China-US relations

China will be the clear winner if Trump declares a trade war

S. George Marano says China’s sheer economic might and global links will see it through in the event of a stand-off, leaving the US to suffer disastrous consequences

PUBLISHED : Tuesday, 17 January, 2017, 3:18pm
UPDATED : Tuesday, 17 January, 2017, 7:21pm

As the Trump administration gets ready to take office, much has been said about unfair trade with China and the threats of a trade war.

Such posturing, if it becomes reality, would be disastrous for the US. It would mean serious profit downgrades for US companies, while the world would have to choose between business with China or politics with the US. The indirect effect of slower growth in China would also have devastating consequences on its trading partners. Finally, Beijing would be spurred into putting into overdrive its strategy for increased domestic consumption and restructuring inefficient industries.

Overall, a trade war would only speed up China’s rise to become the world’s largest economy.

Watch: What Trump’s trade war with China would look like

Any bilateral trade war would spark a serious pushback from corporate America. With decades of offshoring, the repatriation of jobs would require a generational commitment. High tariffs would see the likes of Wal-Mart losing their competitive edge and downgrading profit forecasts. Replicate this scenario for China-dependent stocks, and one can quickly see a domino effect of negative forecasts and major sell-offs. Unhappy stockholders, many of whom are extremely influential, would certainly make the Trump administration pay dearly for such posturing.

On a bigger scale, a trade war would destabilise the natural order of globalisation. Sooner or later, the world would have to decide between business with China or politics with America.

Will Trump’s assault on Chinese currency trigger a full-blown trade war?

China is the largest trading partner for more than 100 countries, many of which suffer from a “single source liability” in trade. This means China has huge leverage globally and can have serious influence on many economies. With the global economy still on shaky ground, countries reliant on trade will have to make tough decisions. History shows China’s money is sought after, as many Western countries rushed to become members of the Beijing-led Asian Infrastructure and Investment Bank, even in the face of US protests. A trade war would leave many countries questioning their foreign policy, as China would use its economic might to its full advantage.

Just how badly could Trump’s threatened 45pc tariff hurt China?

Again, a trade war with the US is sure to have consequences for China’s growth. However, its huge surplus would be used to halt the slide. Consider China’s stimulus package during the 2008 global financial crisis, and how quick decision-making and a sizeable war chest played a key role in overcoming the economic downturn.

China likely to emerge winner should Trump walk his trade-war talk

Today, China’s strategic alliances and its “One Belt, One Road” initiative aim to exploit new markets, with massive stimulus spending to absorb any excess capacity. Moreover, a secondary effect of China’s slowing growth would see its 100-plus trading partners also experience a slowdown. This would further compound the issues of global growth.

Watch: Donald Trump, made in China

Finally, any trade war and growth slowdown would help accelerate Beijing’s strategy for increasing domestic consumption. This is a major initiative for the Communist Party, with a focus on becoming self-reliant. Given Beijing’s command and control strategy, coupled with nationalistic overtures focused on the “Made in China” aspect for consumer purchases, a trade war would be a strong catalyst.

Slowing growth will also provide ammunition to the authorities to restructure industries and organisations. State-owned enterprises would certainly be a prime target. Also, the food industry could undergo a sought-after revitalisation, given that many people are distrustful of domestic products, especially infant formula.

Therefore, while a trade war with the US would have a significant impact on China, its history, economy and political structure are more adept at handling such shocks than is the US. Not only would the fallout of a trade war hurt the US economically, it would most likely create an irreversible strain on its global standing with its Western partners. It would also force China to restructure its domestic economy, catapulting it to the No 1 global economy while it entered a new phase of international relations.

S. George Marano is a PhD student at RMIT University, Melbourne, Australia, researching international business and strategic management