China Center for International Economic Exchanges

Chen Wenling: The trade war is just the tip of the iceberg, the world stands at the crossroads
Date:Jul 16,2018    Source:CCIEE

At the 2018 China Environmental Protection Industry Summit Forum, held on July 14, Chen Wenling, Chief Economist of the China Center for International Economic Exchanges, expressed her insights on the China-US trade war. She said that the current world is standing at the crossroads of history and the following five questions need to be answered: should the world be more open or closed? Should we go forward or backward? Should we adopt unilateralism or multilateralism? Should we choose hegemony over justice? Should we build a community with a shared future for mankind or put one country’s interests above the global interests? These five issues are not just for China and the United States, it will determine the direction of the world’s development.

The five things Trump did since he took office

In Chen Wenling’s view, Trump is a very different person with a big ambition and a tough approach. He is more daring than all the previous presidents of the United States and never follows the conventional paths. In summary, Trump did the following five things since he took office.

The first thing he did can be summarized in one word: withdraw. He has withdrawn from the TPP, the Paris Agreement, the UNESCO, the United Nations human rights organization and the Iranian nuclear agreement. Recently, he threatened to withdraw from the WTO and the United Nations when necessary. He can even withdraw from the planet if he wants.

The second thing he did can be described as the word: abolishment. Trump has become the president who has signed the largest number of presidential executive orders. Every time he signs a presidential order, he will abolish 22 administrative orders signed by the previous presidents. He also discarded many of Obama’s resolutions. Since he came to power, he has fired 480 diplomatic ambassadors and envoys appointed by the former president Obama and the result is that he has no nominees for many top jobs. For example, 90 of the 150 positions in the white house are still empty. Furthermore, he abolished many laws and regulations signed by Obama, such as financial control policies, healthcare act, domestic laws and regulations on environmental protection and drug.

The third thing he did can be summarized as reduction. Trump has reduced taxes, market regulation, the international responsibility of the United States, and the money spent on its allies and NATO.

The fourth thing he did can be summarized as the word: ban. First of all, he has replaced all the cabinet members who do not agree with him and the replacement is very simple. When the US Secretary of State Tillerson was accusing China in Africa, Trump removed him from office by merely sending a tweet. Secondly, he banned the travelers from five Muslim-majority countries from entering the US, and refused to accept refugees from Syria indefinitely. In fact, these refugees were largely caused by the United States. The third ban is on Mexico. No one believed him when Trump promised to build a wall between the United States and Mexico during his presidential campaign but now, he approved a budget of $21.2 billion for the wall and more than 1,000 kilometers of the existing wall has been repaired. He even asked the Mexicans to pay for the wall. The fourth ban is on exporting high-tech products to China. After imposing a ban on the U.S. companies selling goods to ZTE Corp, Trump is preparing to limit the visa for Chinese students who want to study high-tech in the United States or take employment in the high-tech industry.

The fifth thing he did can be summarized as the word: anti, such as anti-economic globalization, anti-trade liberalization and facilitation, anti-international order and international rules and anti-historical development laws.

New trends in the United States

The recent surveys conducted by the Pew Research Center and CNN showed that the approval rating of Trump is rising. The survey of the Pew Research Center showed an approval rating of 44%, Gallup Consulting is 46%, and CNN is over 50%. The survey of the Gallup Consulting’s survey also indicates that 56% of the Americans consider Trump as the smartest president, 51% of them think that Trump is the most decisive, most effective, and most powerful president, and 50% of them believe that Trump is the president who will change the fate of the United States.

In the past, everyone thought that Trump was not a reliable person but now they consider him the smartest president. The change told us that a new trend has emerged in the United States: there is more convergence than divergence between the democratic and the republic parties; the enterprise and the government have formed a confluence, and the American public opinion tends to favor Trump. There are five reasons for this change.

First of all, the strategic shift of the US has been supported by most of the Americans. Taking its China policy as an example, many Americans believe that the previous China policy was a failure. Previously, the United States hoped that China would open up, join the WTO, and engage in a market economy. Now, the United States has become increasingly fearful of China’s rise: China’s GDP accounts for 67% of the US, it has become the world’s largest trader and its manufacturing industry accounts for 25.5% of the world’s total. Furthermore, China will transform and upgrade its industry and implement the strategy of Made in China 2025. The industrial convergence between China and the United States is getting higher and hence the US wants to interrupt China’s progress, which is the real reason behind America’s strategic turn.

“The trade war is only the tip of the iceberg of the US strategic turn. China does not hope that all the problems can be solved by one negotiation, or all the trade-related problem will be solved by a trade dispute,” said Chen Wenling.

