[Financial Review] "Valid concern": Exports to China a trade war effect
China is able to withstand a protracted trade war with the US, putting the onus on Donald Trump to end the fight, according to former World Bank chief economist and top adviser to China's communist leaders, Justin Yifu Lin.
Professor Lin also told The Australian Financial Review that policymakers and businesses had a “valid” concern that Australian exports to China could suffer if Mr Trump and President Xi Jinping struck a peace deal that saw China agree to buy more commodities from the US.
But the Chinese academic, a headline speaker at the Australian National University's Crawford Leadership Forum this week, expressed doubt that Mr Trump's assault on Chinese telecommunications manufacturer Huawei would spark a technological Cold War, saying supply chains had become too intertwined.
Hopes that progress could be made to end the destabilising trade stand-off between China and the US have risen after Mr Trump announced he would hold an “extended” meeting with Mr Xi on the sidelines of the G20 leaders’ summit in Japan this week.
Negotiations broke down in May and Mr Trump has threatened to hit a further US$300 billion of Chinese goods with tariffs – which could happen as early as July 2 – in addition to tariffs already imposed on $200 billion of imports.
A weekend editorial in China's staterun People's Daily newspaper said Beijing had the strength and patience to fight the trade war to the end and the US had to drop all tariffs imposed on China if it wanted to negotiate.
Professor Lin shared the view the ball was in Mr Trump's court. “I hope that some agreement can be reached but certainly it is not up to us,” he said.
“I think many economists understand that if a country has a trade deficit, it is mainly because domestic consumption is over their own capacity. If you consume more you are going to have a deficit and this kind of trade deficit cannot be addressed by importing tariff rates.”
“You cannot address a trade deficit by trying to point the fingers at other countries.”
Professor Lin downplayed the impact the imposition of tariffs had had on China’s economy. He said the US received less than 20 per cent of China's exports, and as a proportion of China's gross domestic product they only made up 3.5 per cent of sales.
He said some companies were looking to get around the impact of the tariffs by shifting production to other countries but they still relied on Chinese supply chains.
“I think the total impact on China's growth actually is quite minimal. Some of China's products will be shipped to other countries. It will reduce China's exports to the US but you will increase China's exports to other countries,” he said.
“Last year Vietnam increased by US$4.8 billion its exports to the US but to make that possible Vietnam increased by US$4.6 billion its imports from China.”
Asked whether Australian fears that exports to China such as beef and gas could suffer in the event of a Trump-Xi deal, Professor Lin said that was a “valid concern” and a reason why trade disputes should be settled through the auspices of the World Trade Organisation instead of bilaterally.
I think the total impact on China's growth actually is quite minimal.