Even when China and the US will reach a kind of trade agreement, both countries have such different ideologies, solving hostilities will be a matter of the long haul, says economist Arthur Kroeber, author of China’s Economy: What Everyone Needs to Know to the Atlantic. “Xi has clearly nailed his colors to the mast of a much more state-directed economy,” said Kroeber.
Many of the problems Washington wants resolved in China will require more than a few regulatory tweaks. The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China such a nightmare for American chief executives are caused by the very way the Chinese economy works. Changing them means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.
“It is going to be a very long haul to get the changes the U.S. considers to be required because that really would force China to fundamentally alter the way it organizes itself,” Arthur Kroeber, a founding partner at Gavekal Research and the author of China’s Economy: What Everyone Needs to Know, told me.
At its heart, then, the trade dispute is about far more than tariffs and deficits. It is a contest of two very different national ideologies. Though the Trump administration has deviated from this somewhat, the United States believes that openness—political, economic, and social—creates prosperity, resolves disagreements within society, and promotes the diversity that spawns innovation and progress. China—or, more accurately, its leadership—sees government control as critical to developing the economy, achieving social peace, and forwarding the best interests of the nation overall. Americans tend to think open, free markets that are operating in a fair regulatory environment produce the best economic results. Beijing, on the other hand, doesn’t trust market forces and instead wants the state to play a more direct role in achieving the economic outcomes it determines are necessary for the country…
There is an argument that state largesse leads to wasteful investment that ultimately hampers innovation. But it is doubtful that the current regime of President Xi Jinping is willing to make such significant changes. Since coming to power in 2012, Xi has placed a premium on strengthening Communist Party control over the economy, and despite frequent rhetoric about “opening up” and free trade, he has shown few signs of resuming more liberal reforms that would diminish state dominance.
“Xi has clearly nailed his colors to the mast of a much more state-directed economy,” said Gavekal’s Kroeber. “I’m pretty skeptical that there will be significant movement by China on these large-scale structural issues the U.S. is talking about.”
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