The Bottom Line.
In this Asia-Pacific Insight, Daniel de Blocq van Scheltinga comments on trade war developments and on their negative economic impacts. Making a case for constructive competition rather than zero-sum game results, he writes that while peril is to be expected, some might be more patient than others.
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Trade Dispute Puts all Economies in Peril.
The trade dispute between the United States and China has taken a serious turn for the worse, and stock markets have reacted accordingly. The US has chosen to greatly escalate the dispute, which is broadly but incorrectly labeled a “trade war”.
This dispute has nothing to do with trade alone, as proved by the recent US rejections of Chinese offers to buy more American goods, which would have reduced the trade deficit. This dispute is simply the opening salvo in what the US perceives as a much broader, long-term and strategic battle over global technological dominance.
That is why the US administration issued a statement in February emphasizing the importance of artificial intelligence: “Continued American leadership in artificial intelligence is of paramount importance to maintaining the economic and national security of the United States.”
That is why in December the White House issued a news release focusing on the importance of science, technology, engineering and mathematics education, known as STEM, in the US: “The president’s plan seeks to ensure that all Americans have access to quality STEM education and safeguard America’s place as the global leader in STEM innovation and employment.”
And finally, that is why the US has issued two new orders effectively forbidding the American private sector and the government from working with Huawei or ZTE, both telecommunications companies, and preventing Huawei from buying US components or software that it uses.
According to the Department of Commerce announcement, “Huawei is engaged in activities that are contrary to US national security.” This view is quite different from that of many other nations across the globe. As French President Emmanuel Macron told reporters after the US pronouncements: “Our perspective is not to block Huawei or any company. Launching a trade or tech war vis-a-vis any country is not appropriate. It’s not the best way to defend national security.”
These actions, following US increase in import tariffs on Chinese goods on May 10, came despite positive results from the December meeting of the two countries’ leaders in Argentina. And the US threat of additional tariffs on$300 billion worth of Chinese imports has not made resolution of the trade situation any easier.
The Chinese government acted with great calmness and restraint, even continuing with the planned trip to Washington by its negotiating delegation.
US consumers will of course feel the pain, notwithstanding the US administration’s false claim that somehow China will pay for the tariffs, supposedly enriching the US.
Brett Biggs, the chief financial officer of Walmart, the largest retailer in the US, said, “We will do everything we can to keep prices low, but increased tariffs lead to increased prices.” American farmers are also beginning to feel the pinch, with the number of farm bankruptcies in the Midwest rising rapidly due to the combination of bad weather and the continued trade tension.
One can only hope that pressure from US consumers and farmers will ensure that sanity will, at the end of the day, prevail. The two most important economic superpowers engaged in an all-out economic war will not only hurt themselves, but will have a depressing effect on the world economy.
As an African proverb rightly points out: “When elephants fight, it is the grass that suffers.” There is no doubt if this goes on, it will soon put the smaller economies in peril.
Singaporean Foreign Minister Vivian Balakrishnan said during a recent conference: “Competition with China is inevitable, but it does not have to be a zero-sum game. Constructive competition should take place within the bounds of established international norms and an adherence to international law.”
China is clearly prepared to wait until that realization prevails inside the White House.
This insight was originally published by the author on China Daily Global.
Daniël de Blocq van Scheltinga | China Expert Contributor, Polarwide Managing Director.
Daniël de Blocq van Scheltinga is the Founder and Managing Partner of Polarwide, a Hong Kong-based corporate advisory firm specializing in cross-border corporate strategy and the execution thereof. Polarwide has built op over a decade of experience acting as the liaison between Asia and Europe, advising senior decision makers in both private and public sectors, most notably with regard to their strategy and in cross-border mergers and acquisitions.
As an example, Polarwide was mandated by one of China’s largest State Owned Enterprises, ChemChina, to establish their Finance Company, whereby Van Scheltinga became the first foreigner ever approved by the Chinese authorities to be the CEO of an SOE Finance Company, assisting in developing and executing the Group’s outbound investment strategy.
Disclaimer: The views expressed are those of their author(s) only and do not reflect those of The Asia-Pacific Circle or of its editors unless otherwise stated.
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