A New Long March: Trade Or War? Xi Jinping Evoking Mao Zedong

Por Alejandro Chafuen: Publicado el 23/5/19 en: https://www.forbes.com/sites/alejandrochafuen/2019/05/23/a-new-long-march-trade-or-war-xi-jinping-evoking-mao-zedong/#6e731bac6a66

 

Xi Jinping has proclaimed to the Chinese that they should prepare for a “new long march.” The term “new long march” has a very important historical meaning in China. It evokes Mao Zedong’s strategic retreat in 1934, a retreat from nationalist troops through China’s vast territory. The goal of those who survived, though, was to come back to take power. Mao acquired a reputation as a great leader, and his party took power completely in 1949. The Communist takeover in China led to more deaths than any other regime in the history of mankind—estimates are from 49 to 78 million victims. During the period from 1958 to 1962 alone, the supposed “Great Leap Forward,” 45 million people died.

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Trade wars don’t have nearly as many deaths, but almost everyone loses. This is not an exaggeration—the United States and China make up 40% of the global economy, and what happens there affects the whole world. Both economies are much larger than the third and fourth largest (Japan and Germany), which taken together are still less than China’s. Only the United States can take on China’s trade practices—which have attracted much criticism—with any prospect of success.

Production chains are so intertwined that the shockwaves and bottlenecks resulting from a trade war will affect unforeseen producers. In some cases the affected industry may be one with a unique product, and if this were something necessary for an American military aircraft, for example, the U.S. government would feel obliged to grant exceptions. Peter Navarro, Director of Trade and Manufacturing Policy and one of the main proponents of President Trump’s aggressive stance towards China, has a team that studies these possible bottlenecks and unwanted effects of high tariffs and boycotts of Chinese products. He feels optimistic that he can control the effects, but given the interconnectedness of the economy and the economic processes behind most elaborate products, I have serious doubts.

One of today’s most perceptive economic analysts, Daniel Lacalle, has outlined the reasons why, according to him, it is China that stands to lose the most in this trade war. Its economy is deeply in debt. It needs exports to the U.S. to keep its economy at an acceptable rhythm. Stocks on the Chinese exchange are 40% below their peak, while in the U.S. they are still near record levels. Whereas in the U.S. stocks have risen 40% (DJIA) since Trump took office, in China stocks are lower.

Trade measures in US and China 2018-2019 as compiled by Statista

CHARTED BY STATISTA

When tariffs were raised in 2018, China responded symmetrically, imposing measures of similar value to those that the Trump administration put in place. With the last two tariff hikes (September 2018 and May 2019), China responded more timidly, with measures at half the value. And regarding other retaliatory measures, as Lacalle clearly explains, two possible actions would have little effect. With regard to rare earth minerals, the U.S. has sufficient reserves to last 140 years, and there are other countries such as Brazil, our new great ally, which has reserves almost 20 times greater than our own nation’s. As for the possibility that China will sell off its U.S. debt, they have less than 10% of U.S. bonds, and the costs would be shared.

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But beyond the fact that China has more to lose, we should not forget that Trump is facing not only external enemies but strong internal enemies as well. In contrast to Xi Jinping’s autocracy, the president of the United States has an independent press very hostile to his administration.

I doubt that Xi Jinping’s China can emulate the long march of Mao Zedong’s retreat, either militarily or economically. In this global economy, the voids created would be filled quickly. But we will all suffer the pains of adjustment. The ideal would be for China to move toward compliance with just trade rules, based on transparency and rights of private property, both physical and intellectual. Unfortunately, of late it seems that we are at the beginning of this difficult struggle, and it’s far too early to be optimistic.

 

Alejandro A. Chafuén es Dr. En Economía por el International College de California. Licenciado en Economía, (UCA), es miembro del comité de consejeros para The Center for Vision & Values, fideicomisario del Grove City College, y presidente de la Atlas Economic Research Foundation. Se ha desempeñado como fideicomisario del Fraser Institute desde 1991. Fue profesor de ESEADE. Síguelo en @Chafuen