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China, Trade, and You: The Situation Today

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China and world trade has been a major issue throughout the past couple of years. As the country matures economically it faces pressures to maintain breakneck growth and conform to international norms. The advent of populism across the West since 2016 has further intensified such pressure, for China has become a symbol of development malaise in the countries around the world which it touches through seemingly unbalanced trade relationships.

Much attention has been placed on the ongoing saga between China and the United States, the two largest economies in the world, over tariffs. These taxations, however, are just part of a much broader story combining economic initiatives with foreign policy agendas. As a result, China faces a much more complicated political economy landscape, with corresponding challenges to political and economic stability in the country.

Anti-Dumping In Action: What It All Means

Greater US emphasis on trade fairness from China has led to all sorts of shifts in importing and exporting. Among the lesser reported items in this category is a renewed and empowered effort to combat dumping, that is the introduction of goods at artificially low prices with the intention/effect of eliminating competition. This has been especially relevant in the woodworking and home improvement industries, where investigations into product dumping from China have radically changed sourcing patterns and shipping costs for popular products like kitchen cabinets.

American consumers will likely bear the brunt of this protectionism regardless of whether it is rightly or wrongly justified in the view of the Trump administration. The short term amounts to a meaningful business disruption that may affect product availability and will likely raise rates. Over time, sourcing from other countries may suffer in both product quality (Chinese suppliers have decades-long relationships with US customers) and price point attractiveness (other countries may have higher wage requirements and/or less established/more difficult shipping challenges).

Why Italy in OBOR is Such A Big Deal

On a broader international front, China continues to make waves with its One Belt One Road initiative which seeks to drastically deepen trading ties in strategic locations and regions. For the most part, China has centered its efforts around the developing world, particularly in Asia and Africa (though greater integration with Latin America is also concurrently happening). Recent developments in international affairs have prompted the Chinese to adopt a more comprehensive OBOR strategy, with the move to enter into greater relationship with Italy a prime example.

European divisions - and especially the lack of US enthusiasm towards defending the continent under the Trump administration - have opened the door for China to try to take advantage of the European Union’s worldwide leading common economic market, with the populist Italian government in a position to embrace such an antiestablishment, out of the box idea. Unlike with the US trade relationship, China can overwhelm a country like Italy on multiple fronts economically. While there is of course the risk of dumping and the saddling of massive loans (as seen in developing OBOR nations), a third element is just as influential given Italy’s prominence in the world: tourists. Already Italy faces challenges from the mountain of tourists it welcomes each year; this is most prominent in environmentally precarious places like Venice, which now frequently floods while being overwhelmed by cruise ships. It therefore remains to be seen what even more Chinese investment will do to Italy’s cramped and chaotic economy and how populists throughout the continent choose to leverage China’s presence for their own gains.

Next Moves: What a US Deal Would Mean

Then of course we have the main event in Chinese foreign policy today: tensions with the US over trade fairness. This subject is complicated and reflects the massive interconnections the world’s two largest economies have with one another. It is also a display of two separate models of political populism at work, with one clinging on paths to economic growth while another sows chaos.

The most recent developments in negotiations have to do with a growing (and ironic) embrace of tariffs as a measure of trade enforcement on the part of the US. For the Trump administration, this is a likely response to more local concerns, for their electoral base consists significantly of voters whose jobs may have been removed, automated, or sent abroad. In the case of manufacturing jobs, China appears as a likely beneficiary of such economic shifts, making anti-China moves popular amongst this demographic. There is also an element of survival attached to this and nearly every policy decision Trump makes, for the more tenuous and chaotic a situation becomes, the more power and control over policy he exerts. His distraction limits the attention placed on his other distracting qualities and shortcomings; this circle of manufactured self-centered attention is a proven method for keeping power under even the heaviest of political pressure.

The Chinese, on the other hand, have constructed a regime purely focused on one social element: economic growth. Facing a potential slowdown, Beijing has seen its negotiating position deteriorate in the face of lost revenue and business relationships from a lucrative US market. This is a likely driver for more aggressive OBOR activities, for a new network of trading partners forms a hedge against an uncertain American climate. It therefore remains to be seen whether trade tensions will cease quickly and how China eventually responds to consistently inconsistent US demands, for the future of the global economy may hang in the balance.

I welcome your thoughts. Please feel free to respond in the comments or to email me at info@wpglobalconsulting.com to discuss further.

William VogtComment