• Bloomberg


The softening of President Donald Trump’s protectionist economic agenda has eased fears of a global trade war. It also spares China from having to assert itself as defender of the existing global economic order or being forced to take the lead in forging a new one.

An improving growth outlook lifted the spirits of finance chiefs meeting in Washington for the first get-together of the International Monetary Fund since Trump’s election. While his “America First” position on trade prompted delegates to adopt the same position taken by the Group of 20 last month, when it dropped a commitment to resisting protectionism, there was cautious optimism the current economic order may shift but not crumble.

That suits Beijing, which benefited from a global trading system that fueled its rise from agrarian poverty to the factory to the world. Now, as China’s factories seek to upgrade and the economy is driven less by exports and more by consumption, its leaders appear happy to stick with the current rule book that Trump’s rhetoric, if not his actions, has questioned.

China “hasn’t shown much of an interest in setting the agenda,” said Benjamin J. Cohen, a professor of international political economy at the University of California, Santa Barbara. “It’s expensive. Once you take on a leadership role, you have to be prepared to offer pecuniary incentives, or in some cases make sacrifices, to preserve the stability of the whole system.”

That’s not to say China isn’t playing a growing role at international summits like the one in Washington. It is often a leading voice resisting Trump’s campaign pledges to impose tariffs and reshape international accords.

“It is especially important to enhance the multilateral system of open and free trade and investment, jointly resist protectionism, and accelerate the liberalization of global trade and investment,” People’s Bank of China Gov. Zhou Xiaochuan said in a statement released during the meetings of the IMF’s 189 member nations.

That’s a reminder policymakers are still nervous Trump could yet unleash the kind of punishing tariffs and trade barriers that he promised during his campaign. A new steel probe the U.S. unveiled last week on the eve of the IMF confab is an example of the kind of actions that could stoke tensions, especially with China.

In Davos in January, President Xi Jinping called globalization an inevitable force that nations must come to terms with, and said protectionism “is like locking yourself in a dark room.” When finance ministers from the G-20 group of major economies met in Germany last month, China positioned itself as a defender of free trade.

Even before Trump’s election, China had begun to establish its own versions of the U.S.-based institutions that have preached the benefits to growth and stability of western-style, free-market capitalism since World War II. The Asian Infrastructure Investment Bank, for example, a development lender based in Beijing, finances projects like roads and bridges in poor countries — a role traditionally played by the World Bank.

In parallel to the institutional channels, there will be a physical one. China’s “One Belt, One Road” project will span Eurasia with roads, railways and ports — slashing the time it takes to move goods or people. And, after Trump’s withdrawal from the Trans-Pacific Partnership, China is supporting an alternative trade deal with Asia-Pacific nations. All those initiatives could one day form the backbone of a China-led world economy.

For now, China isn’t ready to take over the mantle of global economic leadership the way the U.S. has for decades, according to Matthew Goodman, a former White House economic adviser who’s now at the Center for Strategic and International Studies in Washington.

“China is not quite comfortable with that role of stepping up,” he said. “People want to follow the U.S., but we have got to lead. Nobody wants to follow China.”

America’s Treasury secretary made clear the U.S. still wants to lead. “Sustained U.S. economic growth is good for global growth,” Steven Mnuchin said on stage Saturday with IMF Managing Director Christine Lagarde, the former French finance minister who has championed the we-are-the-world approach to economic harmony.

Mnuchin’s pitch was a benevolent reframing of Trump’s nationalist rhetoric: “America First” can work for the rest of the world too.

Globalization powered China’s economic growth that averaged almost 10 percent annually since 2001, when it joined the World Trade Organization. In 2009, China became the world’s biggest exporter, and not by adhering to the free-trade rule book, its critics say.

Some officials in the Trump administration have criticized China for inhibiting fair and open commerce — Peter Navarro, one of his chief trade advisers, wrote a book on the topic. Complaints have zeroed in on claims China floods the world with subsidized steel and aluminum, and bullies foreign firms into handing over intellectual property.

And, of course, there were Trump’s campaign accusations about China manipulating its currency to gain an edge. This month, the U.S. refrained from using that designation.

George Magnus, an associate at Oxford University’s China Centre and former adviser at UBS Group AG, says there are strictly economic reasons why today’s China is ill-suited to play a “hegemonic” role.

To be a global leader, said Magnus, “you have to be a source of liquidity to the world and allow foreigners to accumulate claims in your currency on you. This means China would have to either run trade deficits in perpetuity, or allow capital to flow freely and in large quantities out of the country. I don’t see China being willing or able to do either.”

So while Trump may rail against America’s trade deficits, they’ve made the country’s economic pre-eminence a more attractive proposition for the rest of the world by making it a consumer of last resort. And, when it comes to parking the profits of those sales, there are few restrictions on capital flows — in contrast with China.

Asia’s largest economy, by contrast, has run some of the biggest external surpluses in history, though they’ve contracted in relation to GDP in recent years. And that has taken a toll on American manufacturers: research by Massachusetts Institute of Technology scholar David Autor and others found more job losses in the U.S. regions most exposed to competition with Chinese imports.

Chinese leaders understand the “tremendous social pressures” that technology and globalization have placed on the U.S. and other advanced economies, said Xiao Geng, a professor of finance and public policy at the University of Hong Kong. “Xi is willing to make significant concessions in the area of trade and investment so as to help the short-term adjustment.”

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