Wei Jianguo: We May Stand to Lose if We Fail to Understand the Purpose of Our Opponent

  • Time:2018-04-26
  • source:CCIEE

After the U.S. government provoked a trade war, China has begun to take a quick response to defend itself. Recently, there has been a lot of discussions on the trade war. Why does Trump want a trade war with China? What approach will he take and what are the major battlefields? Is the trade war a personal desire of Trump or a decision of the U.S. government? How should China deal with it? What kind of person is Trump? In the Midas Club Salon organized by Tencent, Mr. Wei Jianguo, Vice Chairman of CCIEE and former Vice Minister of Commerce explained the panic and main demands of the United States behind the U.S.-China trade war, analyzed the development of the trade war, and help us to understand Trump better.

 We must clarify the following five issues in the U.S.-China trade war

1. Is Trump really prepared for a trade war this time?

Unlike some media, think tanks and experts said that Trump is just making a gesture of attacking, I believe that Trump’s trade war is for real this time.

2. Trump has extended the period of tariff implementation, is that mean the United States has softened its line? Will there be negotiation?

Not really. Both sides are tough. Some people say that there are negotiations between the two countries now, but that is not true. The United States has a very bad attitude and always wants to speak in an aggressive manner.

3. Are we going to have a trade war for real this time?

Some media say that a trade war is unlikely to happen and Trump will treat China like what he did with the EU, NAFTA (North American Free Trade Agreement), Mexico and Canada: you will get exemption as long as you agree to the terms offered by the U.S. This is not going to happen because the U.S. asked too much from China, and it will ask more next time. Therefore, the two sides cannot achieve a satisfactory agreement soon.

4. Is it possible that we make some compromise and import chips from the United States, instead of South Korea, Japan, or even China’s Taiwan region?

This is not going to happen! The value of the imported chips has been the highest for five consecutive years, and even reached US$ 270 billion in some years, much higher than crude oil. China mainly imports Chips from the United States, Japan, South Korea and other regions, of which the imported chips from the United States reached US$100 billion. The problem can not be resolved by just changing the suppliers of imported chips.

5. The most important thing is that we have to understand the current status of the trade war?

Personally, I think that the current status of the trade war can be described as a positional battle: we are fighting field by field, instead of a full-scale trade war. Meanwhile, we will also have negotiations while battling with each other.

Why is Trump so determined to fight a trade war with China?

We have to understand the following two questions.

The first question: Is Trump really interested in China’s economy and trade? Did he start the trade war because of strategic consideration?

The second question: who provoked the trade war, Trump himself or his team?

The purpose of Trump’s trade war is not about China’s Strategy of Made in China 2025, or to reduce the trade deficit. What he really wants is to achieve great success in the mid-term election and more importantly, he is making China a major competitor of the U.S. in the future.

Some people are wondering why did Trump change so fast? He seems very friendly to China in the past? For example, his granddaughter, Arabella is studying Chinese, he sent many high-ranking officials to China, the two sides reached a lot of agreements during this successful visit to China. Does his team change him? I do not think so. I think that this is his own idea.

In the future, there will be many trade conflicts between the two major economies in three main areas: trade and economics, intellectual property rights, fair trade and transparency in China’s legal system.

How serious are the trade conflicts? How many trade conflicts will we have? Will these conflicts affect China’s development path? Some experts and scholars are over-optimistic, saying that China has become a very strong nation and will overtake the United States sooner or later, it is only a matter of time. I am afraid this is a one-sided view. Apparently, the gap between China and the United States is narrowing but in reality, the gap is still big. After all, China is still a developing country.

Why is Trump so determined to fight a trade war with China? Because China is going to implement a higher level of opening up. Despite its huge population, the average annual GDP of China has increased for 40 consecutive years, reaching 9.6% or 9.8%. China’s rise not only concerns the United States but also Britain, Japan, and Australia.

How should China deal with the trade war?

Wei Jianguo: I think that China should use high-level opening up to promote high-quality development.

Shanghai Free Trade Zone: A pathfinder.

In the future, are we going to have more free trade ports like the development of the Free Trade Zone?

Wei Jianguo: I don’t think so. When the Shanghai Free Trade Zone was unveiled in July 2013, I expressed my views on the future development of the free trade zone. On the one hand, the Shanghai Free Trade Zone is a pilot program, in which we will conduct different experiences and copy the model to other regions of China. On the other hand, Shanghai is a pathfinder, which means it may have to make sacrifices in order to pave the way for the rest of China.

