EC Trade, The Dollar, And The Week Ahead

China is isolated on trade. No one supports its trade practices. The idea that China was going to "naturally" evolve to be more like the US, or Europe for that matter, was always fanciful and naive. The emergence of China, as Napoleon warned two centuries ago, would make the world shake.  

US administrations adopted a multi-prong strategy of managing the rise of China. On economic issues, the focus was on working through multilateral institutions, like the G7, G20, IMF, and WTO. The US did not block China joining the WTO in late 2001 when many feared 9/11 was the end to globalization. The US did not prevent the Chinese yuan from being included in the SDR (Special Drawing Rights) starting in October 2016. It insisted that China was an emerging market economy, which made it easy to take action against dumping. At the same time, considering it a non-market would qualify China for different types of development assistance, which may no longer be necessary. Past Administrations formally objected to many Chinese practices, challenged them before the WTO and often won.  

There are numerous ways to measure China's integration into the world economy, which shares much in common with a basketball or football game where the violation of the rules is part of the game itself. That the US had a widening bilateral trade deficit with China is not proof of anything by itself. It is especially not evidence of the failure of the multilateral approach. A balanced reading of the modern Chinese economic history, since Deng Xiaoping's reforms, shows a clear evolution of policies, and often in the broad direction that the international community finds agreeable. It has made sufficient reforms, for example, that its stock and bond markets are increasingly included in global benchmarks. Despite threats to the contrary, no President since Clinton has cited China as a currency manipulator. 

At the same time, the US challenged China on other fronts, like selling advanced weapons systems to Taiwan, bringing nuclear-armed ships into the Straits of Taiwan, protesting its human rights practices, limiting some technology transfers. It pursued freedom of navigation and periodically sent ships into waters that China claimed. Chinese direct investment plans in the US were put under closer scrutiny with some deals rejected. The Trump Administration has continued these measures and more. It has stepped up the campaign against two policies thrusts of President Xi: the Belt-Road Initiative (BRI) and Made in China 2025. Last week, the FCC barred Chinese Mobile from entering the US and announced it would review the authorizations previously given to China Telecom and China Unicom.

However, getting other countries to match US efforts have been challenging. Like Obama campaigned in vain to boycott China-sponsored Asian Infrastructure Investment Bank, so too has Trump failed to convince more than a few countries (e.g., Japan, Australia, and Vietnam) to ban Huawei. Half of the EU members have signed memorandums of understanding with China on BRI.

The tariff truce that began in December ended abruptly. Although the American marketing prowess was on full display as the US framed the issue as China reneging on what had already been agreed before Beijing had breakfast Monday morning. US negotiators have accused others of this as well, including Europe on whether agriculture will be included in the bilateral trade talks.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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