Despite “America First” policies, President Trump’s economic agenda rests on expanding trade with China. The historical bilateral trade deals in Beijing support continued economic integration in Asia.
PRESIDENT Donald Trump began his grueling 12-day Asia tour amid US Special Counsel’s first indictments, which cast a shadow over the White House’s future.
Nevertheless, Trump and President Xi Jinping were able to sign deals worth $253 billion, which makes the visit to China historic in terms of the value of business agreements struck. That’s vital to sustained regional economic integration in Asia.
But why did Trump – despite his occasional tough talk – opt for the deal? And is it likely to prevail?
Rapid trade expansion
The increase of imports from China in the US and the bilateral trade imbalance is the result of movement in production facilities from other mainly Asian countries to China. A quarter century ago, those products used to be made first in Japan or “Asian tigers” (Taiwan, Hong Kong, Singapore, South Korea) and then exported to the US. Today, they are made in China; in many cases, by foreign companies, including US firms. Over the period, the share of US imports from China has soared sevenfold to 26 percent. As the center for global supply chains, China has greatly lowered US multinationals’ costs, while low-cost goods benefit US consumers.
During his tour of Japan, South Korea, China, Vietnam and the Philippines, Trump was accompanied by CEOs of 30 companies. Hungry for huge deals during the China visit, they did not want Trump to undermine access to the $400 billion Chinese market, based on US exports of goods and services to China, sales by US foreign affiliates in China, and re-exports of US products through Hong Kong to China.
The same goes for services, foreign direct investment (FDI) and US Treasury securities.
China is America’s fourth largest services trading partner (at $70 billion), third-largest services export market, and the US has a major services trade surplus with China. The combined annual US-China investment passed $60 billion in 2016, but there is room for far more as China is the world’s third-largest source of global FDI.
Finally, China remains the second-largest foreign holder of US Treasury securities ($1.2 billion as of August 2017), which help keep US interest rates low.
In the “Trade Pragmatism” scenario, the White House stance would focus not just on deficits, but other critical bilateral dimensions as well. US multinationals and consumers would continue to benefit from lower costs and prices. Emulating General Electric and Caterpillar, US companies would adopt a more active role in the China-supported One Road, One Belt (OBOR) initiatives. Chinese investment would contribute to jobs in America. China-held US Treasuries would keep interest rates moderate. The international role of the US dollar would continue to erode, but slowly.
In the “Trade War” scenario, bilateral deficits would dictate the White House’s stance, which would result in the deterioration of the bilateral relationship. Corporate giants with major China stakes, such as Apple and Walmart, would be crushed, which would hit hard the markets. US multinationals would be penalized by higher costs and US consumers by higher prices.
US companies would miss historical opportunities in the OBOR initiatives. The US would lose Chinese capital and jobs. The bilateral service surplus would shrink. With the sales of Treasuries, rising interest rates would harm Trump’s $1 trillion infrastructure modernization. The decline of US diplomacy could threaten the dollar’s global-reserve status, especially as the US petrodollar – dollar spending based on revenues from oil exports – will soon be augmented by China’s petroyuan, the use of Chinese currency in oil transactions.
Until recently, the White House’s stance has reflected a mixture of these two scenarios; a sort of a combined big-stick-but-big-carrot approach. That’s Trump’s chosen negotiation tactic. However, it has come with uncertainty and volatility, which could prove challenging in crisis conditions.
US reliance on Chinese market
The global car industry is a case in point. In the postwar world, American cars dominated the international market. But in 2018-2019, unit sales in China will soar to 31 million, which is almost twice the size of the US market. As a result, US companies, from old players such as General Motors to new ones such as Tesla, invest heavily in China, where they sell more cars than in America.
Other industries will follow in the footprints.
Last year, Boeing Corp. supplied 126 planes to China, making it the US giant’s largest market outside the US. But that’s just a foretaste of the future. Boeing projects that, over the next two decades, China could need more than 6,800 new airplanes valued at $1 trillion.
That’s why Trump opted for his current approach toward China. In this view, the “Trade War” scenario would be a lose-lose proposition not just to the US and China. It would undermine Asian integration and global growth prospects – our very future.
Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/
- IEA says U.S.-China trade tensions could hit humming global growth, oil demand
- Saudi chemicals company undeterred by threat of U.S.-China trade war, CEO says
- R&D Market Pulse: Global Growth and New Security
- Automotive MEMS market to thrive; China and India project lucrative growth
- China Trade Vote Changes High-Tech Landscape
- China Currently Leads In The Global Race For 5G
- Trade authority to take flexible trade policies to support exports
- China’s semiconductor industry and “win-win” growth
- Treasury Secretary Steven Mnuchin May Visit China As Trade Tensions Simmer
- Wall Street is afraid of the wrong thing when it comes to Trump's trade wars
- Trump's trade fight is getting blasted by some of the most powerful economic groups in the world
- Economic growth could reach 6.9 percent in 2019: VEPR
- Why Trump's Misguided China Tariffs Won't Help the US
- President Xi Renews Pledges to Open China Economy, Cut Tariffs This Year
- Trump's 'astonishing reversal' on a Chinese tech giant could signal a big shift in the trade battle
- Vietnam’s economic growth likely to reach set target in 2019: VEPR
- Samsung, LG Reportedly Shutting Down LCD TV Plants In China
- North Korea Sends Delegation to China to Observe ‘Socialist Economic System’
- IC market growth limited by narrow window of global GDP expansion
- What Is ‘Made In China 2025’? Policy Could Trigger US Trade War
Thriving US-China trade ensures Asian integration and global growth have 1067 words, post on www.manilatimes.net at November 13, 2017. This is cached page on Talk Vietnam. If you want remove this page, please contact us.