China should respond to Trump unilateralism with multilateralism

By Lu Xiankun

When the page of Chinese lunar calendar is about to turn over to the new year of 2018, what is happening between the US and China doesn’t augur well for the future of bilateral trade relations between the two big players. 

After a series of threats to take actions against alleged China’s intellectual property practices and “forced transfers” of technologies, Trump Administration has decided to impose safeguard tariffs on imports of large residential washing machines and solar cells and modules, of which China is the major exporter. US also, reportedly under pressure of its legislators, blocked a series of business actions by Chinese companies, including the acquisition of MoneyGram by China’s Ant Financial and partnership with US AT&T by China’s Huawei to distribute its smartphones in the US market. The US went further to declare that the US has “erred” in supporting China’s WTO accession in 2001, a position that has fundamentally reversed the constant position of previous US administrations since 2001 that generally believed that China’s WTO accession was positive for bilateral relationship as well as the multilateral trading system. And just days ago at the annual Davos gathering, Trump reconfirmed that he would no longer “turn a blind eye to unfair economic practices including massive intellectual property theft, industrial subsidies, and pervasive state-led economic planning”, implicitly targeting China again. 

In this Aug. 5, 2010, file photo, a container is loaded onto a cargo ship at the Tianjin port in China.[Photo: AP/Andy Wong]

There is a widespread view, not only in China, that the above-mentioned actions by Trump administration are just reaffirmation of its unilateral and nationalist position on trade, which led to a surge of trade protectionism in the US. Based on latest data of Global Trade Alert, in 2017, first year Trump took office, the US has imposed 143 “discriminatory” (i.e. trade restrictive) measures, a 58% increase from 90 in 2016. The US was responsible for 22% of the worldwide total for trade distortions in 2017, up from 15% in 2016.

Now people are watching what China is going to do to respond to Trump administration and how they are going to do that. Anyone can see that China is not going to sit idle. Spokesman of the Ministry of Commerce of China, while asked about potential actions by the US, said more than once that China will take “all necessary actions” to firmly protect its legal rights and interests against “any unilateral and protectionist measures”.  

Under such circumstances, people cannot help worrying about the worst. In fact, some are already talking about a potential trade war between China and the US and what repercussions this would impose on an already disrupted world, which becomes increasingly uncertain whether trade liberalization and multilateralism that drive growth and create jobs is still relevant, for both politicians and common people. On Chinese social media and website, there are plenty of experts and netizens discussing how China should retaliate the US, and with force. 

It is obvious that Trump administration has surrendered to domestic nationalism and populism pressure and resorted to unilateral protectionist measures against China. It surely is China’s legal right to protect its own interests. However, it would be wrong if China does the same to surrender to domestic pressure, some of which are quite impulsive, and also nationalist and populist, to launch a tit-for-tat retaliation back to the US. And it would be more wrong to do so by resorting to unilateral measures and disregard multilateral rules. This would only escalate the situation to blast China-US trade, nothing good for either country. China is now the US biggest export market outside NAFTA, most important destination for soybeans, cotton, aircrafts, automobiles and integrated circuits, while the US is China’s biggest export market, accounting for 16% of China’s total exports. This would also seriously damage an already disrupted multilateral trading system, on which China has been depending on for its unprecedented development and growth since 2001. 

China has said that it will play a leadership role by supporting the centrality of the multilateral system. Such leadership includes not only making the right decision at the right moment, but also making the right decision at difficult times, like now. As Ms. Arancha Gonzales of International Trade Centre (ITC) said just days ago at Swiss Media RTS, there is “a division” between unilateralism and multilateralism and the latter is the better choice for countries to defend their interests. China should choose multilateral system to respond Trump’s unilateral actions. 

Fortunately, China won’t be alone to exercise that leadership role. Many leaders, including German Chancellor Angela Merkel and French President Emmanuel Macron, have sent clear messages at recent Davos gathering that unilateral protectionism is not the right solution and multilateral cooperation is the way forward. This would also win China high moral grounds among smaller countries because any escalation of trade conflicts between China and the US won’t do them good. As one African proverb goes: when the elephants fight, it is the grass that suffers. 

(Professor Lu Xiankun is former senior trade diplomat of China and now associate professor of University of International Business and Economics and Wuhan University of China. He is also Senior Vice President of Shenzhen UEB Technology Co. LTD.)