America cannot stop China’s advance

“The United States hasn’t had a trade surplus with China in 40 years. They must end unfair trade, take down barriers and charge only reciprocal tariffs. The US is losing $500 billion a year, and has been losing billions of dollars for decades. Cannot continue!” This was American president Donald Trump venting about China in a recent tweet. At the ongoing Boao Forum for Asia (BFA) in Hainan, China, today (started on 8 April), Chinese president Xi Jinping would finally get an opportunity to make remarks in public about the trade spat between his country and the United States. His officials have been the ones responding to President Trump’s rhetoric since America fired the first salvo in February by announcing tariffs on aluminium and steel imports. Mr Trump escalated trade tensions further in March by announcing tariffs on goods more directly punitive to Chinese interests. (China is a fringe exporter of aluminium and steel to America.) The Asian nation has announced retaliatory tariff measures of its own. Even so, Mr Xi is likely to be conciliatory in expected remarks on the issue at the BFA on 10 April; that is, even as he would likely make sure to echo China’s capacity to beat Mr Trump at his own game.

Already ahead
America has also filed a complaint against China at the World Trade Organisation (WTO), claiming it has been stealing American companies’ intellectual property; on the back of its compulsory technology sharing policy for foreign companies operating on its soil which must enter into partnerships with local ones. As the slow-winding process of the WTO is not likely to the taste of the restless American president (“The WTO is unfair to U.S.” goes one recent tweet), the complaint is probably just a formality. Mr Trump wants results now. Of course, this is wishful thinking. Even if he were a magician, he would find conjuring up a trade surplus with China to be an arduous task indeed. In any case, China’s advance could hardly be stopped now. What its engineers and scientists do not already know is not likely known to any of their contemporaries in America or elsewhere either. America can only slow China’s advance a little bit by creating a few difficulties here and there. But such an approach could hurt America more than it does China over time. With China so integral to global supply chains, there are limits to the punitive trade and investment actions the Americans can undertake. Besides Mr Trump does not have the capacity to play the long game like his Chinese counterpart could. Unsurprisingly, Mr Trump has left the door of negotiations open; even as he maintains his stern anti-China rhetoric.

China is currently well-positioned to be the leading innovator of the next century. With some clairvoyance, the Asian nation not only aggressively invested and built enviable capacity in new technologies like electric vehicles, solar power, robotics and so on, it has more or less locked in the primary resources that would be needed to power them. Mr Trump’s irritation is understandable. Still, it is probably too late for America or any other country to do anything about it. Most of the goods China produces and sells to the world, it is able to manufacture more cheaply. Those that it cannot do less dearly, its neighbours are taking up; with some bound for African countries like Ethiopia. And for the high-end manufactures it is now focused on, it is increasingly attaining cost leadership. And if Mr Trump’s protectionist measures make China jettison its hitherto feigned posture of obeying global trade rules, it is market-driven economies like America’s that would probably suffer in the long run. Mr Trump is undeterred: “Trump Defiant as U.S. Adds Trade Penalties, Will End Barriers And Massive I.P. Theft.”

Be alert
Should African economies be worried about the Sino-American trade squabble? My views on this are published in the current April 2018 issue of Forbes Africa magazine (“Will Trump’s trade war hurt Africa?”). I argue that as Africa’s trade with America is quite meagre and is in fact declining, there is probably no cause for significant concern. Considering Mr Trump’s volatile nature, however, I suggest the continent’s leaders should not be complacent. Soon enough, after going to press, Mr Trump announced plans to suspend duty-free treatment of clothing from Rwanda under the African Growth and Opportunity Act (AGOA). The move was a potential retaliatory measure to Rwandan restrictions on American used apparel and footwear in the event that it did not reverse them 60 days from the date of the announcement in late March. Tanzania and Uganda were similarly warned for the same measures but were allowed their AGOA benefits after corrective actions. Still, the Rwandan example brings to light how even small economies might find themselves in Mr Trump’ firing line.

Rafiq Raji

Twitter: @DrRafiqRaji