Trade war headwinds should not push China into a tit-for-tat strategy instead of economic reform

There is a storm coming and it is likely to wreak havoc on economies exposed to the deepening trade war. No nation is too big or too small to dodge the damage if they stand in harm’s way. Global growth has already crossed the Rubicon, world trade is showing definite signs of slowing, and China and emerging markets are in the firing line. It is no use hoping the weather front will soon pass. China must go on the policy offensive and use its economic muscle to prevail. 

There is a lot to lose right now. Beijing must protect its 6 to 7 per cent growth target, critical at a time when China’s economy is losing momentum. The government can ill afford to be seen to be caving into the United States’ coercion on trade, losing international prestige in the process. US President Donald Trump has crowed about China’s stock market losing more than 25 per cent of its value in recent months due to his trade threats, not something that Beijing can easily ignore.

And suffer they will, as events in Turkey have shown in recent days after Trump’s imposition of tough trade sanctions. The Turkish lira has collapsed, local stock markets have crashed and European bourses are feeling the pinch. Washington’s moves are being read as an act of economic war.

Turkey is just a microcosm of what is happening in the broader picture. World financial markets are clearly beginning to take on board the seriousness of a deeper crisis evolving, although investors are showing few signs of outright panic just yet as headline figures are not showing too much of a dent. US gross domestic product growth, at 4.1 per cent, and China’s economy expanding at a 6.7 per cent rate can hardly be justified by the Jeremiahs as reasons for doom and gloom.