Does Donald Trump’s ascension spell the end of China’s
South China Morning Post
economic rise?
Bumpy relations forecast under next US president
The foundations of China’s economic rise, massive trade flows spurred by globalisation, are looking increasingly shaky ahead of Donald Trump’s inauguration as US president on Friday, analysts say.
Ever since the fall of Lehman Brothers in 2008, Beijing has taken it for granted that China’s economic power was on the rise and that America’s was declining. That meant it was China’s turn to flex is economic muscles and gain influence, and the American consumer’s hunger for cheap Chinese products meant there was nothing Washington could do to stop it.
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However, the risks are growing that those days could be gone forever, with the Trump administration threatening to tear up the globalisation rule book.
China’s economic success in the past few decades was based upon “integrating itself into the global system and cooperating with the US”, said Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Centre for Strategic and International Studies, a Washington-based think tank.
“Trump’s threats and the possibility of de-linking from the international system ... could bring a lot of worries for [Beijing],” Kennedy said.
A container ship at Shenzhen’s Shekou Port. Photo: Xinhua
While Beijing and Washington have clashed on a host of issues over the years, ranging from human rights to cybersecurity, trade was generally viewed positively, even though China built up a substantial bilateral trade surplus, estimated at US$366 billion in 2015 according to US customs data.
China has flexed its economic muscle by promoting the yuan as a global currency that could dethrone the US dollar; creating new institutions like the Asian Infrastructure Investment Bank to rival established ones such as the World Bank; unveiling a massive infrastructure-spending programme via its “One Belt, One Road” initiative to serve its geopolitical ambitions; and holding Russia, India, Brazil and South Africa together as an emerging markets club to counterbalance Western economies, even though it doesn’t make sense financially.
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But the balance of economic power is tilting towards Washington, at least for now. Measured in US dollars, the gap between America and China’s gross domestic product must have widened significantly in 2016 given a nearly 7 per cent fall in the value of the yuan against the greenback. In addition to currency weakness, funds have been fleeing China due to the country’s slowing growth, elevated debt loads, property bubbles and choking air pollution.
Donald Trump has threatened to brand China a currency manipulator. Photo: Reuters
Trump, meanwhile, has threatened to label China a currency manipulator and impose a blanket 45 per cent punitive tariff on Chinese imports. His nomination of a number of China critics as key advisers has only made the threats more real.
“It’s almost for sure that China and the US will have a bumpy trade relations ahead,” said Zhang Ming, an international investment researcher with the Chinese Academy of Social Sciences. “But the chances for a full-blown trade war are still low” because such a war would hurt US consumers as well.
“A more likely scenario is that the Trump administration will pick on a few sectors to punish Chinese imports, or it will impose a blanket duty at a fairly low rate,” Zhang said.
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If Trump labelled China a currency manipulator, Beijing could just stop intervening in the foreign exchange market and let the yuan fall, he said.
China could retaliate in many ways, such as stopping purchases of aircraft or soybeans, Marcus Noland, director of studies at the Washington-based Peterson Institute for International Economics, said in a speech in Hong Kong last week.
“If China stops buying US aircraft and aircraft products, the US will lose 84,000 jobs, and those will be concentrated in the areas such as Kansas, Seattle-Tacoma in Washington, South Carolina and so on,” he said.
A Boeing 787 airliner inside Xiamen Airlines’ hangar in Fuzhou, Fujian province. Photo: Xinhua
At the same time, Noland said, the Chinese government needed to keep a cool head because there would be a lot of noise in the first year of the Trump administration.
Beijing has been using every available public channel to express its concerns about the retreat of globalisation and has been knitting together its own trade deals, despite foreign concerns about China’s protectionism and reluctance to ease restrictions on market access.
It’s all or nothing for China as trade collision with the US looms
“For many years, China and the United States business cycles were closely aligned and the monetary policy link China had to the [US] Federal Reserve and US dollar worked well,” said Christopher Balding, an associate professor with Peking University’s HSBC Business School in Shenzhen.
But the US and China were now on contrasting policy paths. The US was tightening monetary policy, he said, and China would have to “struggle to follow”.
“That gap is very real but has less to do with political or economic power and more to do with the misalignment of business cycles,” he said. “China has an opportunity to gain advantage by offering to open its markets. If China is complaining about Trump proposing the closing of US markets and the damage this will do to American and Chinese interests, imagine the gain from opening very closed Chinese markets.”
Donald Trump says more manufacturing in the US will help ‘make America great again’. Photo: AFP
Although Trump’s threats had yet to materialise, Beijing was quietly preparing retaliatory measures, including some targeting US businesses in China, Bloomberg reported earlier.
An editorial in the Global Times, a tabloid published by the People’s Daily, said China had prepared “big sticks” it could hit back with if Trump took action against Chinese products.
Chen Long, a Beijing-based economist with Gavekal Dragonomics, said China had few options but to retaliate if Trump started a trade war, because his policies would threaten China’s position in global industrial chains.
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During the presidential election campaign, Trump promised to cut taxes, require American manufacturers to return home, raise tariffs on imports – especially from China and Mexico – and improve infrastructure to create more jobs and “make America great again”.
Meanwhile an army of manufacturers has been packing up in China and seeking to relocate to places with lower costs or ones closer to their markets. Foxconn, the Taiwanese company that employs a million mainland workers to assemble iPhone’s and other electronic gadgets, has publicly flirted with the idea of relocating some of its production to the US, while also announcing plans for a new factory in China.
Zhang said China had “been a bit too optimistic” about a number of issues related to its position in the global economy, from assuming globalisation would become business as usual to the chances of quickly making the yuan an international currency.
Additional reporting by Sidney Leng
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