionable. What Beijing should consider is for China to transition its domestic market to generate consumer demand, becoming a supplier of demand rather than capital.
“That’s what the world wants from China,” he said. “What it will get from China, if it continues on the path it’s on, is more capital. … But what the world needs is not necessarily a supplier of capital. What it needs is a supplier of demand.”
I remember when U.S. presidents talked about tearing down walls, not building them.