‘Belt and Road’ countries will benefit most in the event of any China-US trade war
Beijing’s global trade initiative seen as a form of insurance policy should transPacific trade ties get worse
Escalating trade tensions between China and the United States have sent a shudder through markets, causing analysts with a flair for the dramatic to dust off their “trade war” scenarios and start predicting all kinds of trouble ahead.
They may turn out to be right. But with official figures showing China’s economy grew 6.8 per cent in the first quarter compared with the same period last year, it makes no sense to panic yet. Instead, it pays to take account of the more detached, longer-term views of leading academics not caught up in the day-to-day roller coaster of commodity prices and market moves.
“I would rather call this a unilateral protectionist action by the US,” says Edwin Lai, professor in the department of economics and director of the Center for Economic Development at Hong Kong University of Science and Technology (HKUST). “There is a risk of heading into a trade war, but we do not have that yet. I think China is going to be very cautious in trying to avoid that [possibility], as it still wants to access the American market for its exports and outward direct investment.”
In addition, he notes, any trade war, should there be one, would be short-lived and not large-scale. This is because China and the US have too many areas where they need cooperation, among them the North Korean situation. Also, political rhetoric aside, there are reckoned to be no real “incentives” for either side to engage in provocative actions which, in the longer run, either cancel each other out or guarantee no obvious benefit. Any move towards reducing the US trade deficit with China, even if practicable, would require lengthy negotiations and take years to unfold.
“The future of world trade would be threatened if the US openly violates WTO rules,” Lai says. “Multilateralism championed by the WTO would be headed towards demise.”
However, there is one easily foreseeable result of the current tension. It is likely to make China even more determined to press ahead with the “Belt and Road Initiative”, opening up new export markets in Central Asia and the Middle East and offering new channels for outbound direct investment.
“This will help speed up the progress of the Initiative,” Lai says.
For Simon Lee, senior lecturer at the School of Accountancy and co-director of the International Business and Chinese Enterprise Programme at the Chinese University of Hong Kong Business School, recent developments should come as no real surprise.
“It is quite natural for a country – in this case the US – to protect its trade interests, particularly when there is such a deficit,” Lee says. “It happened in the past when the US and Japan were ranked first and second in terms of GDP. This time, though, I don’t think it will become very serious as discussions and negotiations are already under way.”
He too points to Beijing’s global trade initiative being a form of insurance policy for China, should transPacific trade ties take a turn for the worse.
“It is a long-term strategy, and countries which are close to the US are not part of this initiative,” Lee says.
In contrast, Michael Wong, associate professor of finance at City University of Hong Kong’s College of Business, sees the chance of current trade frictions seriously interrupting existing ties over the next couple of years.
If the US starts to turn its back on promises and commitments relating to free trade and liberalisation, he believes that could deliver a major shock to the international economic order. Other countries in the world’s top 20, ranked by GDP, would inevitably start to consider tariffs and possible trade barriers.
“Given such uncertainty, businesses could reasonably be expected to slow their domestic and international expansion,” Wong says. “That would weaken global economic growth.”
Noting that the US has been the largest buyer of Chinese goods for years, he suggests that the authorities in Beijing have been aware of the need to reduce over dependence on one export market.
“The Belt and Road countries will provide new opportunities for Chinese firms,” Wong says. “One hidden barrier, though, is that the US might intervene in regional conflicts involving some of those countries.”