It is a great pleasure to attend this meeting. I would like to exchange views on several economic and financial issues of common concern at home and abroad. I welcome your comments.
America's escalation of trade frictions will not solve any problems
On May 10, the U.S. government imposed tariffs on 200 billion U.S. dollars of imported products from China. Then it issued a ban on Huawei companies and related enterprises, and declared that it would conduct a countervailing investigation on the exchange rate of the RMB. The Chinese government, businesses and residents are not surprised. As we have always believed, trade wars cannot solve any problems, harm others and harm the whole world.
From China's point of view, although the United States can impose tariffs to the limit, the impact on China's economy will be very limited. First, the vast majority of products exported to the United States are very suitable for domestic sales. China is in the period of consumption upgrading. The rapidly expanding huge market will absorb a large part of them, and will not produce "crowding-out effect" on existing consumer goods. Second, great progress has been made in market diversification. The "one belt and one way" initiative is seeing results, and the market outside the United States welcomes more Chinese products. Thirdly, a considerable proportion of them will also be exported to the United States, either because they cannot find alternatives or because they are profitable and therefore American importers are willing to share the costs. Fourthly, the upgrading of China's industrial structure requires the transfer of a certain scale of production overseas, which will accelerate China's high-quality development. Fifthly, China's financial market has been overimpacted in 2018. The current resilience has been significantly enhanced, and the further impact will not be too great.
From the perspective of the United States, it itself will be hit with almost the same intensity. Exports to China will shrink, damaging the interests of many American companies, and some high-tech companies will see a significant drop in revenue. Many American domestic enterprises that have long relied on imported Chinese products for processing, portfolio, transportation and distribution to create added value will be severely squeezed, some of which may face survival threats. Consumers in the United States will pay high costs, and the middle and low income groups, especially farmers and blue-collar workers, will actually lose more benefits. At the same time, the United States has a large number of overseas assets and liabilities, more than any other country relying on the Wall Street-led international financial system, and the trade war is bound to trigger shocks and downturns in the international financial market.
Logically, the goal of the US tariff increase is to reduce the trade deficit between the United States and China. However, due to China's countervailing policy, its direct result is uncertain, and other factors may influence the final effect, which is likely to be counterproductive. First, the United States has put China's high-tech enterprises on the sanctions list and explicitly prohibited American enterprises from selling products and technologies, which is tantamount to a direct increase in their deficit. Second, the launch of a trade war shocked the international financial market, the RMB exchange rate declined rapidly, and the U.S. government soon feared that the role of tariffs would be offset. Thirdly, a substantial increase in tariffs would push up prices, thus making it possible for the U.S. economy to lose its advantage of low inflation. Fourthly, curbing China's exports to the United States will inevitably lead to vacancies that will be filled by other economies, and the total deficit will not be reduced.
Historically, trade disputes between the United States and other developing countries have lasted for more than 40 years. First Germany and Japan, then Asia's "Four Little Dragons". In 2000, China replaced Japan as the largest deficit country in the United States. At present, India, Vietnam, Indonesia, the Philippines, Bangladesh and some Latin American countries have achieved good growth momentum. They are accelerating to change the pattern of world trade in goods and services. China's exports to the United States may gradually decrease, but the pattern of the United States deficit is difficult to change.
