Since his inauguration, President Trump's domestic and foreign policies have aroused great controversies, adding more uncertainties to global governance and world economy. Yet I still have expectations on his economic policies, in particular China-US economic exchanges under his administration, given his success in business as well as the pragmatic, if not isolationist, policy line reflected in his campaign and inauguration address. Let me give my five-point analysis on why China and the United States will eventually choose the rational road of mutual benefit.
First, Trump and his camp's strong sense of realism and utilitarianism make compromise in the wake of frictions possible.
By putting forward the “America First” initiative, Trump attempts to amend existing international rules to make them more favorable to the United States, showing little regard for other countries' interests. Yet if infringement on others' interests brings no benefits to the US at all, will Trump remain committed to such approach? On its part, China has not made much complaint about the post-World War II international order. It is working to maintain such order. China has not made any aggressive moves for expansion in global governance, only expressing concern on fragmentation of the governance and stressing the need for a community of shared future for mankind. We have seen a United States that is utilitarian and conservative, and a China with no intention to change the existing framework of international rules. It seems that the two sides are more likely to re-delineate their interests and re-identify their roles in the process of US gradually reviewing and amending the US-led international order.
Second, Trump is perceived as taking a tough stand on US-China trade relations. Yet from a utilitarian perspective, the bilateral trade has brought great benefits, instead of causing huge losses to the United States.
Many people have commented on the trade imbalance between the two countries. Yet they may have ignored the fact that China has invested a huge amount of its payment surplus into the treasury bonds and other financial assets of the United States. Meanwhile US current account deficit has dropped remarkably to a sustainable level. Trump signed the order to withdraw from the TPP immediately after assuming office. It remains unclear how his trade policies regarding NAFTA, Mexico and China will evolve. The United States, together with the EU and Japan, refrained from honoring their treaty obligations to grant market economy status to China. But by taking such move, the United States and other Western countries have undermined their own national credibility, as well as the global trade regime mainly developed by them. Since the end of the Cold War, global production has been deeply coordinated to such a level that great caution must be applied to any readjustment to the trade imbalance. An all-out trade friction might entail a great loss to the US and Chinese economies, and even that of the globe. Trump can hardly turn a blind eye to the US current account deficit improving from 10% of GDP during the sub-prime mortgage crisis to a sustainable level of 3%. He is also expected to note that China is becoming an important investor to the financial sector, property and real economy of his country. It is likely that despite the hardline approach towards China and after some necessary study, Trump may gradually realize that though China benefits from globalization and from US-China trade, the US multinationals and consumers benefit even more given their position on the value chain. After a short period of turbulence, he may seek rebalancing the trade relations with China.
Third, Trump stresses the importance of US manufacturing and job creation. Yet only a forward-looking approach, not a backward one, will lead to the solution.
No country can achieve re-industrialization without seeking new opportunities through science and innovation. The Chinese government is soberly aware that industrial relocation and cross-regional cooperation is inevitable. Previously we put forward the idea of “changing the bird after emptying the cage”. Recently we proposed the initiative of “Belt and Road”. Trump and his camp presumably will have enough wisdom to adopt a forward-looking approach, and revitalize manufacturing through hi-tech development. Global manufacturing may relocate to the United States in a limited fashion, in terms of breadth and depth. As a matter of fact, both the United States and China will face continued contraction of manufacturing jobs and the challenge of upgrading this sector through innovation.
Fourth, Trump places importance on infrastructure building and tax cuts, which require sophisticated supporting policies and implementing capability. China is capable of playing an important role in this process.
By making proposals on infrastructure and tax cuts, Trump faces the pressure of increasing the federal debt and raising huge fund. Unfortunately all major countries are witnessing the shrinkage of their foreign exchange reserve, that of China dropping by $1 trillion in the past two and half years. The administration may need the investment from major surplus countries and international investors. Japan already has expressed its interest in US infrastructure. Yet globally speaking, it seems that only China has the capital, technology, equipment, manpower and operational capacity ready to build modern infrastructure for country as big as the United States. Trump will definitely not turn a blind eye to such capability of China.
Fifth, China is committed to the Chinese dream of national renewal. The country has no intention to replace or fit in the role of the United States in the international system. Ultimately Trump may realize that China's rise will not affect the “greatness” of his country. The United States and China can foster a new model of major-country relationship.
Western countries, including the United States, have followed the rise of China with interest. Yet they may have certain anxiety on how to understand and assess China's role and direction in the international system. Regarding its strategic objective and focus, China has put more emphasis on the triple transformation of its society, political development and economy. China has also noticed, to certain extent, its great influence on international affairs as an emerging major country. Given the country's profound cultural tradition and humiliating modern history, China is working hard to uphold the post-war international order and promote globalization, opening up and inclusiveness, rather than seeking hegemony. It will not be difficult for Trump to see that China matches its words with deeds and plays an important role in international system, as the country has provided international public goods in a stable, sustainable and constructive fashion and improved global governance.
Since taking office, Trump has demonstrated his ability to act and a sense of urgency to “Make America Great Again” through a flurry of executive orders, arousing a great deal of attention both in and outside the country. I believe that the United States and China, the two most important countries in the 21st century, can work to ensure that the American Dream and the Chinese Dream will go hand in hand with no contradiction. As along as the two sides look squarely at the differences with no exaggeration or escalation, and make the best of their common interests instead of being negligent, the two countries will live in harmony without uniformity and achieve a win-win outcome.
