China is becoming more mercantilist, and – in a narrow way – Donald Trump is right about China, says author Arthur Kroeber of China’s Economy: What Everyone Needs to Know® in an interview with Bloomberg. And the US are following a global trend for more protectionism.
Question: Is China becoming more mercantilist?
Answer: It’s fair to say that. And you can make this on objective grounds. If you just look at the size of the merchandise trade surplus and balance of payments, this has almost doubled from under 3 percent of GDP four to five years ago and it’s now back up to almost 6 percent of GDP. There’s no strong policy emphasis on managing down the trade surplus.
Then you look at the specifics of ‘Made in China 2025.’ It’s a whole set of numeric targets and, if you add them up, it’s very clear that the aggregate impact of that would be to increase China’s trade surplus. You have embedded in the policy directionality something that is a targeting of essentially an increase in the trade surplus.
Question: So is Donald Trump right about China?
Answer: You could say he’s right in a narrow sense, but OK, what do you do with that? China is clearly moving in a more mercantilist direction, but in a broader sense of how you deal with this I think his recipe is ludicrous and unrealistic. You have to recognize that pretty much every country as it develops spends a lot of time taking a mercantilist view of the world, with no exceptions. The United States was a prime offender for about 120 years up until after World War II. This is what most countries do. It’s also the case that if you compare China to most other emerging markets, India, Brazil, and many non-emerging markets such as Japan, they’re much more open to a larger array of foreign investments and activity than those other countries. By far.
Question: Are trade wars coming?
Answer: In the U.S. you have Donald Trump for example who in the Republican primaries was able to get a lot of support for ideas like a 45 percent across-the-board tariff on Chinese goods, which I don’t think is going to happen even if he gets elected. But what the success of the Trump and the Bernie Sanders campaigns have done is move the whole discussion in the U.S. much farther away from the question of how do we make trade and investment more open to how do we set up more protectionism.
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