Better technology and trade expansion the best Beijing response
The US trade war initiated by Donald Trump against China should be met with greater national self-reliance in the hi-tech field and more multilateralism
A trade war on the scale that US leader Donald Trump has initiated is cause for China to reassess its circumstances. Just days after another US$200 billion in tariffs was slapped on Chinese imports and Beijing retaliated, President Xi Jinping made a call for the nation to rely more on itself for development. Looking to self-reliance in the face of unilateralism and protectionism is an understandable reaction. Such talk implies closing the door on the multilateral economic system, but China cannot stop working with the rest of the world, nor does it have any such intention.
China can take steps to shield itself from Trump’s fortress mentality, though. Xi’s speech at one of the country’s biggest state-owned factories in the rust-belt northeastern province of Heilongjiang had that in mind, with goals of national rejuvenation at its core. Self-reliance does not contradict the repeated advocacy of Xi and other top officials for free trade and globalisation, being a necessity in some sectors to ensure development. That has to be especially so if the nation is to gain a leading edge in technology and manufacturing, and can assure a stable economy and food supply.
Trump’s trade actions and threats readily make the case to boost investment and research. A particular target of US tariffs is the “Made in China 2025” strategy, the aim of the White House being to curtail China’s ambitions to become a leading power in technologies including aerospace, semiconductors and robotics. Bans and restrictions have made it increasingly difficult for Chinese firms to obtain advanced technologies. Self-reliance in such circumstances makes sense.
US actions are damaging to relations, but can be navigated. China has 15 free-trade agreements and is negotiating a further nine; among those in place are with the Association of South East Asian Nations and being worked on is one with Japan and South Korea. The imposition of restrictions by Trump means efforts with other trading partners and investors have to be shored up and strengthened. The “Belt and Road Initiative” in such circumstances takes on even greater significance, offering particular opportunities for machinery and equipment manufacturers.
Policies have to take conditions into account while ensuring that multilateralism and opening up remain cornerstones of the economy. The most concrete reflection of self-reliance would be more subsidies for state-owned enterprises and farmers, but there will be numerous negative side-effects. Better would be tax cuts for small and medium-sized enterprises, which provide most jobs. The crux of any response, though, has to be to upgrade technology while expanding trade with the rest of the world.