[SINA Finance]Liu Xiaoguang: Why Trump was so hasted to wage a trade war?

When the U.S. economy and net exports performance were “less than expected” and met with the “extraordinary play” of the Chinese economy and net exports, it was not difficult to understand why Trump wanted to wage a trade war in 2018.

At the beginning of 2018, the horn of “trade war” was becoming louder and louder. Trump first upgraded China trade partner to “trade rivals” in his first State of the Union speech, and he suddenly announced that he plans to impose a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports. In recent years, the world’s economic growth has been sluggish, and trade protectionism has risen on a global scale. However, Trump’s move has also led to strong opposition from the EU and Canada. The President of European Commission Jean-Claude Juncker stated that he will soon propose countermeasures and take retaliatory measures against iconic American brands; Canadian Prime Minister Trudeau also said that he would never accept it, saying that this move will seriously affect relations between the two countries. Then the question arises. Why is Trump so impatient? How big is his determination to go to war?

This will begin with the different performances of the U.S. economy and Chinese economy. As the first year of Trump administration, the performance of the US economy in 2017 is highly anticipated, but the final result may not reach Trump’s initial expectations, and net exports continue to be a negative pull factor for US economic growth. Specifically, in 2017, U.S. GDP grew by 2.3%, and although it was higher than the lower growth rate in 2016, it was still significantly lower than the growth rate in 2014 and 2015, which was in line with the average growth rate in 2010-2015. More importantly, net exports in 2017 brought the negative growth of GDP to 0.2 percentage points, which was not significantly improved compared to 2016, and even worse than the average rate of 2010-2015.

In stark contrast to this, in 2017, China's economy had two "excellent performances" that deviated from the trend, making Trump more anxious. First, China’s economic growth reversed its upward trend in 2017, and its GDP growth rate reached 6.9%, a 0.2 percentage point increase from 2016. Although the recovery is modest, it has reversed the downward trend since 2010, which may exceed Trump's expectations. As a result, China’s economic scale exceeds US $12 trillion, its share of the world economy has risen to around 15%, and its contribution to world economic growth has reached 30%. United States has once again felt pressure.

More importantly, net exports in 2017 drove China’s economic growth by 0.6 percentage points and contributed 9.1% to GDP growth. Not only did it become the highest level since the financial crisis, but it also reversed the downward trend since 2012. It may have broken Trump's "expectation." It must be noted that since 2010, under the background of adjustment of international trade imbalances and China’s economic restructuring, the contribution rate of net exports to China’s economic growth has been negative in most years, with -11.2%, -8.1%, 1.7%, -2.3%, 4.3%, -1.3%, -6.8% from 2010 to 2016 respectively, and the contribution rate in 2017 suddenly turned back to 9.1%, making Trump feel uneasy.

When the US economy and net exports were “less than expected” and Chinese economy and net exports had “extraordinary play”, the reason and determination of Trump to wage a trade war in 2018 would be easy to understand. Trump’s recently announced tariffs on steel and aluminum may have little impact on China’s economy, after all, China accounts for only 2% of the US’s steel imports. Comparad to Canada’s 16%, this is why Canada and the EU strongly opposed. However, 2018 has only just begun. Next, the US will have more adjustments in its trade policy. There will be more trade protection measures aimed at China. Its impact on China's economic situation in 2018 should not be underestimated.

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