Behind the verbal spats between Donald Trump and China there are signs that China is opening its markets and a trade war can be avoided, writes Brian Caplen.
Donald Trump is a divisive character to put it mildly but he is not completely wrong about the inequities of US trade relations. European cars exported to the US, for example, attract a 2.5% duty whereas US cars arriving in the EU get hit with a 10% tariff and in China its 25%.
China, with which the US has a $375bn trade deficit, is hardly a model market economy. There are huge subsidies, excess production is dumped, capital flows are restricted and the renminbi does not float freely.
The liberal consensus view is that trade wars are bad for everybody (correct) and that Mr Trump is going about everything in the wrong way.
But whether because of Mr Trump or in spite of him, China has been opening up its market and continues to do so. Former US treasury secretary Lawrence Summers notes in a Financial Times article that China’s current account surplus has reduced, it has improved intellectual property protections and has spent $1000bn propping up the renminbi rather than gaining the export advantage of a weak currency.
China’s premier, Li Keqiang, recently addressed the accusations of intellectual property theft and said that rights would be strengthened still further and that foreign investors would not be forced to transfer technology. Of course, this must be followed through with actions but at least the intention is being articulated.
China’s consul general in New York, Zhang Qiyue, said in a speech reported by the South China Morning Post that barriers will be removed or eased for foreign investors in the country's financial sector and that market entry standards will be the same for Chinese and foreign banks.
"Many more measures will be introduced this year [2018] and some of the measures will be beyond the expectations of foreign companies and investors," she said.
In summing up a number of already announced measures, she added: "China will phase in the opening up of bank card clearing and other markets, lift restrictions on the scope of operations of foreign-invested insurance companies and ease or lift restrictions on the share of foreign-owned equity in companies in sectors including banking, securities, fund management, futures and financial asset management."
This is not merely talk, as indicated by the December 2017 opening of HSBC Qianhai Securites, the first joint-venture securities company in mainland China to be majority owned by a foreign bank.
There is a long way to go but gradually trade relations between China and the US are changing for the better. Provided China keeps on moving and the US administration recognises its efforts, a trade war can be avoided.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen
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