The total number of the free trade zone has increased to eleven since the first one was established. Is the free trade port an upgraded version of the free trade zone? The answer is “no”. The free trade zone is set up for the circulation of goods, including warehousing, protective tariff and so on, which must be carried out under customs supervision. However, the free trade port is a comprehensive opening up and so, it is not just about goods, but also human resource, currency, capital, and intellectual property protection and laws. For example, if you want to invest in a project in Africa, you cannot use the RMB in the country or in the free trade zone, but you can do it in the free trade port. The free flow of personnel is the most important feature of the free trade port, and some of the foreign professionals even do not need a visa to enter the free trade port.

Although Singapore, Hong Kong, Rotterdam, and Dubai are free trade ports, they lack momentum for continuous development. China’s free trade ports will have the highest level of opening up and will be featured with Chinese characteristics.

China has been criticized repeatedly by the United States and the European Union because of the inadequate protection of intellectual property rights. Actually, China has made great progress in this regard. China itself also needs the protection of intellectual property rights to ensure the program of mass entrepreneurship and innovation. Therefore, we must formulate laws, raise the entry-level and fully mobilize the enthusiasm of companies.

Giving more urban space and employment to young people

Will Shenzhen be the innovation hub of China in the future?

This is hard to say because many big cities like Beijing, Shanghai, Guangzhou, and Shenzhen have all attached great importance to innovation. The key to innovation is to attract young people and develop emerging industries. To this end, cities should give young people more space and employment. Currently, many urban centers are full of elderly people. The mayor of Philadelphia once proposed to build a group of hospitals, schools, senior houses and even entertainment places around the city, so that young people can more have more space and employment in the city center. When these young people grow old, they will move to the suburban district and let the city always be full of vitality. At present, China’s cities are overcrowded and the lack of vitality has hindered their development, which is why some people proposed that young, energetic and innovative people should be attracted to build the Guangdong-Hong Kong-Macao Bay Area.

We must promote high-quality development through comprehensive and high-level opening up, and create a new highland of opening up: the free trade port. In order to achieve that, China will introduce more new measures this year, and some of them will be rather unexpected.

The second important point is that we will put more efforts on top-bottom governmental reform this year.

Sufficient supply of highly-skilled professionals ensures city’s sustainable development

What is the reason behind the big battle for talents in China? Some people say to make the city younger. Personally, I think that the main reason is to ensure sustainable development of the cities and the following three tasks need to be completed for that purpose.

First of all, we should promote high-quality development through a high level of opening up. Second, the government needs to transform its functions. Thirdly and most importantly, we need to strengthen protection on intellectual property rights.

So far, we have set up two courts for intellectual property in Eastern China and more courts will be established in the future, in order to protect copyrights, invention rights and other property rights. This is a task we must complete and make it better and better.

Losing a bit in the trade war is not necessarily a bad thing.

Question: In your opinion, what are the major battlefields of the trade war between March and September?

Wei Jianguo: The current trade war between China and the United States will be mainly a positional warfare. We might lose a bit at first but this loss will allow us to draw some lessons, which will help us to win the battle in the long term. These lessons will be useful for Chinese entrepreneurs as they can improve themselves during this learning process. There was a serious shortage of commodities at the beginning of the reform and opening up and hence, some courageous entrepreneurs obtained their first pot of gold through the two-track system. Later on, they established their own companies and developed rapidly. However, most of the companies have become family-owned companies. Sometimes, I think that it is necessary to make a loss in some fields in order to gain a better position in other new fields. I believe that we are becoming stronger in the new fields, including soft power culture, education, technology, literature, fine art and movies. The traditional trade, especially the processing trade, may disappear in the future.

Chinese think tanks need to improve their quality

Question: What do you think of the tearing-phenomenon in the American society? Will Trump be re-elected? How will the U.S.-China relations develop after the trade war?

Wei Jianguo: The reason for the tearing phenomenon in the United States is not caused by Trump’s rise to power alone, but because of the current social system of the United States. Although Trump is a very different person and he does not follow the conventional rules, he has already found the weaknesses of America’s development. He knows that if he does not do what he has just done, the United States may become a second-tier country and may not be able to play a role in the global stage. Therefore, he has taken some measures to govern the American society based on his own ideas and unique practices, which can be called as Trump-style thinking. This is very hard for others to understand, including the democrats, republicans, and some middle-class white-collar workers.

Many people said that they do not like Trump during the election polls, but they gave 25% of the vote to Trump and Trump was elected. Those who voted for him are also watching him now. So, Trump must come up with some new actions to fulfill his commitment made during the election, including his tweets, the people he uses, the frequent change of his team, and the vertical control of different departments. None of these ever happened before.

