China Research

Foreign policy and international trade policy by the United States are certainly confusing these days. Trade frictions with China get new dimensions almost daily. This is also worrying for the rest of the world.

I do not want to discuss here why China and many other countries do not want to buy more American goods. And I do not want to check further to what extent China would be theoretically able to reduce its trade surpluses with the U.S. by as much as 200 billion dollars; this has indeed been done before in a number of well-informing articles.

Instead, I want to concentrate this blog on an angle that – as far as I know – has not been illuminated at all or at least very much neglected. As many observers of China know, China has been fighting for a long time to be recognized as a market economy – an objective that has been turned down regularly by the U.S. (and by the EU). In my view, this rejection remains motivated since the Chinese economy and corporate sector still are based on a lot of government influence, permissions and decisions – despite the fact that more than half of the country’s GDP is produced by officially private firms.

But we also know that the influence of the Communist Party more recently rather has been increasing than the other way around. At the same time, smart Chinese political leaders have certainly found out that political interventions to achieve drastically reduced trade and current account surpluses with the U.S. certainly cannot be brought in line with the goal of gaining recognition as a market economy.

In other words, Trump wants China to break against the rules of a market economy and at the same time to maintain the arguments against China for not being mature as a market economy. It is like squaring the circle. We can be sure the president Xi Jinping understands the dimensions of this side of the trade problem. This is one of the reasons why he has been strongly revaluing foreign policy more recently, also by important personal appointments and his own increasing involvement in foreign policy.

However, nobody knows how the Trump administration’s conflict with China will end. In the longer run, the trade conflict between the U.S. and China is certainly not good for the global economy.

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

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