Carnegie Endowment for International Peace
The threat of trade conflict with Americans could be good for the Chinese economy if it encourages the government to accelerate the domestic rebalancing that has been occurring since 2012.
Europe has concerns about China’s trade policies. But the two countries may want to unite for a more rules based global trade system.
Some White House advisors see trade deficits as a threat to growth and security. But no one wins in a trade war, certainly not U.S. and Chinese consumers who will have to pay higher prices.
Most of the discussions among economists about the impacts of tariffs and trade intervention are more ideological than logical. While tariffs may cause households to pay more for tradable goods, there are many other ways households, and the overall economy, are affected, positively and negatively. What matters are the conditions under which trade intervention policies are made.
As President Trump continues to disregard European concerns, Germany feels the need to cultivate better relations with China, with an understanding of the pitfalls and limitations of working with Beijing.
Although the United States and the EU do not always speak with one voice, they should coordinate and present a united front as Chinese capital continues to flow towards the European continent.
Simply having China buy more American goods would make little difference to overall U.S. trade imbalances, but addressing U.S. capital imbalances with the world could be a more effective approach.
The looming economic war between the United States and China has more to do with the U.S. technological edge than its trade deficits. The atmospherics of unfairness can be changed, if China takes active actions such as eliminating the requirement to form joint ventures.
With both the United States and the European Union engaged in complex dealings with Beijing, there is little doubt that China will be on everybody’s mind during President Macron’s visit to Washington.
Democracies will increasingly have to choose between raising wages and redistributing income or maintaining free trade and capital flows. Because they are likely to choose the former, the world may face a long-term reversal of globalization.