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China’s trade outlook darkens as US under Trump ‘looks most hostile since Korean War’

by December 28, 2016 General

China could expect to see less export momentum and more trade disputes with the United States in 2017 once Donald Trump took over as US President, analysts said.

Even though the chance of an all-out trade war between the world’s No 1 and No 2 economies remains slim, it is almost certain that trade tensions between Beijing and Washington will escalate significantly after Trump officially enters the White House.

Trump’s rhetoric of imposing punitive tariffs on Chinese imports and labelling Beijing as a currency manipulator during the election campaign was largely discredited by China’s policymakers as a bluff.

However, his appointment of Peter Navarro, a harsh China critic, as the head of the White House National Trade Council, meant there was a possibility of hostility, analysts said.

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“China is facing potentially the most hostile America since the Korean War,” said John Wong, a professorial fellow at the East Asian Institute of the National University of Singapore.

The US has been constantly complaining about cheap Chinese imports and imposed anti-dumping duties as a result.

These cases were largely sporadic, but the overall bilateral trade ties between the two nations could be poisoned if Trump put only some of his election rhetoric into action.

Wong suggested that “China needs to lie low and watch first”.

The attitude of US, the second largest export destination for Beijing, matters more for China’s trade than the numbers suggest.

It was only after an agreement with the US during the administration of then-president Bill Clinton, that China managed to become a member in the World Trade Organisation in 2001 – creating an export boom and helping the nation’s economic rise on the global stage.

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China’s Ministry of Commerce is expecting the gathering storm. The ministry has again dropped setting an annual growth target of its exports for 2017 because of the uncertain trade environment.

“It is impractical to make a specific growth target amid growing trade protectionism,” said Yang Liqiang, a professor at Beijing’s University of International Business and Economics.

“[Any] target is beyond China’s control and it may tie Beijing’s hands” in fighting trade battles, he said.

The Chinese government had set a 6 per cent growth target for the value of trade in 2015, but it actually plunged 7 per cent. After this failure, Beijing set no target at all for 2016.

Because of the weak global economy, China’s exports are losing momentum even without the uncertainty surrounding Trump’s move into the White House.

How a Trump trade war with China could do the US more harm than good

Exports, measured in US dollar terms, fell 7.5 per cent during the first 11 months of this year.

“Trade frictions will rise further in 2017, especially in overcapacity industries such as steel,” Wang Hejun, head of the ministry’s trade remedy and investigation bureau warned at a press conference on Monday.

Twenty seven countries launched a total of 117 investigations into Chinese products worth a total of US$14 billion this year. The number and value of those cases rose by 34.5 per cent and 71.5 per cent, respectively, compared with the year before.

To be fair, while exports remain a key engine for the Chinese economy, its significance has been in decline, especially since the global financial crisis.

“China still worries about employment stability in some export bases along coastal areas,” said Liu Xuezhi, an analyst at the Bank of Communications in Shanghai. “But in general, China now relies more on domestic consumption, rather than exports, to drive up its economy.”