China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

President Trump’s trade policy – bad news for lagging (emerging) countries

April 25, 2025

The whole world has learned in the past few weeks that American President Donald Trump does not understand cross-border trade policy – or does not want to understand it. More or less all experts inside and outside the U.S. have accused him of neglecting the most obvious advantage of free trade and the disadvantages of protectionism and raising tariffs on such a broad global scale.
What should be discussed more in our part of the world are the bad consequences that affect many of the emerging and less developed countries by all the single bilateral trade accords the U.S. wants to achieve, primarily with strategically important trading partners such as India and possibly also China.

Bilateral trade deals have a lot of disadvantages
We know from reality that there exist both bilateral and multilateral trade agreements which should not be equalized with more ambitious pure free trade agreements. Let’s begin by discussing somewhat what bilateral trade agreements are about – the kind of trade agreement that President Trump and his administration clearly prefer. This was – by the way – obvious already in February 2017 (https://www.brookings.edu/articles/what-will-trumps-embrace-of-bilateralism-mean-for-americas-trade-partners/).

We know that it is not difficult to recognize that a bilateral trade agreement practically uses to be easier and faster to achieve than a multilateral one. The main reason for this is that bilateral negotiations only have two sides, in our already mentioned case, for example, the U.S. and India. Multilateral trade negotiations with several or many involved countries on the other hand can take years or even decades. However, multilateral trade agreements can create a larger harmonized market than bilateral trade agreements, provide connected countries with more competition and innovative power plus, consequently, lower prices. They can also help to resolve trade disputes via the currently disarmed WTO and promote cooperation and stability among countries.

In my view, the time-limited duration of bilateral trade negotiations compared to multilateral trade talks manifests itself as the major advantage that this option of trade negotiation usually enjoys. Otherwise, quite a number of disadvantages can be found.
Among the countries that initially are particularly affected by Trump’s tariffs are, for example, China, Lesotho, Cambodia, Laos, Vietnam, Sri Lanka, Syria, Botswana, Bangladesh, Thailand, Indonesia, Angola, South Africa, Pakistan, India, Malaysia, etc (see https://www.cbsnews.com/news/trump-reciprocal-tariffs-liberation-day-list/).
Many other emerging and less advanced countries could be quoted as well, spread all over the globe – countries that are strongly hit by the irresponsible Trump tariffs. Consequently, it cannot be regarded as a surprise that that more than 50 affected countries already a few days after the so-called “Liberation day” on April 2 had announced – according to Trump advisers – that they wanted to negotiate over the import taxes they have been confronted with (https://www.pbs.org/newshour/politics/trump-advisers-say-more-than-50-countries-have-reached-out-for-tariff-talks-with-white-house). Other sources speak currently about stronger interest from even more countries (https://www.independent.co.uk/news/world/americas/us-politics/trump-tariff-trade-deal-countries-b2737526.html). We know that it will be bilateral negotiations accordingly.

Bilateral trade negotiations for so many countries mean by definition that different results will come out for the participating countries – leading to further injustice between suffering countries. Different results are logical because of the fact that bilateral trade negotiations have no underlying support by the WTO. This means also that more and more bilateral trade agreements tend to hollow out the position of the WTO – very much at the expense of outsiders among emerging and less developed countries. From this point of view, multilateral agreements are more beneficial to developing countries than bilateral ones because the included countries become more competitive as a group.
In general terms, larger corporations are supposed to benefit the most from bilateral trade agreements because they usually have bigger resources for different competition-improving activities than smaller and medium-sized companies.

Conclusion – disparities may increase, also geographically
Altogether, analysts should be cautious about positive trade interpretations after the ongoing or forthcoming bilateral negotiations between the U.S. and a significant number of emerging and less developed countries, particularly since the results may differ substantially between non-OECD countries both in trade details and geographically. It should be a good idea to look deeper into the negotiated trade deals between the U.S. and the tariff-affected countries – and what they really mean to them.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University

Emerging markets and a strong dollar

May 27, 2024

Emerging markets are usually more sensitive to weak current account balances than advanced countries. A deficit in the balance on current account urges for a currency inflow since it implies a debt for imports vis-a-vis other countries that has to be paid. This inflow can be done in the three following ways:

¤ by receiving currency reserves via foreign direct investment (which often does not work as an available or sufficient financial source),

¤ by borrowing money in foreign currency (mostly in U.S. dollar, USD), or

¤ by selling stocks, bonds, etc to foreign investors (if such financial products exist in the emerging country and foreign demand for these papers is there).

Statistics show that emerging markets borrow the lion share of their foreign credits in USD which may be challenging in times when the American dollar is strong on global currency markets. This is actually the case. Serving existing debt in USD uses to be even much more challenging.

By the way: During a meeting the other day with American financial analysts, I heard the view that the USD historically tended to be strong when investments in research and development (R&D) in the U.S. were high. This is explained by an increasing demand for American technology stocks and also foreign action for FDI in the U.S., thus leading to a high demand for the dollar and therefore to the strengthening of the American currency. I am not quite sure about the general validity of this suggested correlation. But it can be observed that such conditions can be found these days.

Back to emerging markets. What we can see today is an increasing willingness of certain emerging markets to avoid or decrease new borrowing in USD. However, this is not easy to achieve since USD markets function by far as the biggest global supplier of new loans, also to emerging markets. 

