Andrew Collier is the managing director of Orient Capital Research and the former President of the Bank of China International USA. Here he explains the US-China trade war and what it might mean for the UK
The first glimmers of a trade war between the US and China started with a June 2016 campaign speech by President Donald Trump in Monessen, Pennsylvania. An improvement in trade “means reversing two of the worst legacies of the Clinton years… First, the North American Free Trade Agreement, or NAFTA. Second, China’s entry into the World Trade Organization,” he told the town’s steelworkers. But it has taken the technical skills of Trump’s senior trade strategist, Robert Lighthizer – along with the gradual elimination of the free-traders in the cabinet, including Gary Cohn, the head of the National Economic Council – to launch the current round of demands on China.
Bypassing the World Trade Organization’s formal channels, on April 3, President Trump resorted to the little used security provisions of Section 301 trade law to introduce tariffs on 1,300 goods worth US $50 billion. Less than a week later his administration threatened to escalate that with additional tariffs on US $100 billion of goods. China retaliated with a measured response of a 25 percent tariff on American exports, including soya beans, aeroplanes and cars, clearly targeting states where President Trump has a strong base of supporters.
“There could be quiet backlash within China against American companies, favouring firms from Europe and Britain”
However, both sides are now moving more cautiously. The US Trade Representative is accepting comments on the proposed list until May 11, 2018, and will hold a public hearing in Washington in May, allowing significant time for the negotiations that are now being hinted at by both sides.
President Xi’s conciliatory speech at the Boao Forum on April 10th attempted to bring the fires of trade rhetoric under control, and was warmly received by global investors and President Trump himself. But the measures he proposed – opening up shipbuilding, autos, insurance and the financial sector – are not major concessions. Shipbuilding is short of capital, apart from luxury firms like Tesla, foreign car manufacturers already invest in China, and insurance has been throttled back due to excessive expansion in risky assets. The banking industry could be a welcome area for investment but it is likely that China will steer foreign firms into the securities business, which is widely dispersed and highly risky, instead of the core commercial banks.
Given the potential for delays on both sides, it is likely that President Trump will send his main trade negotiator, Robert Lighthizer, to negotiate with China. Most observers assume President Trump presented the threat of hardcore tariffs as a first negotiating tactic that would then be softened during further discussions.
The bigger question may be the technology sector. China’s economics tsar Liu He said he rejected the Trump administration’s requests to back away from Beijing’s “Made in China 2025” programme, which is designed to allow China to compete globally in key technologies such as semiconductors and artificial intelligence. Apart from outright intellectual property violations, China’s ambitions may not fall afoul of trade laws and may simply reflect China’s growing global ambitions. This could set the stage for a new round of competition between the two countries.
Other nations, such as the UK, could benefit in two ways. First, the US-China negotiations could open up the economy to foreign firms, including British companies. It is not clear at this point where the talks will end up, but high-end autos could be one, affecting Tata-owned Jaguar and possibly Rolls Royce, among others.
Second, even if the US talks are successful, there could be quiet backlash within China against American companies, favouring firms from Europe and Britain. Provincial party secretaries and governors wield tremendous power to approve or disapprove joint ventures and could use this without getting the nod from Beijing. There could be a tacit and quiet “not-made-in-the-USA” policy among key Chinese decision makers.
Andrew Collier is the author of Shadow Banking and the Rise of Capitalism in China. Available at Amazon
For more information on the financial sector contact CBBC’s sector lead Juliet Zhou on Juliet.Zhou@cbbc.org