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US-China trade war: Opinion

Jack Ma: US-China trade war will kill jobs, opportunities and hope

Jack Ma says with Chinese consumers already a driving force of global trade, America – once a bastion of free and open markets – will miss out on lucrative opportunities by adopting a protectionist stance

PUBLISHED : Wednesday, 11 April, 2018, 5:30pm
UPDATED : Thursday, 12 April, 2018, 10:47am

As a businessman, I have been encouraged by the US administration’s pro-business policies, like lowering corporate taxes. Now, like many in the business community, I am struggling to understand why a trade war with China would be good for the US economy. 

The US has a structural trade deficit with China because of the market forces of comparative advantage: economies produce what they are best at making and import other things. Dollars earned from trade surpluses in China have been recycled to finance American borrowing, keeping US interest rates low with favourable economic conditions. American unemployment stood at 4.1 per cent in March, a 17-year low. All these economic indicators suggest that the US economy is doing well, regardless of the trade deficit.

American economic policy for the past 30 years encouraged US companies to outsource labour-intensive manufacturing to China and other Asian countries while retaining the most valuable parts of American ingenuity: innovation, technology and brand. 

China embraced this American-led globalisation because it was also the best path for China’s development as an emerging economy. To raise living standards for 1.3 billion people, the Chinese government promoted foreign investment and built the economy on the strength of its large and increasingly skilled labour force. As a result, China became the world’s largest exporter, with a significant trade surplus. American consumers benefited from low prices and American corporations made giant profits.

There’s no better example of a beneficiary of this symbiotic relationship than Apple. The company designs the iPhone and develops proprietary chips and software in California. It makes the units through contractors that hire millions of workers in China, assembling components manufactured in South Korea. Through smart marketing, Apple products capture consumers’ hearts, making its brand more valuable. 

While countries like South Korea and China collect revenue from selling components and assembling the final product, Americans make almost all of the profits. Apple’s US$48 billion of profits in its 2017 fiscal year will not make it into the balance-of-trade calculation.

Apple will pay US$38b in repatriated profits as it moves investments to the US

Under a symbiotic US-China relationship, America became a pre-eminent technology leader, and its brands are today the envy of the world. China improved the standard of living of its citizens with a tenfold increase in per capita gross domestic product over the past 20 years.

But US-China trade relations in the next 20 years will look very different from the past two decades. The benefits of globalisation since joining the World Trade Organisation in 2001 have opened China’s mind to the idea of open markets. 

China is shifting its economy from the world’s largest exporter to the world’s largest consumer. Chinese citizens now have the wealth and income to pursue discretionary spending. They want to buy high-quality imported food, cosmetics, fashions, and health and wellness products for themselves and their children.

With average urban income growing at almost double digits and an emerging middle class of 300 million, Chinese consumers are already driving massive demand for imports from all over the world. Last year, President Xi Jinping said at the World Economic Forum that, over the coming five years, China will import US$8 trillion of goods

It is therefore ironic that the US administration is waging a trade war at a time when the largest potential consumer market in the world is open for business. Is America going to forfeit this opportunity? 

Instigating a trade war is the wrong solution because it will only provoke retaliation. The Chinese government responded to US tariff threats with its own tariffs on American agricultural products such as soybeans. China is the largest export market for American soybeans, worth US$14 billion annually and accounting for 65 per cent of all US soybean exports. 

The US has been a consistent defender of free and open markets, but this time it is resorting to protectionism that will not improve American competitiveness. Any country seeking to increase exports would do better to focus on developing good products and channels to access foreign markets rather than putting up trade barriers. 

At the heart of Alibaba’s mission – to make it easy to do business anywhere – is our support for small businesses. A vibrant small-business sector is good for any economy, because small businesses create jobs.

Who will be the winners and losers in a China-US trade war?

This trade war will hurt millions of American small businesses and farmers. I feel for these men and women, because I met many of them when I toured the US last year to host our “Gateway” trade showcase in Detroit. 

Small-business owners and farmers travelled from all over the country to learn how Alibaba could connect them to the massive Chinese consumer market. Those attending Gateway saw what the future could hold for their business. I saw the entrepreneurial gleam in their eyes. 

How China is leading the ‘new retail’ revolution

Through our digital-commerce platforms, where more than 500 million Chinese consumers shop, Alibaba will continue to help American small businesses and farmers access the China market. 

If we encounter trade barriers, we will have to work harder. While we may face setbacks in the current protectionist environment, I remain confident and look forward to the next 20 years.

Jack Ma is founder and executive chairman of Alibaba Group, which owns the South China Morning Post