The Pan-Asian Perspective on US / China Trade

When I research global trade issues, I always like to see what neutral third party sources have to say on the issues (rather than news sources with a geographically-based bias). One such insightful global analysis on US / China trade that I found recently came from Malaysia. The article cites that "The politically sensitive trade surplus with the US widened to US$34.7bil from US$28.6bil over the same period. Last year, China’s overall trade surplus jumped by 74% to a record high of US$117.4bil, underpinned by the 26% increase in the trade surplus with the US to US$144.3bil. China’s share of US markets of imported goods is on a steady rise, from just 3% in 1990 to 16% last year."

Thanks to a new round of US rhetoric and attacks against the huge China trade surplus amidst the familiar refrains of "unfair pricing" "goods dumping" and "an unrealistically valued currency", the current situation appears to be worsening. But what's interesting about the Malaysian take on the issue is how the columnist, an economist, ties the situation to political timing.

The column notes that "while it is possible that the White House’s patience with China’s apparent feet-dragging on trade-related issues may have reached its limits, we suspect recent developments surrounding US-China bilateral trade ties are politically motivated ... We suspect it is about the White House buying time to get through the US presidential election, as well as gaining back some popularity for the President and the Republican Party. What’s more, we noticed that US trade policy under President Bush tends to get adversarial or confrontational ahead of US presidential elections, given the uptrend in US trade complaints to WTO as the election years approach, and the drop in complaints in the subsequent year."

The good news is that "China's official responses have been somewhat restrained, expressing regrets over actions taken by the US while at the same time pledging to continue reforming its foreign exchange and trade policies". But the article argues that "this could escalate into a full-blown trade spat if China decides to retaliate. This could pose an additional downside to the global economic outlook, on top of the on-going concerns over the direction of the US economy amid signs of a deepening and broadening impact from the housing market slump. Impact of a trade war between the US and China can be substantial, considering that both account for slightly over a third of global GDP and about one-fifth to one-quarter of global merchandise trade."

In my view, the US is pursuing a two-faced strategy towards China trade -- a public one and a private one. The public one is cyclical around political elections and is designed to appeal to mainstream working Americans who fear globalization and trade -- and will vote accordingly -- while the private one is a longer-term, constant pro-trade theme that works its way behind the policy scenes. After all, neither the US or China can afford to let a trade war get out of hand (not the least reason of which is because China depends on the US to protect their cheap flow of oil -- through America's role of global energy policeman in the Middle East and beyond -- which is literally and figuratively the growth engine of their country).

Jason Busch

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