China’s calibrated response to Trump challenge

First came the meeting of foreign ministers of Japan, South Korea and China in Tokyo on Saturday. It was convened by Japan, and Japanese Foreign Minister Takeshi Iwaya said at the beginning of the meeting, “Given the increasingly severe international situation, I believe we may truly be at a turning point in history.” Iwaya also pointed out at a possible trilateral summit later in the year that would focus on how to tackle falling birthrates in the three countries.

Meanwhile, Chinese Foreign Minister Wang Yi talked of free trade agreements with its neighbours. Wang said, “Our thee nations have a combined population of 1.6 billion and an economic output exceeding $24 trillion. With our vast markets and great potential, we can exert significant influence.”

On Sunday, Chinese Prime Minister Li Qiang, addressing the Chinese Development Forum in Beijing, said, “In today’s increasingly fragmented world with rising instability and uncertainty, it is more necessary for countries to open up their markets and enterprises...to resist risks and challenges.”

Though China is the second biggest economy next to the United States, it is not exactly the polar opposite of the United States. The China-US business linkages are quite huge. And the US is not really in a position to cut off its business links with China despite President Donald Trump’s aggressive attempts to bring American companies home from places like China, while also restricting Chinese imports into the country. There are economic problems in the relations between the countries, and the threat of tariffs by Trump seems to be a way of negotiating with China for a better trade deal.

China has however its own set of problems with its neighbours, especially South Korea and Japan. One of them that concerns both Seoul and Tokyo is that of North Korea. Both Japan and South Korea face security threat from Pyongyang, and China being a close friend if not an ally of North Korea, needs to assure South Korea and Japan about the northern neighbour.

Secondly, China will have to open up its markets to its two neighbours. This may not immediately benefit Beijing in terms of trade, but it will set the ball rolling for an informal trade grouping that is not dependent on the US.

China does not want to isolate the US but it has its own stakes in the American markets. But it would want to show that it is indeed the alternate economic big power in the world, and that it can influence other countries to change their trade policies.

China is indeed batting for a free trade regime which is based on rules because China with its advantage of selling its products abroad stands to gain. But it cannot remain an exports only country. It may have to open its markets to other countries and that is where the problems start. The US under Trump feels that its free trade policy has made it excessively dependent on foreign products, and its own economic base has been eroded.

This challenge can only be remedied through some kind of trade balance, and adherence to the World Trade Organisation (WTO) framework. The US, which had been an advocate of WTO, is not happy with the system. And there will come a time when China too may feel that the WTO system is unsatisfactory.

While the power struggle between the two big economies, the US and China, is understandable, it has to be seen that the other economies are not caught in the crossfire. Japan and South Korea would not want to be part of either the US bloc or the Chinese. They need access to both the markets. China and the US will have to adopt the open door policy without inhibitions.