Future of US-China Relations Martin Wolf, Chief Economics Commentator, Financial Times Nottingham University 2019 7 th March 2019 Nottingham
Future of US-China Relations “Protection will lead to great prosperity and strength.” Donald Trump, Inaugural Address, 20th January 2018.
Future of US-China relations 1. Global transformation 2. Weakening globalisation 3. China’s challenges 4. China-US tension 5. Trade war 6. Perilous world 3
1. Global transformation • Road to today • China’s rise • Winners and losers 4
1. Transformation: China’s rise SHARES IN WORLD GDP AT PURCHASING POWER PARITY (IMF, WEO database) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1992 2002 2012 2022 US European Union Japan Other advanced China India Other emerging Asia Latin America Other emerging 5
1. Transformation: China’s rise 6
2. Weakening globalisation 7
2. Weakening globalisation 8
3. China’s challenges STRUCTURE OF CHINA'S DEMAND 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 2002 2004 2006 2008 2010 2012 2014 2016 Household consumption Government consumption Investment Net Exports 9
3. China’s challenges CHINA: FIVE-YEAR MOVING AVERAGE OF INCREMENTAL CAPITAL-OUTPUT RATIO 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 10
3. China’s challenges CHINA’S DEBT (per cent of GDP) 300.0 250.0 200.0 150.0 100.0 50.0 0.0 Q1 1996 Q1 1999 Q1 2002 Q1 2005 Q1 2008 Q1 2011 Q1 2014 Q1 2017 Household Non-financial corporate Financial corporate Government 11
4. China-US tensions 12
4. China-US tensions 13
5. China-US trade war CURRENT ACCOUNT BALANCES (over GDP, per cent) 14 12 10 8 6 4 2 0 -2 -4 -6 -8 2000-Q1 2003-Q1 2006-Q1 2009-Q1 2012-Q1 2015-Q1 2018-Q1 China US 14
5. China-US trade war TARIFFS (WTO) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% US EU China India Simple average bound Simple average applied Trade-weighted average 15
5. China-US trade war 16
5. China-US trade war US TRADE BALANCE WITH CHINA ($bn) (Refinitiv, US Census Bureau) - (50) (100) (150) (200) (250) (300) (350) (400) (450) 0 3 6 9 2 5 8 0 0 0 0 1 1 1 0 0 0 0 0 0 0 2 2 2 2 2 2 2 / / / / / / / 1 1 1 1 1 1 1 0 0 0 0 0 0 0 / / / / / / / 1 1 1 1 1 1 1 0 0 0 0 0 0 0 17
5. China-US trade war BILATERAL TRADE BETWEEN THE US AND CHINA 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 1998 2002 2006 2010 2014 Chinese exports to US/Chinese GDP Chinese bilateral surplus/Chinese GDP US exports to China/US GDP US bilateral deficit/US GDP 18
5. China-US trade war 19
5. China-US trade war 20
5. China-US trade war 21
5. China-US trade war • US demands that China should: • Reduce US-China trade imbalance by $200bn over two years • Eliminate all “market-distorting subsidies” • Strengthen intellectual property protection and eliminate technology requirements in joint ventures • Cease espionage, cyber espionage, counterfeiting and piracy • Forego all retaliatory actions, including any requests for consultations in the WTO • Accept US restrictions on Chinese inward FDI 22
5. China-US trade war • Afford US investors “fair, effective and non- discriminatory market access and treatment”, including removal of foreign investment restrictions • Reduce tariffs in “non-critical sectors” to US levels and open access to services and farm products • Accept quarterly monitoring. • China “will not oppose, challenge or take any form of action against” any such US impositions. 23
5. China-US trade war • It is unclear whether a deal can be done on this basis. But it should be noted that: • Concern about the bilateral balance has no economic logic • China’s tariffs are actually relatively low • Acceptance of US demands would lead to more entanglement of US business in China, while many Americans want less entanglement • All these actions are contrary to WTO rules • But the US is engaged in destroying the WTO. 24
6. Perilous world • The world is in profound transformation, economically and politically • This is leading to a rise of populism and protectionism in the West • The US is moving towards a new “cold war” with China • Globalisation is under threat • Relations between the two superpowers are being re-defined, worryingly 25
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