[Finance.qq.com] Fan Zhiyong: How to Deal with the U.S. Trade War? Maintaining Policy Orientation

The memorandum signed by Donald Trump on March 23 announced a 25% tariff on up to 60 billion U.S. dollars of imports from China to the U.S. each year and greater efforts to prevent Chinese capitals from entering its strategic industries. The risk of an all-out trade war between China and the U.S. is further upgraded.

On the surface, the purpose of the U.S. in levying high tariffs on China is to resolve the current 375 billion U.S. dollars of annual trade deficit with China. But In fact, the purpose of the U.S. is by no means as simple as seeking trade balance. Its true intention is to adopt a containment strategy against China’s economy so as to fulfill its ambition to ensure “America First.” According to U.S. officials, the proposed Chinese products subject to high tariffs are mainly concentrated in the strategic industries identified in the “Made in China 2025” plan, including robotics, aerospace, marine engineering, and rail transit equipment, as well as electric vehicles and biopharmaceutical products, etc. The traditional labor-intensive products such as textiles and clothing that China exports to the U.S. are not included in the current tariff list. By levying high tariffs on these emerging industries, U.S. enterprises could stifle the development space of China’s high-tech industries. Besides that, the U.S. also used such measures as tariff exemptions to woo and coerce its allies to take joint trade wars against China.

How should China respond to the aggressive U.S. trade war?

First of all, we should get mentally ready for the long-term deterioration of China’s foreign trade conditions. The Trump administration’s trade war against China is actually part of its containment strategy for China. It is long-term and targeted and will not be abandoned just because China takes countermeasures or makes compromises. In fact, the Trump administration’s trade war against China is also under huge pressure from the U.S. business community, Wall Street, and agricultural organizations. Quitting the trade war with China means that the Trump administration suffers a major setback in terms of its containment strategy for China.

Secondly, we should maintain our policy orientation. We shall not be overly distracted by the so-called “largest trade war ever,” and we shall also make adequate policy preparations to deal with the deterioration of foreign trade conditions. The more sensitive and excessive our response to the U.S. trade war is, the stronger the international force to sensationalize the “China collapse” theory and to short sell China gets, and the greater the international pressure on China’s economic stability is. In this regard, on the one hand, we need to, under the WTO and bilateral frameworks, make just,victorious and controlled legal struggles via relevant departments and make clear to the world the Chinese government’s stance and legal rights and interests in safeguarding the global free trade system. Moreover, America’s unilateralism and trade protectionism are not well received in the international community. So, we should strengthen cooperation with countries supporting free trade so as to jointly safeguard a win-win world trade pattern. On the other hand, depending on the specific extent of the impact on the domestic economy, the government should timely issue short-term relief measures to deal with damaged industries.

Thirdly, we should maintain a firm determination. The realization of the “Two Centenary Goals” and the great rejuvenation of the Chinese nation must not be shaken by the turmoil in the international trade environment. In response to the new changes in the foreign trade pattern, China should continue to firmly speed up domestic reforms and expand opening up so as to turn crisis into opportunity. On the one hand, China shall, by adjusting industrial policies and nurturing business environment, quicken its economic restructuring and transformation and lower the dependence level of its economy on external markets. At the same time, we should strengthen support for domestic strategic emerging industries. On the other hand, Chinese enterprises should work hard to improve their internal product, technological and management innovation, and actively respond to changes in the external environment.

During the past 40 years of reform and opening up, as China’s overall strength has grown, China is gradually stepping towards the stage center of the world economy and politics. This means that the external environment China finds itself in will undergo tremendous changes compared to the past, and that more and more suspicions and containment from developed countries will come our way in the future. Only through our own efforts and continuous enhancement of the ability to respond to changes in the external environment can we effortlessly respond to any such changes.

(The author is a Research Fellow at the National Academy of Development and Strategy, RUC)