[CRNTT.com]LI Wei: At Present China’s External Economic Environment is Experiencing Fierce Changes

At present, the roundtable conference of “China-US Relation Under New Situation: Challenges and Responses”, organized by the Center for Research on International Strategy of National Academy of Development and Strategy, Renmin University of China, was held in Beijing. Li Wei, Professor of the School of International Relations RUC and Deputy Director of the Center for Research on International Strategy of National Academy of Development and Strategy expressed his ideas on the newest development on China’s external economic environment.

He pointed out that at present china needs to look beyond the trade war between china and US to look closely the changes of global economic system and challenges brought by these changes. We can’t let trade war obstruct the global perspective. In his point of view, in the past year, international trade pattern is experiencing fierce changes, so the external economic environment for China is worsening, whose level can been said the most dramatic in the past 40 years.

Trump made moves since his inauguration

Regarding the changes in the international trade pattern, Li Wei first discussed some important actions of Trump since his inauguration, especially since 2018. He pointed out that Trump has done a few big things so far:

The first thing is the discussion of the US-Canada-Mexico Free Trade Zone and the revision the agreement of the US-South Korea Free Trade Zone. Li Wei said that the US-Canada-Mexico Free Trade Zone and the US-South Korea Free Trade Zone mainly solve three problems: the first provides greater opportunities for the export of US agricultural products and automobiles; the second comprehensively strengthens the principle of “country of origin”; third, launching the "poison pill" clause of the so-called "non-market economy countries" has caused Mexico and Canada to lose the sovereignty of trade diplomacy and increase the difficulty of building a free trade zone network for China.

The second thing is the boycott of WTO. Li Wei said that the Trump administration believes that it is a mistake to let China join the WTO in the past, and in the legal sense, it cannot "catch out" China. Therefore, they attempted to get rid of the WTO. At present, the EU is actively promoting the reform of the WTO. The core content is that emerging countries have to shoulder more obligations.

The third thing is the negotiation of the US-Japan-Europe Free Trade Zone. Li Wei said that if the US-Japan-European Free Trade Area is established, and the US has not approved the judge whose responsibility for WTO dispute settlement mechanism for a long time, and the normalization of US tariff sanctions against China, China will most likely be "exited" in the WTO.

Regarding the question of whether the Sino-US economy is decoupled, Li Wei said that it is not too pessimistic. However, he also pointed out that although the domestic policy debates in the United States are still going on, the US economic nationalists and economic internationalists have not yet formed a firm strategy for China’s economic and trade relations. But if we look the problem in a more serious way, the possibility of the United States taking a decoupling strategy against China is completely there.

Li Wei believes that the Xi Jinping and Trump’s meeting at the G20 summit cannot give a too optimistic assessment. If the two sides cannot reach an agreement, but instead increases the tariff of 200 billion imports from 10% to 25% according to the original plan, if the tariff war is long-term and continuous, it means that the decoupling of the Sino-US economy in the next one to two years will definitely become a reality. If all export commodities are subject to a 25% tariff, this will definitely be reflected in China's import and export trade data, and will also aggravate the transfer of the industrial chain. If Sino-US trade growth is negative for one or two years, China and the United States will not the world's largest trading partner. This is a series of consequences brought about by the trade war between China and the United States.

Li Wei said that it is not possible to simply attribute Trump to a trade protectionist, nor can it simply give Trump a label of isolationism. At least in economic terms, Trump is definitely not isolationist. The US-Japan-Europe trade zone negotiations have been discussed for four rounds, together with Mexico, Canada, and South Korea, the Trump has clearly stated that he wants "equal, fair, and higher levels of free trade." The current situation is that the United States will cooperate with developed countries fight with China, and China is likely to be isolated. Not only that, the Western countries collectively do not recognize China's "market economy status", China must guard against the collective containment of China on the grounds that China's economic system does not reach the "market economy".

The advantages on trade of China’s three neighbors become more prominent

Li Wei pointed out that in the past year or two, as China's three neighbors, Japan, Vietnam and South Korea have gained a stronger trade advantage than China through active and promising trade diplomacy. This is the second change in the China's international economic environment.

Li Wei pointed out that the Japanese-led CPTPP will take effect on December 30. Through the CPTPP and the EU-Japan Economic Partnership Agreement, Japan has returned to the center of the entire international trading system, because this is the two FTAs with the largest scales that are currently in force. Vietnam is not only an important member of CPTPP, but also completed the free trade zone negotiations with the EU, and the relevant approval procedures are rapidly advancing. By entering these two giant free trade zones, Vietnam will also become an important hub in the global economic system. Because of this, some people say that Vietnam will become the next country to take off, and it will become the core country to undertake the fourth industrial transfer after the war. The trade war will definitely bring multinational companies to Vietnam, because Vietnam and the major developed economies have free trade agreements, and multinational companies will have huge export advantages in Vietnam. There are no free trade agreements between China and the three major economies, the United States, Europe and Japan. Therefore, multinational companies will definitely enjoy better tariff treatment when they go to Vietnam. Of course, South Korea, a neighboring country in northeastern China, is the most proactive country in the world to promote free trade agreements. It is also the only country in the world that has signed free trade agreements with the three major economies of the United States, Europe and China, which makes it in the middle of the international free trade network.

Li Wei said that China must now clarify the changes in the external economic environment and adopt some targeted policies to deal with this environmental change, beware of being isolated in the process of reorganization of the new round of trade order.