During electoral campaign, we saw Trump convincingly stressing China’s detrimental impact on U.S. job market and wage inequality. Albeit true that U.S. manufacturing sector has suffered enormously from Chinese competition – rising imports from China explain one-quarter of the decline in manufacturing employment between 1990 and 2017 - Trump’s accusations range from dumping to currency manipulation.
While his menaces of protectionist policies are making markets afraid of China’s retaliation through yuan devaluation against the dollar, Trump is working to establish a host of branded business in China. On March 8, 2017, Chinese officials made public their preliminary approval for 38 new Trump trademarks for commercial activities, which include hotels, spa and concierge. Trump’s willingness to engage in foreign deals with Chinese government when it comes to his private businesses is no news, considering that tenant of his Trump Tower in Manhattan is the Industrial & Commercial Bank of China Ltd., world’s largest lender and a state-owned enterprise. We might ask ourselves if China’s authorities decision can be considered a step towards a smoother relationship with Trump’s administration, expected to implement aggressive policies to oppose Chinese trade practices. Will the dreaded trade between China and U.S. only be conducted via tweets rather than action?
There is still much uncertainty about how 2017 will evolve for Chinese economy. Shanghai shares fell to a two-week low on Thursday 8, 2017, revealing growing uncertainty over a probable Fed’s decision to raise interest rates next week. The Shanghai Composite Index lost 0.74 percent to 3,216.75 points, the lowest close since February 17. An additional reason for such a cautious market is the Chinese weak inflation – consumer inflation slowed to 0.8 percent last month: its slowest rate since January 2015, mainly held back by food prices - a data that reveals a slow growing demand and lack of trust in the country’s future economic strength.
Moreover, China’s government has imposed sales and credit restrictions on domestic real estate industry to keep prices under control in the property market. Bank of America expects residential price s to fall 5% in 2017. Facing this less attractive home market, property investors will likely increase investment abroad. Consumption in China remains the main component and driver of GDP growth: the IMF expects Chinese consumers to increase their spending by 7.7% in 2017 and add an extra $311.9 billion to China’s GDP.
As far as global trade is concerned, Trump’s protectionist strategies may well likely stimulate China’s commitment to its New Silk road making (alternatively called the One Belt One Road Project, on which China has up to now invested 900 billion dollars). The establishment of efficient connections between China and Eurasia would strengthen China’s influence in Asia and increase Chinese business in Europe. Needless to say, now that Britain is trying to strengthen trade deals with economies outside EU, the recently launched direct rail freight service to London could be a precious opportunity.
In the meantime, Trump administration seems more focused on the NAFTA deal and on Mexico, and investors are still confused about whether and when China and U.S. may engage in their first bilateral trade agreement. Beijing is having hard times in supporting the yuan as traders bid it lower and China’s foreign reserves have been pushed below the $3 trillion mark: a battle whose aim is to placate Trump and avoid the 45% tariffs he mentioned during its campaign. Will Trump and Chinese officials come to an agreement on a dollar-yuan trading range, thus reducing market volatility?
Finally, if it is true that the U.S. new trade policy, which rejects big deals for bilateral trade ones, will prevent U.S. companies from being competitive in the long run, China has a lot to gain from it. Indeed, while Trump gives voice to his protectionist attitude, its trading partners are working on commercial relations and trade deals which exclude the United States. Furthermore, U.S. rejection of the TPP negotiations that excluded China only makes the future Asia-Pacific trade more likely to overshadow the Transatlantic one, leaving U.S. behind, especially if China achieves a bilateral FTA with Europe.
Trade representatives from China and members of the TPP will gather in Chile on March 14-15 to discuss the future trade agreements. In order to better understand which shape the future relation between China and US will take, there’s nothing to do but to wait.
Beatrice Luzzi
While his menaces of protectionist policies are making markets afraid of China’s retaliation through yuan devaluation against the dollar, Trump is working to establish a host of branded business in China. On March 8, 2017, Chinese officials made public their preliminary approval for 38 new Trump trademarks for commercial activities, which include hotels, spa and concierge. Trump’s willingness to engage in foreign deals with Chinese government when it comes to his private businesses is no news, considering that tenant of his Trump Tower in Manhattan is the Industrial & Commercial Bank of China Ltd., world’s largest lender and a state-owned enterprise. We might ask ourselves if China’s authorities decision can be considered a step towards a smoother relationship with Trump’s administration, expected to implement aggressive policies to oppose Chinese trade practices. Will the dreaded trade between China and U.S. only be conducted via tweets rather than action?
There is still much uncertainty about how 2017 will evolve for Chinese economy. Shanghai shares fell to a two-week low on Thursday 8, 2017, revealing growing uncertainty over a probable Fed’s decision to raise interest rates next week. The Shanghai Composite Index lost 0.74 percent to 3,216.75 points, the lowest close since February 17. An additional reason for such a cautious market is the Chinese weak inflation – consumer inflation slowed to 0.8 percent last month: its slowest rate since January 2015, mainly held back by food prices - a data that reveals a slow growing demand and lack of trust in the country’s future economic strength.
Moreover, China’s government has imposed sales and credit restrictions on domestic real estate industry to keep prices under control in the property market. Bank of America expects residential price s to fall 5% in 2017. Facing this less attractive home market, property investors will likely increase investment abroad. Consumption in China remains the main component and driver of GDP growth: the IMF expects Chinese consumers to increase their spending by 7.7% in 2017 and add an extra $311.9 billion to China’s GDP.
As far as global trade is concerned, Trump’s protectionist strategies may well likely stimulate China’s commitment to its New Silk road making (alternatively called the One Belt One Road Project, on which China has up to now invested 900 billion dollars). The establishment of efficient connections between China and Eurasia would strengthen China’s influence in Asia and increase Chinese business in Europe. Needless to say, now that Britain is trying to strengthen trade deals with economies outside EU, the recently launched direct rail freight service to London could be a precious opportunity.
In the meantime, Trump administration seems more focused on the NAFTA deal and on Mexico, and investors are still confused about whether and when China and U.S. may engage in their first bilateral trade agreement. Beijing is having hard times in supporting the yuan as traders bid it lower and China’s foreign reserves have been pushed below the $3 trillion mark: a battle whose aim is to placate Trump and avoid the 45% tariffs he mentioned during its campaign. Will Trump and Chinese officials come to an agreement on a dollar-yuan trading range, thus reducing market volatility?
Finally, if it is true that the U.S. new trade policy, which rejects big deals for bilateral trade ones, will prevent U.S. companies from being competitive in the long run, China has a lot to gain from it. Indeed, while Trump gives voice to his protectionist attitude, its trading partners are working on commercial relations and trade deals which exclude the United States. Furthermore, U.S. rejection of the TPP negotiations that excluded China only makes the future Asia-Pacific trade more likely to overshadow the Transatlantic one, leaving U.S. behind, especially if China achieves a bilateral FTA with Europe.
Trade representatives from China and members of the TPP will gather in Chile on March 14-15 to discuss the future trade agreements. In order to better understand which shape the future relation between China and US will take, there’s nothing to do but to wait.
Beatrice Luzzi