The ongoing situation with the strong dollar is, of course, particularly difficult for emerging countries with high indebtedness in USD. Such countries may be found in all continents – countries that are or have been reporting growing pressure on their currencies in 2024 such as the Nigerian Naira, the Egyptian Pound, the Turkish Lira, the Indonesian rupee, the Argentine peso or the Brazilian real (watch for this the following IMF table: https://stats.bis.org/statx/srs/table/e2?m=USD). Of course, some of these and other weak currencies of emerging markets have also been impacted by other negative factors than the strong dollar, for example domestic political ones.

At the same time, there are also countries trying to reduce their exposure to the dollar (which also can be seen in the IMF table quoted above). Indonesia is such an example. However, such a trend will not be easy to achieve – but Thailand actually managed it in the past few decades. Perhaps another option may gain momentum as it is currently the case in South East Asia, i.e. trying to expand borrowing within the region at the expense of the USD.  

Conclusion: Analysts of emerging markets should watch the further development of the USD and its impact on indepted emerging markets.

Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

China’s NPC radiates growth confidence – as expected in the centenary year

March 8, 2021

China’s still ongoing annual National Party Congress (NPC) gives a substantial number of short-term objectives and long-term strategies to the 3000 delegates. Celebrating in 2021 the 100-year anniversary of the Communist Party of China (CPC) makes this year’s convention quite special (as I pointed at in my latest blog from February 24 on http://chinaresearch.se/ ).

Interesting details from the NPC – with obvious growth optimism    

¤  Encouraging GDP objective for 2021. Going back to my own blog source above, I felt quite sure before this year’s NPC that Prime Minister Li Keqiang would please the delegates (in Chinese:”lawmakers”) with an encouraging GDP forecast for 2021, maybe between 7 and 8%. Indeed, this range was not very far away from Prime Minister Li’s finally announced goal for 2021 – “more than 6%” in economic growth. I may regard “more than 6%” as somewhat conservative but I see this number as positive as well. Even 7-8% this year remain achievable.
Conclusion: In my view, an official GDP growth by “more than 6%” is indeed an encouraging goal despite the relative weak statistical basis from last year – and not a cautious one as initially described by many international commentators. The inflation goal of 3 % for 2021 seems to be alright as well.                                                         

¤  Comeback for long-term issues. In the past quarters, Chinese and global analysts dealt strongly with short-term issues due to the damage that had been caused by the corona crisis. During this year’s NPC, also long-term objectives for high tech, clean energy, electric cars and other ways to improve the environment were taken up. However, I miss a more promising strategy for de-carbonization. President Xi Jinping also reminded of necessary improvements of education and healthcare. Remarkably, no numeric goal for GDP has been set for the recently commenced 5-year plan. My best guess is that it will turn out being something close to 5%.    
Conclusion: Updated yearly GDP objectives should be good enough in the future for short-term and for 5-year planning – and also for improved flexibility.

¤  Continuous priority of innovation and technology. Prime Minister Li repeated at the NPC what is widely known: “Innovation remains at the heart of China’s modernization drive. We will strengthen our science and technology to provide strategic support for China’s development”. Despite the fact that all this is expressed only verbally, China’s technological ambitions have been underlined one more time.
Conclusion: Westerners should not underestimate the Chinese ability of spreading technology both internationally and of using it at home, for power-conserving reasons as well. The Chinese want to reduce their dependence from the U.S. – also by increasing their annual R&D budget by 7% yearly between 2021 and 2025. Green development is given a lot of priority. President Xi Jinping seems to favor the creation of a green-GDP concept, too.

¤  More priority for private consumption. Also this specific strategy is not really new but it is part of the new 5-year plan. Of course, there is an intention to achieve this by more domestic production of consumption goods – supported by the political promises of reasonable increases of disposible incomes.
Conclusion: This policy strategy is obviously linked to the plan of modifying the Chinese economic model by somewhat reducing the role of exports and investments as growth factors and instead increase the share of private consumption related to GDP – probably as much as possible supported by “Made in China” (but I could not find further updated detail on this latter issue).

¤  Focus on stability. Particularly Prime Minister Li Keqiang emphasized the need of stability in many areas – for ensuring future progress in the Chinese society and economy. Among the mentioned areas were employment, the financial sector, foreign trade, investments, supply chains – and obviously Hong Kong.
Conclusion: Different risks are and remain an issue for China’s political leaders.

¤  Important changes for Hong Kong. Beijing seems to plan far-reaching changes of the election system making it impossible for opponents to the People’s Republic to be promoted to any influential political position in Hong Kong.
Conclusion: Developments in Hong Kong remain an important topic for analysis. Probably, Hong Kong will increasingly be regarded as a part of Mainland China internationally. Hong Kong appears moving to “one country / one system” considerably faster than one could expect some years ago when having read the still valid Hong Kong Basic Law. https://www.basiclaw.gov.hk/en/basiclawtext/images/basiclaw_full_text_en.pdf

Summary – no surprise but tightened tone against Hong Kong

Altogether, the NPC did not offer special surprises this year. Not even the relative GDP-growth optimism can be interpreted as surprising. Really notable, however, appears the widened political threats from Beijing against opponents in Hong Kong.

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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