Just because financial markets in China have been volatile of late does not mean that the US has won in a trade war against the Asian economic giant, experts say.
US President Donald Trump’s recent tweets crowing over the losses in China’s market has only added fuel to the fire of the trade row between the two nations.
Tariffs are working far better than anyone ever anticipated. China market has dropped 27% in last 4months, and they are talking to us. Our market is stronger than ever, and will go up dramatically when these horrible Trade Deals are successfully renegotiated. America First…….
— Donald J. Trump (@realDonaldTrump) August 4, 2018
….Tariffs have had a tremendous positive impact on our Steel Industry. Plants are opening all over the U.S., Steelworkers are working again, and big dollars are flowing into our Treasury. Other countries use Tariffs against, but when we use them, foolish people scream!
— Donald J. Trump (@realDonaldTrump) August 4, 2018
….Tariffs will make our country much richer than it is today. Only fools would disagree. We are using them to negotiate fair trade deals and, if countries are still unwilling to negotiate, they will pay us vast sums of money in the form of Tariffs. We win either way……
— Donald J. Trump (@realDonaldTrump) August 4, 2018
….China, which is for the first time doing poorly against us, is spending a fortune on ads and P.R. trying to convince and scare our politicians to fight me on Tariffs- because they are really hurting their economy. Likewise other countries. We are Winning, but must be strong!
— Donald J. Trump (@realDonaldTrump) August 4, 2018
The context of Mr. Trump’s tweets is developments in the Chinese stock markets, given the recent dip in the Shanghai Composite Index, the lowest it’s been in two and a half years, weakening the Chinese yuan against the US dollar. The US President has also imposed several protectionist measures not just against China, but with other partners in trade worldwide.
Analysts are taking Mr. Trump’s tweets with a grain of salt. They expect that the influence of the trade row with the US on the currency and A-share markets that make up China’s financial market, will not be great.
“President Donald Trump thought the US had won. In fact, the trade war has just begun. It is too early to tell how the trade row will evolve and affect the US and the Chinese economies, thus it is too early for the US president to reach such a conclusion,” said Chen Fenying, from the China Institutes of Contemporary International Relations. He also said that even if the Chinese stock markets have been impacted by worsening trade relations between the two economic giants, it’s wrong to jump to the conclusion that China will lose the trade war with the US.
One of the officials at the People’s Bank of China, Sheng Songcheng, believes that the yuan will not depreciate more than the psychologically significant benchmark of 1 US dollar against 7 yuan. And a former senior official at the State Administration of Foreign Exchange and current senior research fellow at China Finance 40 Forum, Guan Tao, actually attributes the depreciation of the yuan to “a change in market sentiment following the change in economic fundamentals,” and not the trade war with the US.
“There are varying views on the trade row’s impact, but personally, I believe a trade row impact will be limited to the Chinese economy. China is a major economic power, and for an economy with such a status the economic performance is determined more by internal factors than external factors.”
Meanwhile, on July 31 the Political Bureau of the CPC Central Committee put forward stabilizing foreign trade as one of the “six stable” works needing to be done in the second half of the year, recognizing that “international instability” is affecting foreign trade.
Gao Lingyun, Chinese Academy of Social Sciences World Economics and Politics Researcher, said that in the first six months of 2018, the momentum of China’s foreign trade development was good, with rapid growth of imports and exports, and thus, the goal is to achieve stability.
From January to June of this year, the total import and export value of the trade of Chinese goods increased by almost 8 percent over the same period in 2017, at 14.12 trillion yuan. Exports were up by almost 5 percent, at 7.51 trillion yuan, and imports were up by 11.5 percent, at 6.61 trillion yuan. The trade surplus was at 901.32 billion yuan.
Imports to China’s three top trading partners, the EU, Asean and the US, also grew in the same period.
China’s trade structure, proportion of private enterprises’ import and export, as well as export benefits also saw growth in the first half of the year. Different regions in China also showed growth in foreign trade.
However, while the opportunities for the development of foreign trade in the country outweighed its risks, some experts warned of the downsides of such growth. For example, the trade protectionist measures and unilateralism of other countries such as the US could pose a threat to the development of global trade in China for the remaining half of 2018.
But Huang Yuping, spokesman of the General Administration of Customs remains confident. “In the second half of the year, although the external environment has undergone significant changes and encountered some new problems and new challenges, we are confident that we can handle it because ‘stable’ is the fundamental aspect of current economic operations,” he said.
The International Monetary Fund predicts that the global economic growth rate will be at 3.9 percent for 2018, while the World Trade Organization increased its forecast for global trade growth to 4.4 percent for the year, a good sign that these and other financial bodies are optimistic about international trade growth for the year.
Zhao Ping, researcher at the China Council for the Promotion of International Trade, said, “From the domestic perspective, China’s economy has been operating smoothly in a reasonable range, which is a strong guarantee for the stability of foreign trade.”
In seeking stability for foreign trade for the second half of 2018, China plans to open up new markets and hasten the development of new advantages, such as creating new selling points for competition in foreign trade, and re-branding “Made in China” labels to such terms as “Chinese Brand,” “China Service” or “Created in China.” China also plans to continue to accelerate trade growth with “Belt and Road” countries.
China also plans to achieve stability in foreign trade through expanding its impiety market, seeing the positive response to China’s first International Import Expo as a good sign. Zhao Ping said, “Proactively expanding imports is not only conducive to the balanced development of foreign trade, but also conducive to better meeting the needs of the people’s better life.”
Other way of ensuring stability in foreign trade growth is improving levels of trade facilitation, which will greatly improve efficiency. As China also focuses on making customs clearance easier, removing unnecessary procedures, and reducing transaction costs, this will also pave the way for growth in global trade.