Date
4 December 2016
It appears Donald Trump has a lot more in common with the Democrats than with his own party when it comes to his trade policies toward China. Photo: Reuters
It appears Donald Trump has a lot more in common with the Democrats than with his own party when it comes to his trade policies toward China. Photo: Reuters

High drama between US and China over trade yet to come

The Democratic Party was crushed by the Republicans on all fronts in the recent US presidential and congressional elections.

Not only was Hillary Clinton surprisingly defeated by Donald Trump but Congress also fell into the hands of the GOP.

Now that the Republicans control the White House, the Senate and the House of Representatives, many political pundits in the US believe that a Congress dominated by the GOP could guarantee the passage of major bills by the Trump administration.

However, quite intriguingly, even though Donald Trump is a Republican, many of his policy initiatives resonate more with the Democrats than with his own party.

For example, while Trump’s proposed initiatives such as spending huge money on infrastructure and declaring China a currency manipulator have gained support from Democratic heavyweights such as House minority leader Nancy Pelosi and seasoned Democratic senator Charles Schumer, his plans only got a lukewarm response from leaders of his own party such as House speaker Paul Ryan.

And many Republicans are deeply concerned about Trump’s multi-billion dollar economic stimulus program as it might exacerbate the already catastrophic federal government deficit.

In fact, many of Trump’s proposed measures were actually inspired by Schumer, who had been repeatedly calling on the White House to adopt a tougher stance on China such as imposing punitive anti-dumping tariffs on Chinese goods and declaring China a currency manipulator.

In other words, it appears Trump has a lot more in common with the Democrats than with his own party allies as far as policies toward China are concerned.

As the incoming Trump administration is set to take a hard line on Beijing, perhaps it is worth looking back on the trade dispute between Washington and Beijing in the past, as it might offer us some insight into how Trump is going to rewrite the rules that govern Sino-US trade relations.

The trade dispute between the US and China reached its peak during the couple of years leading up to 2005, when China allowed the renminbi to float freely.

In those days, not only hard-line politicians like Schumer were mounting a full court press on China over its currency manipulation but prominent investors like Warren Buffett, who rarely weighed in on policy issues, were also lashing out at China and calling for all-out anti-dumping measures against Chinese products.

For example, Warren Buffett published an 11-page article in Fortune magazine in 2003 in which he laid down in detail his multi-faceted proposals on how to narrow the US trade deficit with other countries, particularly China.

Among his proposals, Buffett suggested that the US government issue Import Certificates (ICs) to American exporters in an amount equal to the dollar amount of the products they export.

The ICs would be transferable in the open market, and foreign exporters like Chinese manufacturers must purchase ICs from US exporters in order to legally export goods into the US.

Buffett believed that the introduction of the ICs, which amounted to an indirect tariff on foreign goods and indirect subsidies to American exporters, could boost American exports and discourage foreign imports, thereby redressing the US trade deficit and facilitating balanced trade.

However, the IC proposal did not materialize as China allowed the renminbi to rise steadily since 2005.

Yet, the continued plunge of the renminbi against other currencies this year has reignited concerns in Washington that a weak renminbi might once again boost Chinese exports and widen the US trade deficit with China.

Despite the fact that Trump’s promise to withdraw from the Trans-Pacific Partnership (TPP) might give China more freedom to maneuver in terms of foreign trade within the Asia Pacific region, the recent surge in the value of the dollar against other currencies has basically rendered any effort to raise the renminbi value against the greenback highly difficult.

It seems the high drama between Washington and Beijing over trade is yet to come.

This article appeared in the Hong Kong Economic Journal on Nov. 25

Translation by Alan Lee

[Chinese version 中文版]

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