Why Trump’s trade war is pushing China to become smarter and stronger, faster
- Richard Harris says Donald Trump’s trade war on China found an echo around the Western world, where even Hong Kong investment is suspect now. But, on balance, he is doing China a favour by pushing it to become more self-sufficient
It was hilarious to watch world leaders jockey for position for the “family photo” at the G20 summit in Argentina last week. Wielding huge power and bulging with oversized egos, these normally self-assured individuals behaved like primary school kids on their first day, scrambling to stand next to someone they like.
The final communiqués at these lovefests must usually be written beforehand for anything to be agreed. Trump is the exception. He likes one-on-ones. He is a professional deal maker in a way that does not come easily to politicians. So, the big meeting between President Xi Jinping and Trump was always going to produce a result. About the only thing we are sure of now is that there will be a tariff truce until March – but that is just what Trump wants; it gives the other side enough pressurised breathing space to move its position without losing face.
It is genuinely tough for Chinese capitalism to create a level playing field for foreign, or even domestic, private firms. China could relax non-tariff import barriers at will, but this would be perceived as yielding control over the economy. Even Xi would face political resistance in removing financial, legal and regulatory provisions for state firms or national champions.
Newton’s third law of motion states: “To every action there is always opposed an equal reaction.” In economics, we can add the law of unintended consequences. China could react to Trump’s tariff tantrum in ways that we – or indeed China – cannot yet envisage.
As China is required to trade under uncomfortably two-sided rules, it could react by becoming more self-sufficient and mature. Self-sufficiency does not mean going it alone, as India did with dismal economic consequences; it means concentrating on areas that cannot be criticised.
We should expect a big rise in domestic funding for research and development. Academic efforts will be enhanced and extended. Military research, which produces commercial spin-offs, will give a significant boost to the nation’s intellectual property. Interestingly, this would parallel the great developments in the US economy in the 1950s and 1960s.
China would become smarter, more technologically advanced, and more militarised faster than if Trump had kept his mouth shut. But trade will be fairer.
Richard Harris is chief executive of Port Shelter Investment and a veteran investment manager, banker, writer and broadcaster, and financial expert witness
