【China】Chances for Sino-US trade war seen limited  

The US president-elect is not in favor of the TPP.

The US president-elect is not in favor of the TPP. Photo from Reuters.

Though Donald Trump, the president-elect of the U.S., has vowed to withdraw from the Trans-Pacific Partnership (TPP), the possibility of imposition of his US-centered policies was questionable, said Terence Chong Tai Leung, an associate professor of economics at the Chinese University of Hong Kong. Chong also believed chances for a trade war between the U.S. and China are limited.

During his campaign, Trump promised that he would instruct the Treasury Secretary to label China a currency manipulator for artificially keeping the yuan weak. Trump said China was responsible for about half of the U.S. trade deficit, costing Americans millions of jobs, and he would impose tariffs of up to 45% on imports from China, which would be a part of the American-first trade policy.

The policy aims to substantially reduce the unemployment rate by 2 percentage points. However, reducing the present 4.7 per cent unemployment rate to 2.7 per cent is unrealistic, as such a low rate “has never been reached throughout the American history,” said Chong.

There are also concerns that if the extreme tariffs are implemented, it will put some American companies in trouble, especially for those who produce in China but sell products back in the U.S. The additional tariff would inflate the price of every product that American consumers currently buy from China. In other words, the US tariff is an additional cost to American consumers, deteriorating the welfare of the people, business and the society.

Should the U.S. impose high tariffs on Chinese imports, China is expected to retaliate and that could end up with a trade war, hitting Boeing orders, U.S. auto and iPhone sales and other U.S. exports to China.

President can’t dictate trade policy alone

Trump may have depicted a vivid picture on how he is going to impose those trade policies but such tariffs would need approvals from the International Trade Congress. Commonly, tariffs are imposed under the supervision of the Congress, the World Trade Organization (WTO) and the US Commerce Department. Trump cannot directly order the Treasury Department to label China as a currency manipulator.

According to the General Agreement on Tariffs and Trade (GATT) Article I, the most favored nation as a WTO member has an obligation to treat imports from all other members equally. Also, WTO formulates that tariffs can only be imposed when there is material injury to the domestic industry. Therefore if Trump tariff is imposed, it will violate the agreements between the US and the WTO.

Even Trump himself may have realized that any significant change in trade policies is likely to face obstacles and challenges. “When you look deep into his political views, you’ll find out that he is unstable, he have been in both Republicans and Democratic Party, he’s a businessman, he’ll only do things which is beneficial to his own career,” said Chong.

Trump threats rock Chinese yuan

Wong Kwok Ying, Director of Ample Finance Group said that a trade war might bring short-term confusion to China’s economy. As an example, the continuous depreciation of RMB is somehow due to Trump’s policy, which created a market panic. Since Trump was elected on 9 November, China’s currency has slipped to an eight-year low and below the psychological threshold of RMB6.8 to US$1.

As RMB is in the process of internationalization, and has become more market-oriented, China is ‘somehow nervous and concerned’, as Bloomberg reported about how Trump is going to propose the trading policy. China is trying to gain supports from other countries against Trump’s protectionist idea. On November 19, President Xi Jinping attended the meeting of Asia-Pacific Cooperation (APEC) and said that any attempt to weaken or exclude other countries should be rejected. He told other APEC leaders that he aimed to boost global trade and to provide a field for foreign companies to carry out transactions.

Reporting by Joyce Law, Editing by Malina Yao

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