Japan in Their Own Words (JITOW)/日本からの意見

Trump Negates the Chinese Growth Model
KAWATO Akio  / Former Japanese Ambassador to Uzbekistan and Tajikistan

July 19, 2018
The trade conflict between China and the United States is now in full swing. The two nations are flinging major tariff hikes at one another, neither willing to give an inch in the standoff. Thinking back to the defensive posture taken by Japan during its own trade frictions with
America, I must admit to feeling somewhat jealous of China for its ability to stand its ground. Japan, as a nation under the US security umbrella, was unable to implement effective countermeasures for fear of the backlash they might trigger among domestic industries worried about the impact on their business. As a result, Japan’s decisions tended to fall along the line of how far to accept US demands in the trade disputes of the time.

The ongoing Sino-American dispute, meanwhile, seems to a certain extent to be just an act, with both sides firing their guns noisily, but harmlessly, toward the sky. These opponents may shake hands and call an end to the hostilities at some appropriate juncture. Global financial markets, perhaps perceiving the same thing, have been rebounding immediately after each trade-friction-triggered plunge.

How serious is the United States about this trade conflict? President Donald Trump is clearly seeking to create momentum and lay down a track record of results as he heads toward the midterm elections to be held this autumn and, looking farther ahead, toward the presidential election to take place in 2020. It will be particularly important for him to be able to claim that he created jobs once again for the “Midwest working class” that played such a key role in putting him in the White House.

However, it is unlikely that higher US tariffs on Chinese steel, aluminum, and other exports will do anything to bring jobs back to the factories of the American Midwest. China exported just 1.2 million tons of steel to the United States in 2017, placing it eleventh on the list of steel exporters serving the American market. Fully half of China’s exports are smartphones and similar products that are merely assembled in the country for Western companies. Slapping restrictions on imports like these will only cause trouble for US firms like Apple and GM while
raising prices for American consumers (therefore, such items are carefully omitted from the final list for tariff hike).

Rather than bring their assembly operations back to the United States, these US companies are likely to move them from China to other low-wage regions like Vietnam or India. For this reason, Washington is not likely to seek to crush China as a competitor; it will rather press China to greatly increase imports of American aircraft, automobiles, medical equipment, and pharmaceuticals, while ensuring that unfair fines are not levied on US companies active in China and creating an improved investment environment.

Beijing, for its part, insists that it will not give an inch in this struggle. It is likely uncertain about how best to proceed, though. If China does follow through with its threats by slapping hefty tariffs on American soybeans and aircraft parts, it will only be harming its own interests, as there are no other trading partners capable of providing such plentiful flows of this item. If the Chinese government sells off a considerable portion of the US treasury bonds it holds, it will again be the party to suffer, not the United States: Japan and other purchasers will snap up the bonds flooding onto the market, and China, meanwhile, will have trouble finding ways to put its massive new influx of greenbacks to use.

Many are calling China an economic giant, and the country itself has come to see itself as a superpower in this sense. In truth, however, it has been pushing its luck within the framework and systems of the postwar global economy that the United States first put together. The yuan is far from a readily convertible currency, leading China to conduct much of its trade on a dollar-denominated basis. It has established a yuan-denominated crude oil futures market in Shanghai to chip away at the global rule of the dollar, but this is unlikely to attract foreign participation so long as the yuan remains relatively unconvertible.

Therefore, the tariff war will not cause an Armageddon in US-China economic relations. Both countries will continue negotiating on trade. What is far more important, however, is the possibility that Trump’s fixation about trade deficit may have triggered a profound change. Namely, if the current event prompts the Western companies to reduce their investments in China, the Chinese sacrosanct export-driven growth model will become unsustainable.
Since the first decade of this century, China has made use of this surplus, which, along with foreign direct investment, has climbed to as much as a combined $400 billion in some years, converting it to yuan and spending it domestically on real estate and infrastructure investment, multiplying the capital by several hundred percent in returns. This has been the core of China’s stellar economic performance in recent years, but now the country stands to lose this momentum if a trade war escalates. The country is now running a considerable trade surplus vis-à-vis the United States, accounting for 49.0% of its total 2016 surplus of $510.7 billion. When the US surplus with Hong Kong is included as well, this ratio goes above the 50% mark.

If foreign companies, which are responsible for about 50% of Chinese exports, will curtail their production in China and exports therefrom, it will depress the Chinese economy and lower incomes of the Chinese. In 1985 Japan was made to face a similar situation, when the US forcibly devalued the dollar against yen almost twice. Japan, deprived of its export-driven growth model, eventually fell into stagnation. Since then the long-time ruling party LDP (Liberal Democratic Party) was voted out of power as many as two times.
China, where the Chinese Communist Party (CCP) is entitled as the only and permanent ruler, will step into a turbulent time, as there is no alternative for the CCP, which may lose people’s support, while the ever increasing tempo of the aging of the population will exacerbate
financial and economic woes.

The US may have knocked down China, a threat to its prominence, as it did to Japan in the past.

Akio Kawato is a former Japanese Ambassador to Uzbekistan and Tajikistan.
The English-Speaking Union of Japan

河東哲夫 / 元駐ウズベキスタン大使兼タジキスタン大使

2018年 7月 19日


米側はどれだけ本気か? トランプ大統領にとって、秋の中間選挙、そして3年後の大統領選挙をめがけて話題作り、手柄作りができればいい。特に、彼が大統領になるのに決定的な役割を果たした「中西部の労働者達」に仕事を再び作ってやったと言えることが重要だ。





というわけで、米中の経済関係が崩壊するということはなく、両国は話し合いを続けていくだろう。しかし今回のトランプの貿易赤字へのこだわりは、もっと深い、新しいトレンドの引き金を引いた可能性がある。それは、今回の措置をきっかけに日米欧の外資が中国への投資を控えると、中国のこれまでの成長モデルが成り立たなくなるということだ。2000年代は年間4000億ドルにも上った貿易黒字と外国からの直接投資を元に替え、それを不動産・インフラ投資に向けて何倍にも転がし膨らませて行ったのが中国の高度成長の基本なのだが、そのパン種が大きく失われてしまうのだ。中国の対米貿易黒字は、中国の全貿易黒字(2016年で約5107億ドル)の49.0%に上る 。香港の対米貿易黒字を加えると、それは50%をやや超える。



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English Speaking Union of Japan > Japan in Their Own Words (JITOW) > Trump Negates the Chinese Growth Model