Secondly, Trump’s approval rating is rising. The US has now the best economic performance since 2008. The IMF predicts that the US GDP growth rate will reach 2.9% this year. The unemployment rate has dropped from 10.6% in 2008 to the current 3.8%, the inflation rate has risen from below 1% to 2 %, the stock market as a whole is also on the rise, trump began to reduce corporate income tax and personal income tax in January this year, all these have given the American companies and people a sense of achievement.

Thirdly, the huge trade deficit of the United States has enabled its people to enjoy a higher level of welfare at lower prices. The price of daily necessities paid by the Americans is often 1 to 2 times lower than us because the US dollar has very little value. As a substantial international currency, 85% of the world’s countries use the US dollar as the anchor currency. The cost of printing a dollar note is only a few cents, which can be used to exchange for a lot of food and goods from other countries. In other words, the United States has taken advantage of the global cheap goods.

Fourthly, the big capitalists and big consortia of the United States have gained huge benefits. The relaxed regulation of traditional energy sources approved by trump has benefited the traditional agricultural capitalists. The war in the Middle East provoked by the US has made arms dealers richer, and relaxing the regulation of medicines has made big pharmaceutical companies profitable. These powerful capitalists and consortiums feel that there is finally a businessman who is in power and can represent their interests, from the implicit representation in the past to the explicit representation of the present.

Lastly, a slogan like “America first” has brought great excitement to all Americans. After Trump arrived at the White House, he changed the subject of the White House website to “Make America Great Again!”

The damage caused by Trump will last for a long time

Trump has attacked many countries and is not afraid of the EU, Japan, and all its allies. In particular, it treats China as the biggest target, and such kind of attitude will cause great harm to China and the rest of the world. Chen Wenling believes that the damage caused by the US will be long-term, continuous and negative. Specifically speaking, Trump will bring harm to the following five aspects.

The first damage is that the international trade rules and trade order will be undermined or even collapsed. Trump is very tough on the WTO and has repeatedly said that the WTO did not treat the United States fairly in the past few years. He even threatened to withdraw from the WTO and replace the current multilateralism with America’s unilateralism.

The second damage is that the global industrial layout has been undermined. Nowadays, two thirds of the global trade are intermediate goods, which means that many countries do not trade the final products. The global manufacturing industry is not completed in one country, one production line or one factory, but requires almost all industries in different countries to complete the manufacturing process. Taking the US sanctions against ZTE as an example. ZTE has about 80,000 employees and more than 1,000 suppliers, so the US sanction not only affected the employees of ZTE but also the employees of its suppliers. In other words, ZTE is not the only one suffered from the ban, the global industrial Chain also became the victim.

The third damage is that the momentum of the global economic recovery has been compromised. Both the IMF and the World Bank have predicted that the world economy will start to recover since last year. The world’s economy has already walked out of the shadow of the financial crisis after ten years of adjustment, and a turning point has emerged. However, the trade war launched by the United States may directly undermine the global economic recovery.

Fourthly, the global governance system and the norms in international relations have been damaged. When a country chooses hegemony and disregards international order, international rules and international institutions, it will harm the entire world disastrously.

Finally, the China-US relations will be ruined badly, which is also the most serious consequence. The economic and trade relations are the ballast stone of the China-US relations. When the ballast stone is loose, the negative impact on China, the United States, the American people and the whole world will be enormous and destructive.

What should China do?

Some people say that the United States is scary, while others say that the United States is a paper tiger only. In Chen Wenling’s view, China should adhere to three major principles. First, China should not back up. China will not provoke other countries but in the face of irrational, barbaric and offensive actions, China will not retreat. Second, China will respond to the trade war with further reform and opening up. Lastly, China will remain patient during the trade war because China’s upward trend will not be changed.

Specifically, China must have an unexpected strategic plan and stop the war with strategy and wisdom. It must achieve breakthroughs in core technologies and devote itself to improve its weak links, especially original technology. In addition, China should conduct further reform and opening up.

At the same time, the United States will change as time goes by and the approval rating of Trump will decline sooner or later, a sharp decline is also possible under certain circumstances. For example, when the costs of the high tariffs imposed by the United States have been passed on to the US businesses and consumers, public opinion may change. Tesla has moved to Shanghai, and the factories of German companies in the United States are also preparing to move to China, which will put new pressure on Trump. Furthermore, the dollar may enter the depreciation period and shock the stock market after its appreciation reaches its peak later. In addition, the current practice of the United States has had a negative impact on its creditability and long-term interests. Therefore, new public opinion will appear when the entire society starts to review what Trump did in the past.

“A just cause enjoys abundant support, while an unjust cause finds little. Time and justice are on the Chinese side. China will adopt rational ideas and practices and so, I think China will win,” said Chen Wenling.

 

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