Is Trump trying to tame the Dragon?

President Trump has a unique talent to turn things around when they can be handled better in a routine way merely for the sake of adventure. He is best fitted to his favourite administration space on Twitter where he never misses to surprise the world by making the most important announcements. The United States of America with its Trump Card is playing poker on the global economic platform.  The stakes are bound to be as high but so are the fruits and it is definitely worth a try is what seems to be fuelling the Trump administration.

Trump has opted for unwarranted tariffs on steel and aluminium imports and also announced more on the way targeted China as a counter response to its IPR theft. The move can trigger a full-blown trade war and is definitely not the best one at hand. The tariffs which are meant to be press Beijing to play a responsible trade game and not force companies to share their Intellectual Property secrets as a cost to do business on Chinese soils, have miserably missed the target as the ones who are primarily hit are the countries which have a major share of metal exports to US while China contributed only 2 percent to total steel imports by the US in 2017. In terms of aluminium, however, China comprised a fair share of 11 percent in 2017. The tariffs do not bring positive news for common Americans who are used to buying cheaper imported goods as the prices of daily household items will obviously rise.

China with a complete overhaul of its economic leadership is in no mood to stay put on the economic elements it had relied on in the past. The recent team has however softened its tone and has urged all nations to keep restraint and avoid a trade war which seems inevitable in the eyes of Trump. Trump administration along with other advanced economies can consider putting up a common defence against the unpopular market measures of China. This strategy has the potential to coax China into realigning its policy but the Trump’s treatment of many fellow economies is not much different so the possibility of such a grouping remains thin.

Thus a bilateral arrangement of talks and agreements can bring better results rather than engage in mindless disengagements which will serve no useful purpose for both the parties. US and China are economies with divergent interests based on completely divorced economic ethos. Thus, it is reasonable to expect and see a little trade decoupling but the latter case situation is better than trade threats, bold push for protectionism and thereby escalation.

Revisiting Chinese advantage

China and US share a lot of economic leverage in their own spheres of influence and on a global footing as well. Thus it lies in their best interests to explore the areas where the two can come together and create synergy for a better world. Thus it is useful to find avenues where both can co-exist without being concerned about the predation of each-others market share or overlapping of any strategic edge or cases where Intellectual Property is involved. The recent tariffs were quite unwarranted especially in case of China as the imports from the Asian giant are in no way detrimental to US economic interests or its security structure. 40 percent of Chinese exports to the US is dominated by routine household products like apparels, toys, consumer products etc. which are handy to Americans in the low-income group. Thus, the US consumer would prefer to buy the same over expensive alternatives at home. Likewise, 12 percent of US exports to China are accounted for by the stuff like plastic materials, logs, medical supplies of equipment etc. All these items thus definitely qualify to be put on the whitelist.

On the other hand, China views the export of advanced technology, or the ones which are vital for food and energy security are seen as complex for whitelist especially as the US is not the only producer or supplier of these and Beijing definitely has many alternatives. Thus, US imports do qualify for a whitelist despite enjoying high shares.

Peaceful withdrawal

The global economies should draw a line to demarcate the areas which have lost their relevance in modern times and thus have to be discontinued in terms of engagement. Latter should be gracefully pursued and not follow any kind of threat or intimidation as they can sever years of networking to pieces. The US has generally kept an open door policy in many critical factors like energy, infrastructure. financial services etc. where China has imposed limits on foreign participation. Also, liberal policies of US have been evident as it has always allowed unrestricted acquisition of US firms by China.

China’s Made in China 2025 policy has given a loud message of non-convergence to the world under which market shares of both the domestic and international firms are predetermined and not left at the mercy of market forces. China is thus turning away from Competition which defines the underlying principle of all advanced economies. This can only lead to increased protectionism.

US and China particularly in the current environment and in case of all trade which is not in sync with the whitelisting criteria must try to work around the situations and chalk out the way forward rather than staying fixed on warmongering and threatening with quarantine measures. Both have to commonly earmark the flashpoints and agree that the concerns are not valid as in case of access to reciprocal markets it will be wise if China openly allows foreign firms in the domestic economy without any requirement of sacrificing their intellectual property as a precondition. Likewise, US should be softer on other business models like JVs or similar roles by Chinese firms in US markets. Also, the sectors where cooperation seems distant, there should be respectful and mindful disengagement.

Cost of Protectionism

There will be serious repercussions for all the stakeholders in case of the trade war or heightened protectionism in form tariffs. The affected will seek new avenues and alternatives as the adjustments involve unprecedented economic costs over the coming decade. China will not let go of its Made in China 2025 dream or dilute the preordained percentage of Chinese and foreign market shares both in the domestic market and in others. Likewise, the West will not endlessly allow the Chinese to have the full leverage of their markets without a reciprocal approach.

Countries like people go through love-hate cycles which is normal but one should not break the bridges as nothing lasts forever and protectionism certainly is not a long-term alternative in the globalised world. China has to revisit its policy to be part of the global free market dynamism. Dialogue and continuous diplomatic engagement may not bear fruit but it can help lower down tones on either side.

 

 

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