Averting US-China trade war will be difficult, say experts

(From left) Mr Stephen Olson, research fellow at the Hong Kong-based Hinrich Foundation, moderating yesterday's panel discussion with Mr Steven Okun, who sits on the board of the American Chamber of Commerce in Singapore, Ms Pan Xiaoming, research fe
(From left) Mr Stephen Olson, research fellow at the Hong Kong-based Hinrich Foundation, moderating yesterday's panel discussion with Mr Steven Okun, who sits on the board of the American Chamber of Commerce in Singapore, Ms Pan Xiaoming, research fellow at Shanghai's Institute for World Economy Studies, and Mr Eduardo Pedrosa, secretary-general of the Pacific Economic Cooperation Council.ST PHOTO: LEE JIA WEN

Panellists point to deep differences in both countries' economies as the reason

Averting a US-China trade war will be difficult because of the deep differences in the economies of the two countries, trade experts said at a conference yesterday.

The recent move by the United States to impose punitive tariffs on US$50 billion (S$68 billion) of Chinese goods to punish Beijing for alleged intellectual property theft is a reflection of the deeper issues between the two that have been building up for decades, they told the East-West Centre's International Media Conference.

At the heart of the tensions is the fact that China follows a model of state-directed capitalism, while America - and the global trading system which it helped create - champions free markets, free trade and a hands-off approach by the government to business.

"The existing trade system we have in place is entirely incapable of accommodating a country as large as China playing the game of international trade by a somewhat different set of rules - specifically, state-directed capitalism," said former US trade negotiator and research fellow Stephen Olson of the Hong Kong-based Hinrich Foundation.

Mr Olson was the moderator and speaking at a panel discussion on the topic "Pulling back from the brink: Can a US-China trade war be averted?" at the Singapore Management University.

Fellow panellist Steven Okun, who sits on the board of the American Chamber of Commerce in Singapore, said: "I think we are already in a trade war. If we are in a trade skirmish right now, then it will inevitably become a trade war because it is very difficult to have those two systems in balance."

Both men outlined how recent US trade actions were responses to government intervention in China's economy. US President Donald Trump's tariffs on steel imports, for instance, were "necessitated" by a global glut in steel largely caused by significant increases in Chinese production of steel spurred by Chinese government subsidies and trade policies, which helped the export of that excess steel overseas, said Mr Olson.

 
 
 

Similarly, intellectual property disputes could be traced to the Chinese government's "Made in China 2025" plan to gain pre-eminence in 10 strategic industries, he added.

Mr Okun said: "If you are going to not only insist on robust state support, but couple it with what the US found - forced tech transfers, cyber theft, discriminatory licensing practices - all of that cannot coexist with the World Trade Organisation."

The panel also agreed that while both systems needed to find a new way to coexist, the unilateral tariffs imposed by Mr Trump - which would also hurt America's allies - were the wrong solution.

Multilateral trade pacts such as the Trans-Pacific Partnership (TPP), which Mr Trump abandoned shortly after assuming office last year, could have worked, said Mr Okun.

The TPP, for instance, addressed issues of state-owned enterprises and rules by which to allow foreign payment systems and social media such as Facebook in countries.

"The TPP would have given China an incentive to change and play by 21st century rules. But the Trump administration... thinks it can win on tariffs and blocking Chinese investment," said Mr Okun.

Fellow panellist Pan Xiaoming, a research fellow at Shanghai's Institute for World Economy Studies, said the Trump administration's trade policies may hurt the world's hard-won economic recovery after the 2008-2009 financial crisis.

"If we try to point fingers at each other, it will bring us nowhere. The US-China bilateral trade relationship is not a zero-sum game, it is a win-win situation. We need each other as a trading partner," she said.

Agreeing, Mr Olson said it was futile to debate which system was better because both were here to stay.

"We should be focusing our attention on how to develop a framework, a modus operandi, to allow these two systems to coexist with each other," he said. "The US-China trade relationship has been immensely mutually beneficial, and we have to find a way to keep it on track."

At a separate panel, Mr Olson also introduced the Hinrich Foundation's Sustainable Trade Index 2018 report, which scores 19 Asian economies and the US in the areas of economic growth, social safety and environmental protection.

"Much of the backlash we are seeing against governments and international trade reflects the fact that countries are failing to trade in a sustainable way," said Mr Olson.

"In the US, income inequality is being attributed to international trade whether correctly or incorrectly, and is helping to fuel populism and protectionism."

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A version of this article appeared in the print edition of The Straits Times on June 27, 2018, with the headline 'Averting US-China trade war will be difficult, say experts'. Print Edition | Subscribe