Opinion | China’s two big mistakes in trade war may lead the country into middle-income trap
After misjudging Donald Trump and misjudging the alliance between Washington and Brussels, Beijing needs to act fast, writes Zhang Lin
Beijing has made two mistakes in the trade war with Washington, for which China will pay a heavy price.
The first is that the Chinese leadership misjudged US President Donald Trump. Beijing wrongly thought that Trump was just a businessman, regarding his trade war threats as bluffing ahead of the midterm elections. But in fact, Washington had already made clear in its National Defence Strategy report – released months before the dispute escalated – that the US would no longer tolerate Beijing’s trade and economic practices. The message was that Beijing could not earn money from the United States while at the same time posing a challenge to it.
Beijing’s second mistake was that it misjudged the alliance between the US and the European Union, and had hoped, unrealistically, to form a united trade front with Brussels against Washington.
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While there is plenty of disharmony in relations across the Atlantic – for instance, Britain leading Germany and France to join the China-led Asian Infrastructure Investment Bank despite the US objecting – the Western democracies still share the same core values.
The latest US-EU trade statement sends another message to Beijing – that Washington and Brussels will “work closely together with like-minded partners” to address a long list of issues such as “intellectual property theft, forced technology transfers, industrial subsidies, distortions created by state-owned enterprises, and overcapacity”. It’s not hard to guess which country is not on the list of “like-minded partners”.
While China won’t be shut out of world trade overnight – high tariffs may cause some pain but trade flows won’t just shrivel up – and foreign businesses will continue to operate in the Chinese market, it looks like the golden age for exports since the country entered the WTO in 2001 may be coming to an end.
Shrinking foreign trade could hurt China’s economy at a much deeper level than expected and might even push China into a middle-income trap – a concept first put forward by the World Bank in 2006 to describe a situation where a middle-income economy stagnates and is unable to generate further economic momentum.
