April26,2018:WorkersataCalifornianalmondsfactoryintheUnitedStates.TheyhopethatChina-U.S.tradefrictionscanbeaddressedassoonaspossible.XinhuaJustwhenitseemedthatChinaandtheUnitedStateshadreachedconsensusonbilateraltrade,theSino-U.S.tradetensionssuddenlyescalated.OnJune16,Chinadecidedtoimposeadditionaldutyof25percentonapproximatelyUS$50billionworthofimportedproductsoriginatingintheU.S.,asacountermeasureagainsttheDonaldTrumpadministration鈥檚announcementtoimposeadditionaltariffsonUS$50billionworthofChinesegoodsthedaybefore.ThismeasurebytheU.S.governmentfliesinthefaceofwhatwasachievedinnegotiationsbetweenthegovernmentsofChinaandtheUnitedStates.TheTrumpadministrationisstillhell-bentonlaunchingatradewar,whichwillleadtosevereconsequences.
SincetheendofWorldWarII,nomajoreconomicpowerhaseverimposeda25percentadditionaltariffonanothercountry,andneverhasabilateraltradewarreachedUS$100billionsoquickly.Theincidenttriggeredglobalworriesandachainreaction.ManyU.S.alliesarecloselywatchingTrump鈥檚tradeprotectionismschemes.IMFchiefChristineLagarderaisedwarningsinearlyAprilthataSino-U.S.tradewarwouldforcetheworldeconomytoaccelerateisolationismratherthanintegration.
BothChinaandtheUnitedStatesaredeeplyrootedintheworldeconomy.Formanyothercountries,theyarethelargesttradingpartnersorthelargestexportmarkets.Thecompetitiveindustriesofthetwocountriesareseenthroughouttheglobalindustrialchain.IfChinaandtheUnitedStatessuspendmutualcooperation,theexistingglobalproduction,transportandsaleslayoutwouldbedisrupted.
Asthetwolargesteconomiesintheworld,responsiblebehaviorfromChinaandtheUnitedStatesiscrucialtothestabilityoftheglobaleconomy.Chinahasrepeatedlystressedthatitwouldnotstartatradewarbutdoesnotfearone.Trump鈥檚remarksabouttradewarsemitacertainnaivet茅consideringheseemstobelievethattheUnitedStateswouldeasilywin.MostmajoreconomieshavelongbeenaccustomedtoacceptingtheleadershipoftheUnitedStates,butwhenthecurrentU.S.leaderbecomesirresponsible,theprospectsforrecoveryoftheworldeconomydiminishandcountriesareforcedtocopewithaworldeconomicinteractionmodeldominatedbyshort-termbehavior.Trump-styleeconomiclogicwillonlymassivelyincreaseoperatingcostsofenterprises.
TheWorldEconomicOutlookreportreleasedbytheIMFinearlyAprilprojecteda3.9percentglobalgrowthanda5percentgrowthfortradevolumein2018.Thisisthehighestestimatesince2012,butstillsignificantlylowerthanthegrowthratesin2007.IftheadditionaltariffsofthetwocountriestakeeffectonscheduleonJuly6,theIMFwillsurelysignificantlyamenditsAprilforecast,whichwillfurthershaketheconfidenceofinvestorseverywhere.
Morebadnewsfortheworldeconomycamefromthediveinforeigndirectinvestment.AccordingtotheWorldInvestmentReport2018publishedbytheUnitedNationsConferenceonTradeandDevelopment(UNCTAD)inearlyJune,globalforeigndirectinvestmentflowfellby23percentin2017,andtheshareofforeignaddedvalueinglobaltradefellto30percentbetween2016and2017.Thismeansthattheexpansionofinternationalproductionandglobalvaluechainsisslowing.TheTrumpteam鈥檚analysisisbasedon2017data,whichwillseriouslymisleadU.S.decision-making.
Inaworldeconomypoweredbyindustrialchains,thepatternofinteractionbetweenmajoreconomiescannotbealteredovernight.AtradewarwillonlyurgeChinatoopenfurtherandfuelaspirationsfortheBeltandRoadInitiativetoboostEurasia鈥檚commoneconomicdevelopment.AninterconnectedEurasianeconomywillendtheeraofAmericandominancemorequickly.
TheauthorisdirectorandresearcheroftheMajorCountriesRelationshipResearchDepartmentoftheNationalInstituteofInternationalStrategyundertheChineseAcademyofSocialSciences.