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Macroscope | What if China declared a protectionist trade war on the US and the West?
- China has perhaps more to lose than the US but in economic wartime, national interest and economic security concerns can triumph over reason
- Besides, China has a secret weapon: it can devalue the yuan
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Relations between the US and China have become so bad lately that, short of going to war (a possibility that cannot be ruled out), it might seem the situation cannot get any worse. Yet what if China were to declare a trade and wider economic war against the US and others?
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This scenario was suggested to me recently by a prominent Chinese academic teaching in Tokyo. Whether it was just his speculation or done with the intent that, as a journalist, I might draw attention to the threat, I do not know. Either way, it is a possibility that bears closer examination.
If the already worrying deceleration in the growth of world trade were to turn into an actual decline as big hitters like China joined the zero-sum game of protectionism, it would affect global growth and employment, and invite recession, thus breeding economic (or even real) confrontation.
Until quite recently, it would have been almost unthinkable that China would risk shooting itself in the foot by declaring a trade war on the United States – the country to which it exports the most goods and which is a major source of imports – or on other nations.
But the world is changing rapidly and the idea of maximising economic advantage is being overshadowed by a growing obsession with “economic security”. Global trade growth is slowing, a trend that applies especially to US-China trade.
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If trade does become further weaponised and China copies the protectionist example of the US and other major economic partners, Beijing does have a secret weapon to deploy. It could devalue the yuan sharply, some analysts suggest.
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