Trump and Xi to reach trade war ‘truce’ at G20, says HK scholar with close ties to Beijing

28-Nov-2018 Intellasia | South China Morning Post | 6:00 AM Print This Post

US President Donald Trump and his Chinese counterpart Xi Jinping are likely to agree to a truce in the trade war when they meet in Buenos Aires this week, but ironing out the details of where the two countries go next could take some time, according to a Hong Kong scholar with close ties to Beijing.

“The truce will probably come in the manner of a framework agreement… on basic principals with the details to be worked out in the future,” Lawrence J. Lau, an economics professor at the Chinese University of Hong Kong (CUHK) and former member of China’s top political advisory body, said in an interview on Friday.

“I don’t think there will be enough time to work out the details and I really don’t think Trump is a detail person,” said Lau, whose book, China-US Trade War and Their Future Economic Relations, is expected to be published next month.

The Post reported last week that Trump and Xi were set to discuss ways to end their trade hostilities over dinner in the Argentine capital on Saturday after the G20 forum.

 (South China Morning Post)

(South China Morning Post)

The US president said last week he was ready for the talks. “I have been preparing for it all my life. I know every ingredient, every stat. I know it better than everybody knows it. My gut is always right,” he said.

“China wants to make a deal. If we can make a deal, we will.”

If a deal is not reached, Trump is likely to deliver on his threat to raise the tariff already in place on $200 billion worth of Chinese products from 10 to 25 per cent in January, or even extend the duties to all goods about $500 billion worth the US imports from China. If he did, it would be bad news for the US public, said Lau, 73, who was vice-chancellor of CUHK from 2004 to 2010 and chair of China’s sovereign wealth fund in Hong Kong from 2010 until 2014.

“It will really hurt American consumers. It doesn’t really hurt the Chinese exporters because Chinese exporters have already collected the money,” he said.

Also, if Washington put tariffs on products like the Apple iPhone that are assembled in China from components made in Asia, it would hurt US tech firms and give their competitors an edge in the American cellphone market, Lau said.

In contrast, it would have less of an impact on the Chinese economy, even if companies like Foxconn shifted iPhone assembly out of the country.

“It may be a huge problem for Zhengzhou [ where the biggest Foxconn factory is located], but for the country as a whole, I think it’s completely manageable,” Lau said.

In his book, Lau argues that the trade war will knock one percentage point off China’s headline growth rate. Its gross domestic product in the third quarter of 2018 rose 6.5 per cent year-on-year.

On the matter of trying to reduce China’s trade surplus with the US which Washington said was $375 billion in 2017 Lau suggested a simple solution.

“The best way to close the trade gap is for the US to export more to China”, and particularly goods that create new production chains.

“For instance, if the US and China came to an agreement on the production and shipment of liquefied natural gas from Alaska to China, that would be an addition as currently there’s no production [there], he said. “Alaska will create jobs and boost its GDP, and China will have more liquefied natural gas.”

Another possible solution was for the US to “raise pigs and cattle” and then export the meat to China. That would keep the value-added part of the production process in the US, rather than selling corn and soybeans to China, which it uses primarily to make animal feed, he said.

Lau said also that Washington’s complaints about forced technology transfers and the “Made in China 2025″ industrial upgrading plan were ill-founded, echoing Beijing’s position.

He cited the example of Sematech, a US government-sponsored consortium established in the 1980s to promote chip research and production in the US, to show that there’s nothing wrong for the government to finance basic research.

“It’s a legitimate complaint that when you get to the mass production stage it’s still heavily subsidised by the government, but it’s perfectly reasonable for the government to finance basic research,” he said. “For many of the ‘Made in China 2025′ products, they are no way near commercial mass production.”

Lau, who is also an emeritus professor of economic development at Stanford University, said it was important to note that liberal democracies were not always prerequisites to economic expansion. Several Asian economies, like Japan, South Korea, Taiwan and even Malaysia, had thrived on a one-party system in their early days.

China’s economic success over the past four decades was also evidence of the value of long-term planning and infrastructure building, he said, adding that Beijing was keen to extend this model through its “Belt and Road Initiative”.

“What we’ve discovered in China is that once you have connectivity, trade and investment will come,” Lau said. “If you don’t have connectivity, if you don’t have a power supply, nothing will come that’s the principal reason why China is so successful.”

Lau also blamed the political elite in the West for failing to distribute the “net gains” of globalisation fairly, and that had promoted populism.

“The important thing is that the government is responsive to the needs of the people,” he said. “What’s happening now in the UK? Is the government responsive to the people? I don’t think so.

“Even if you look at the US, the country is so split. Is that good for the country? You really have to think of alternative ways of reflecting the will of the people, and it’s more than just votes and referendums,” he said.



Category: Hong Kong

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