US-CHINA TRADE WARS – WHAT’S THE REAL STORY?
By Philip Howe (Raymond James)
The very public arguments between the US and China over trade have serious implications for the global economy. The two biggest economies going head to head has the potential to cause a recession amongst other things. However, it is the fact that they are the two biggest economies that is really the whole point of the argument, especially given that China is likely to overtake the US at some point over the next 15-20 years.
affairs with a China-centered trading network.The project has a targeted completion date of 2049 which coincides with the 100th anniversary of the People’s Republic of China.
Made in China 2025
The second initiative is the one that has angered the US the most. Made in China 2025 is China’s attempt to dominate the global market in new technology industries, including robotics, new energy vehicles and artifificial intelligence.This poses a clear competitive threat to the US and goes a long way in explaining the stance taken by the US in relation to Huawei.
China is looking at moving away from just being the world’s producer of cheap, low quality goods and move into higher value products and services.This also ties in with its desire to maintain economic growth, standards of living and meet the demands of its increasingly educated workforce.
The US regard it as a real existential threat to US technological leadership and they are not wrong. China is now number one for research and patents in Artifificial Intelligence (AI) and number two, behind the US, for the number of AI companies. It dominates the consumer drone market, accounting for 74% market share, and 5G is proving to be the next big
battleground – hence the focus on Huawei.
What next?
A famous ancient Chinese writer, SunTzu, wrote in “The Art of War” that “Ultimate excellence lies not in winning every battle, but in defeating the enemy without ever fifighting”.The use of economic power to advance political objectives is a perfect illustration of this.
So what does this mean for the ongoing trade dispute? Ultimately there are no winners in a trade war and with a US Presidential election coming up in 2020 Trump will be keento bring this phase of discussions to some sort of conclusion sooner rather than later. Especially if he can do so by claiming a “win”. On the other side, China have no such election issues but the need to continue to satisfy their ever growing middle class leads also to a need to resolve this dispute so they can concentrate on keeping the general population happy.
The rhetoric has been less diplomaticof late, which is why Stock Markets felback in May, but should there be any evidence of an agreement being reached then expect to see a reboundHowever, over the longer term this argument is not over, in fact it may have only just begun.
 The US has enjoyed its status as the major global economic superpower since the end of World War II, especially following the demise of the Soviet Union. However, the growth seen in China over the last 20 years has been nothing short of miraculous and with a population more than fourtimes the size of America’s, eventually China will surpass them and become the major economic power.
One Belt, One Road
China has two major initiatives that it hopes will enable it to reach the number one position.The fifirst of these, One Belt, One Road, concerns
infrastructure and inflfluence. China has invested heavily in neighbouring countries, and some a bit further afifield, to improve transport links.This enables them to trade more easily with these countries but also provides a useful foothold into a country and a chance to inflfluence it. In fact, several of these countries are now in debt to China who lent them the money to carry out some of the infrastructure spending.
The Chinese government calls the initiative “a bid to enhance regional connectivity and embrace a brighter future”. Some observers see it as a push for Chinese dominance in global
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