Someone asked if Trump will continue to be elected in the midterm election. Many people say no but it is too early to make such kind of conclusion. Many people made a mistake when speculating who will become the president, Hillary or Trump because they only see the iceberg. Actually, we do not really understand the United States that well. On the contrary, the American may understand China better than we understand the U.S.

Therefore, we should allow think tanks to play a bigger role in the future, especially to undertake in-depth research and gain a deep understanding of the problems. We must analyze the future development of the U.S. by applying Marxist historical materialism and better insight. This is not only important for China but also for Russia and the rest of the world.

Some people in China are too optimistic about the gap between China and the United States

Question: Are we flexible enough to avoid more serious frictions?

Wei Jianguo: I have never been very optimistic about the U.S.-China relations, however, I noticed that some people in China, including well-known scholars, are too optimistic about the gap between China and the United States, the entire society, science and technology, humanities, culture, productivity and innovation. They believe that China will definitely surpass the United States in the near future. I do not agree with this. I think we are still far behind the U.S. and China needs to use more wisdom and better programs to communicate with the United States, and to demonstrate that China is a truly peaceful and responsible nation and we can have better cooperation through a win-win approach. This must be done, there may be many difficulties though.

Although China has successfully completed some projects in other countries, for example, China Power Investment Corporation and Alcoa had a cooperation in cubic soil in Guinea, the power plant built by China and France, the cooperation with Thailand in building a high-speed rail, China is likely to encounter difficulties when promoting further cooperation with other countries. In short, it is now a critical period for China to improve its soft power.

We should let others know about our plans and goals. In fact, we just want to build a common community of shared future for all mankind, allow more people to better understand China and work together to implement the concept of mutual benefit, joint negotiation and construction, and sharing.

In addition, I personally think that the following three trends will emerge even if Trump will not be re-elected in the future.

Firstly, the American society is tearing itself apart. Secondly, the United States will not be as powerful as before but this is a gradual process and it does not mean that China has already overtaken the U.S. Thirdly, the world is still holding a wait-and-see attitude towards the Chinese model.

What kind of person is Trump?

Question: In my view, a full-scale trade war between China and the United States is unlikely, and even the partial trade war will not occur in all industries. The mid-term election is on the way and hence Trump needs to give an explanation to some of his voters. During his presidential campaign, he promised that he would treat China as a currency manipulator and impose a 45% tariff on China. In fact, he did not do so for quite some time after he took office, which is why he came up with the US$60 billion tariffs recently. I think that he is trying to shift the domestic attention and increase his leverage in the negotiation with China, such as requiring China to open certain fields, import more American products and reduce the U.S.-China trade deficit. Of course, China will be constrained by the United States in the process of catching up with the United States. However, I think the trade between China and the United States has become more complementary rather than competitive. On the contrary, the competition between the United States, Japan and Europe is fierce because they export many similar products. For example, China import agricultural products from the U.S. while the U.S. imports toys from China because it does not want to produce toys. In terms of high technology, we can not compete with the U.S. Therefore, I do not think that China is a threat to the U.S. right now. The purpose of the trade war is to have more bargaining chips when negotiating with China, such as reducing the trade deficit. Fighting a full-scale trade war with China is bad for the United States. China has a big trade surplus with the United States but China’s exports earn a very small profit. In contrast, the exports of the United States have a high profitability, such as GE medical equipment, Boeing aircraft, Apple’s mobile phones and so forth. So, the trade war will make the United States worse off because if China losses US$1,000, the U.S. will lose US$800 as well. This is why I believe that a full-scale trade between the two big nations is unlikely to happen. What is your opinion, Mr. Wei?

Wei Jianguo: the tariff Trump wants to impose on Chinese products is calculated according to the claim that China’s products violate the intellectual property right, and it is not the anti-dumping tariff of the 301 survey. These are two different things.

Secondly, in your view, Trump’s motive of the trade war is to fulfill the commitment he made during the previous presidential election, I am afraid I can not agree on this. I think that he is doing this for real this time. We will lose the battle if we do not understand the purpose of our opponent. How serious is Trump about the trade war? I have read the books written by Trump’s and learned about his background, and I would like to share two things about him with you.

Trump is a bit reckless and does not consider consequence. He is good at discovering opportunities and grab them quickly, which is why his presidential election was successful. He replaced many members of his campaign teams during the election, including some of the main assistants because they did not really understand him.

Secondly, it will be an underestimation if we consider his motive for the trade war is to fulfill his promise of the presidential campaign. The republican and the democratic party still support Trump’s tough and long-term strategy for China. They want to abandon the previous tactics and fully pressurize China. At present, they are testing China and will not go too far.

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