Chinese leader: Trade wars have no winners

Chinese leader: Trade wars have no winners

China president Xi Jinping delivers the opening plenary address at the World Economic Forum in Davos. Credit: World Economic Forum/Valeriano Di Domenico

 

There will be no winners in a trade war, China president Xi Jinping told the World Economic Forum in the Swiss city of Davos during his opening address to the gathering of world leaders.

While the Chinese president did not mention the United States by name, his comments at the annual meeting were a clear reference to fears of a US policy shift toward isolationism under the presidency of Donald Trump. Trump will be sworn in as the 45th president on Jan. 20.

“Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air. No one will emerge as a winner in a trade war,” he said in a statement provided by the World Economic Forum.

Jinping said in his address at the Davos gathering that the global industrial landscape was changing and new industrial chains, value chains, and supply chains were taking shape. Rather than retreating, he urged countries to redouble efforts to develop global connectivity to enable interconnected growth and a shared prosperity.

“We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening up and say no to protectionism.”

Much of the Trump campaign rhetoric has been toned down since his November victory, but it appears the president-elect is preparing to follow through with protectionist and anti-free trade measures, at least as far as China is concerned. In early January, Trump named long-time China critic Robert Lighthizer as his chief China trade negotiator, and appointed Peter Navarro, another harsh China critic, as head of the recently formed White House National Trade Council.

Trump has also made clear that import tariffs will be considered as a tool by his administration to correct for imbalances in production costs, and also to penalize companies that choose to produce outside the United States. He has suggested in public statements a tariff of 35 percent on car imports from Mexico and a 45 percent tariff on imports from China.

In a recent report, Deutsche Bank noted that a trade war against China would be a war against many participants in the global supply chain, including US companies. The bank said as a world factory, China was engaged in the processing trade, importing parts of products manufactured across Asia, assembling them, and then exporting the finished products to their final markets. It said 37 percent of China’s exports to the United States in 2015 consisted of value-added imports from other countries, including from the United States, so any trade war would not be confined to China and the United States.

The Chinese president told the Davos meeting that his country’s development was an opportunity for the world, saying that China has not only benefited from economic globalization but its rapid growth has been a sustained, powerful engine for global economic stability and expansion.

“The interconnected development of China and a large number of other countries has made the world economy more balanced. And China’s continuous progress in reform and opening up has lent much momentum to an open world economy," he said.

Jinping said China’s economy has entered “a new normal” but the economic fundamentals sustaining sound development remained unchanged. He said despite a sluggish global economy, China’s economy was expected to grow by 6.7 percent in 2016, still one of the highest rates in the world.

Another key complaint of US critics of China is the limited access to China markets for foreign companies and Jinping addressed this in his speech. He pledged to expand market access for foreign investors, build high-standard pilot free trade zones, strengthen protection of property rights, and level the playing field to make China’s market more transparent and better regulated.

In the next five years, he said China is expected to import $8 trillion of goods, attract $600 billion of foreign investment and make $750 billion of outbound investment.

“China’s development will continue to offer opportunities to business communities in other countries. China will keep its door wide open and not close it. An open door allows both other countries to access the Chinese market and China itself to integrate with the world. And we hope that other countries will also keep their door open to Chinese investors and keep the playing field level for us,” he said.

With his talk of protecting US markets, Trump is threatening to dismantle the North American Free Trade Agreement, a Herculean task, and has said the United States will pull out of the Trans-Pacific Partnership. But if the United States withdraws from its foreign trade commitments in favor of renegotiated bilateral deals, it will leave another door wide open for China and Jinping indicated his country would be happy to leap through it.

“China will vigorously foster an external environment of opening-up for common development,” the Chinese leader said. “We will advance the building of the Free Trade Area of the Asia Pacific and negotiations of the Regional Comprehensive Economic Partnership to form a global network of free trade arrangements.”

Jinping said China wanted open and transparent free trade arrangements and opposed forming exclusive groups that were fragmented in nature.

On the subject of currency manipulation to artificially keep its exports more competitive, another strong US complaint, he said: “China has no intention to boost its trade competitiveness by devaluing the RMB [renminbi], still less will it launch a currency war.”

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.