Trade war shouldn’t stop China’s domestic reform battle

Editor's note: Zhu Zheng is an assistant professor at China University of Political Science and Law. The article reflects the author's opinion, and not necessarily the views of China Plus.

The trade war between China and the United States has come to a turning point. This week, the Office of the US Trade Representative (USTR) is holding public hearings to consider imposing an additional 10 percent duty on approximately 200 billion dollars' worth of Chinese goods.

A man sits in front of a screen showing stock prices at a securities company in Beijing on July 11, 2018.[File Photo: VCG]

If the tariffs take effect, an all-out trade war will break out, dealing a heavy blow to both China and the US.

On the US side, as China has taken retaliatory measures, the prices of Chinese products routinely purchased by American households will soar, and imports such as steel, aluminum, and car components will cost more.

Furthermore, multinational companies, like Nike, Disney and Apple, may fear that their interests in China will be put at stake. After all, the US tariffs will eventually be passed along to the ordinary Americans. How much its domestic market will resolve the costs remains to be seen.

The full-blown trade fight inflicts even more damage on China. One indicator of this comes from market performance. Since the beginning of the trade war, China's stock market has suffered some major setbacks.

Recent data showed that the Shanghai Composite Index dropped 1.34 percent, and the Shenzhen Composite Index is down 1.69 percent. In a similar fashion, the exchange rate has also gone through some turbulence, with the currency plunging to nearly 6.53 against the US dollar in late June.

This clearly shows that the market has taken a hit, and if the confrontation lingers on and even escalates, it will cast a shadow over the Chinese economy, which is in and of itself detrimental.

Apparently, slapping tariffs on such a scale takes a heavy toll on both countries, but compared with the US, China has more to lose. It is critical to note that exports account for 12 percent of the US GDP but 20 percent of the Chinese economy.

Chinese exports to the US are way more than US exports to China. Therefore, China has less ammunition to fire. Moreover, as the trade war comes at a time when domestic issues such as vaccine and private lending scandals are bubbling up, China is in a more vulnerable position to weather the storm.

With that said, by no means should China make a concession. As China's official narrative rightly argued, after Trump came to power, the US has been shifting away from the ambition of providing safety to its allies, to a more pragmatic stance of putting its own interest first.

And as China is progressively rising as a superpower, it is natural for the US to ratchet up all kinds of measures, trade weapons included, to contain China's development. Against this background, bowing under US pressure is of little use to ease the tensions and instead solicit harsher clashes.

In the face of a looming full-scale trade war, China should instead focus more on its domestic fronts. For one thing, China should stay alert about the financial challenges within its borders, rein in various forms of peer-to-peer lending, and make sure that the financial market is stable.

Also, rather than resorting to policies and government guidelines, and taking the rule of law halfheartedly, China should not only proffer legal remedies to the disadvantaged, protect intellectual property, and strictly carry out the WTO commitments, but also press ahead with the ongoing reform and ensure that economic and social developments remain along the legal track.

On the whole, the trade spat in effect offers a chance for China to restart a new round of reform.

As an old Chinese saying goes: "When there is no enemy within, the enemies outside cannot hurt you." It is urgent to counter the fierce US attacks, but it is more essential for China to forge ahead with its ongoing opening-up process and reflect upon the pitfalls and achievements it has made.