Siah Hwee Ang says it makes no sense for the US and China to engage in a trade war

By Siah Hwee Ang*

The US and China are global leaders in many economic dimensions.

Put together, the two giants’ economies are the largest trading partner to around 200 other economies – pretty much most of the world.

Top items on the US-China geopolitical agenda are North Korea and, to a lesser extent, Taiwan and South China Sea.

On an economic front, the two countries have been butting heads very frequently over the last six months.

Late in 2016, the US stood alongside the EU in saying that it did not recognise China as a market economy.

Then, there was the threat of a heavy US import tax for Chinese goods.

That sparked more anger from Beijing and the idea of a trade war became a major discussion point among pundits.

Not that it makes sense for the two countries to engage in a trade war.

A study by the Center for Business and Economic Research at Ball State University in the US showed that 85 per cent of job losses can be attributed to technological change such as automation. So, it is hardly fair for the US to lay blame on international trade for job losses.

The world needs both economies to be in fairly good shape.

We do not need to have a winner in this case.

We’ve been bracing ourselves for more conflict since President Trump took office.

One aspect of his internal reforms is to bring back jobs to the US. From afar, this might seem detrimental to China’s manufacturing and exporting opportunities.

But it isn’t quite so clear cut.

China is trying to lose some low to mid-end manufacturing. In fact, it has begun to outsource a lot of activities. And while exporting is important to China, it has taken a back seat to investment.

Chinese investment into the US won’t be a problem for the new US government even if it goes ahead and creates more jobs for Americans.

According to the Rodium Group, an investment and policy consulting company, Chinese firms poured US$8.6 billion into 778 plant investments in the US from 2000 to 2016.

Overall investments reached US$ 45 billion in 2016, up from US$15 billion the year before. Last year also marked the first time in which Chinese investment into the US exceeded US investment into China.

The US’s focus on infrastructure development is a boon for China.

In the last few years, China has been promoting infrastructural and logistical developments across the globe. So again, its direction is compatible with what the US desires.

China’s large infrastructural firms are already eyeing up President Trump’s US$1 trillion infrastructure plan.

Even though there are no details yet, chances are good that this plan will materialise, especially given the dire need for the US to upgrade its transportation network.

If the two powerhouses can iron out their differences, we’re likely to see consortiums involving both Chinese and US firms participating in the projects, similar to the deals struck for the Jakarta-Bandung link project in Indonesia.

In fact, two weeks ago, China’s largest railway equipment maker CRRC signed a US$ 650 million deal to supply underground carriages to Los Angeles. CRRC had supplied US$ 570 million worth of carriages to Boston two years ago.

Americans are also expressing more favourable views on China, according to recent findings from the Pew Research Center and Gallup.

The latest survey shows that 44 per cent of (surveyed) Americans have a favourable opinion of China, up from 37 per cent last year.

This has partly been attributed to the declining concerns about economic threats from China. For example, only about 50 per cent of respondents think that job losses to China is a serious issue, compared to more than 70 per cent of respondents five years ago.

All in all, signs are pointing in the same direction.

A trade war seems unlikely, unless there’s reason to believe that trade and investment cannot benefit two countries at the same time. The evidence is strongly stacked against a zero-sum game in trade and investment.


*Professor Siah Hwee Ang holds the BNZ Chair in Business in Asia at Victoria University. He writes a regular column here focused on understanding the challenges and opportunities for New Zealand in our trade with Asia. You can contact him here.