China’s overlooked counter-revolution complicates the global impact of Trump’s agenda

Most discussion about China and trade in Western media has concentrated on Donald Trump’s concerns with China’s alleged “currency manipulation.” But by the time of Trump’s inauguration, China appeared to have fallen off his priorities.

A bigger issue, though, had surfaced that seemed to affect all of China’s trading partners.

Since joining the WTO, China’s priorities haven’t changed the way its partners predicted – but most of its partners were still chasing trade treaties with it on the assumption that it was

When China was negotiating to join the WTO around 2000, the other major WTO members were mainly preoccupied with the fall of European Communism between 1989 and 1992. They assumed that China, once fully involved with world trade, would abandon its communist preoccupations. They also seem to have failed to predict the spectacular pace with which China came to dominate world markets (especially apparel), or the extent of damage China’s rise would do to the livelihoods of the poorest in the West.

The Great Recession in the West began to challenge the view that Western versions of capitalism would squeeze most other economic models out. China began to develop its own models, especially in two key initiatives.

  • China’s long-term plans

China’s “Made in China 2025” project, launched in mid-2015, is committed to “raise the domestic content of core components and key materials to 40% by 2020 and 70% by 2025”, making a mockery of any expectation foreign countries will sell it more.

  • China’s obsession with retaining government control of everything

China’s President Xi Jinping launched a “Sixty Points” plan in 2013 requiring officials to: “persist in the dominant position of public ownership, give full play to the leading role of the state-owned sector and continuously increase its vitality, controlling force and influence.”

When in December 2001, China finally  joined the WTO, it was with an agreement that allowed its trading partners to slap protective duties on its exports relatively easily, because it had the status of a Non-Market Economy.

China believes that status expired on December 15, 2016. Neither the US nor the EU agree, and China has filed a complaint with the WTO over their decision. THe “Sixty Points” plan makes it clear that China has no intention of becoming a market economy, but adjudicating on its WTO complaint will be inevitably be highly politicised.

The case is likely to take years and it seems practically certain that neither the US (under Trump) nor China will act on any WTO findings they disagree with. In the meantime, China’s partners can easily (under their laws) impose sanctions on Chinese exports, and China, easily convinced those sanctions are unfair, is likely to try to retaliate.

The trade war between China and the West has already started.

In a recent Feature, we described key issues underlying China’s trading strategy, and how they affect the apparel industry. The counter-revolution it has been developing since 2013 adds further complexity to these issues.

This counter-revolution mirrors in many ways the revolution Donald Trump is trying to create in the US, though China’s leaders and Trump share a belief the other is trying to make them a victim.

 

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