China is winning the trade war with Trump
On just about every metric that matters, China is ahead
After four years of relentless effort by President Donald Trump to push back against China, his campaign reached new heights (or lows) Friday when he sought to ban new downloads of WeChat, China's ubiquitous messaging and payments app, and the wildly popular video-sharing app TikTok.
Nevertheless, the final scorecard is already in: On just about every metric that matters, China is ahead. At every turn, Trump seems to have been outplayed and outsmarted throughout the global trade war that began shortly after he took office.
Consider the trade balance, which Trump seems to regard as the most important measure of success in his effort to get China to play by global trading rules.
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China's trade surplus with the US has grown almost 25% since the start of the Trump presidency, exceeding $300 billion on an annualised basis, writes Jim McCormick of NatWest Markets. And China is nowhere near on track to meet its target of increasing imports from the US under the partial deal (also called "phase 1") to end the trade conflict, the signal accomplishment of Trump's tariff tit-for-tat.
Look at China's powerfully resurgent GDP, the result of its vastly more effective response to the pandemic that began there. China, McCormick notes, is the only country among 48 to have reported a second-quarter gross domestic product number that was higher than at the end of 2019. In the US, the worst country when it comes to the coronavirus (as measured by death and infections), the economy shrank 9.5% in the second quarter, a drop that equals an annualised pace of 32.9%, its sharpest downturn since at least the 1940s.
And now the Chinese currency is on a tear, climbing for the eighth week in a row, its longest run of gains since February 2018. Global bond funds are pouring into the country – one that still offers yields. Meanwhile, the dollar is slumping.
Behind these headline numbers also are deeper industrial trends, which again work in China's favour, helping it pick up global market share in the aftermath of Covid-19 lockdowns. Increasingly, China is supplying the kind of sophisticated machinery that German manufacturers once dominated, like high-end tunnel borers and hydraulic valves and pumps used in wind turbines.
"It's only a matter of time until Chinese firms are No 1," says Ulrich Ackermann, managing director for foreign trade at Germany's VDMA Mechanical Engineering Industry Association.
Trump's assaults on WeChat and TikTok are a distraction; there are better ways to mitigate the national security risk Chinese companies may pose by gaining access to US personal data. In any case, lashing out at Chinese tech companies will only slow, not derail, Beijing's efforts to dominate the 21st century economy.
Take the race to develop batteries, a key to the future of transport, defense and other industries. By 2025, China will have battery facilities with maximum production capacity of about 1.1 terawatt-hours' worth of cells annually, almost double the rest of the world combined. The White House response? So far, inertia, said Cathy Zoi, chief executive officer of charging-network operator EVgo, and an assistant secretary at the US Department of Energy under President Barack Obama.
The net result of Trump's efforts to decouple the US and Chinese economies is to push China even further toward self-sufficiency, a strategy set to be enshrined in China's new five-year plan at a meeting of the Chinese Communist Party Central Committee next month.
This new economic direction is described by the official phrase "dual circulation," an ambiguous reference to the outward and inward drivers of the Chinese economy. Bottom line: The term "looks set to mark a drive to reduce dependence on imports, particularly of high-end manufacturing equipment and inputs," writes economist Alicia Garcia-Herrero. "Dual circulation," she said, is import-substitution by another name.
A Joe Biden presidency, no less than the Trump administration, would grapple with a China set on global domination of 21st century industries by deploying old-fashioned mercantilism, among other retrograde trade policies. How could it do better?
Robert Zoellick, the former US trade representative and World Bank head (and member of the Bloomberg New Economy Forum advisory board), has this advice for the former US vice president, should he win in November: Foreign policy should start at home.
Focusing on domestic issues like public health, immigration and inclusive economic growth will both signal US leadership and appeal to allies, Zoellick wrote in Foreign Affairs.
"From this new base of cooperation," Zoellick writes, "the US and its partners will be better positioned to address two overarching challenges: the future of free societies and competition with China."
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement
