Philippe Waechter, Chief Economist with French Company Ostrum Asset
Management, published on May 17 last year an interesting analysis of
the current tensions between China and the United States.
The French expert explains that Donald Trump’s tweets of May 5
increased tension between Washington and Beijing and re-launched new
discussions on the terms of a trade agreement between the two powers.
Chinese retaliation against US imports in response to the new U.S.
tariffs calls into question the lengthy period of calm begun after the
G20 meeting on December 1st last year.
Trump’s desire to impose new restrictions on China reflects his desire
to repatriate jobs, especially in the manufacturing sector, and also
to reduce US dependence on China.
In 2018, the U.S. external trade balance with China showed a more than
$400 billion deficit.
The counterpart of this Chinese surplus with the United States
reflected Chinese financing of the U.S. economy through the purchase
of U.S. federal bonds. The logic was that the Chinese products in the
U.S. market financed the U.S. economy to compensate for the lack of
savings there.
The functioning of the Chinese-American trade was on the basis of
complement, but this balance is now changing in nature because China’s
weight in financing the US economy has been declining.
In March 2019, the weight of U.S. financial assets in the hands of
China as part of the total U.S. foreign funding had fallen to the low
level observed in June 2006.
The balance of the relationship between the two countries is changing
and the United States no longer has the capacity to influence China as
it did in the past. China now has more autonomy, says Waechter.
The White House is impatient over Chinese unwillingness to respond to
its requests. By taxing Chinese imports, Washington wants to influence
Beijing’s economy by creating strong social tension there that would
force the hand of the Chinese authorities who do not wish to take this
social risk.
The slow pace of Chinese activity indicators since the beginning of
the year could validate Washington’s analysis and encourage it to
further harden its commercial tone.
At the beginning of 2019, the weight of the United States in Chinese
exports slowed significantly. China’s dependence on the United States
is being reversed and, at the same time, the Chinese are re-launching
the New Silk Road initiative, whose objective is, among others, to
further diversify Chinese markets.
China is now expanding market opportunities and effectively limiting
the influence of the U.S. on its internal economic situation.
The other major point of disagreement between Washington and Beijing
concerns technology. “It seems to me that this is the main point of
the differences between the two countries,” says Waechter.
The Chinese have updated technologically very quickly in the last
twenty years. This has been the case both in technology transfers as
in resources to facilitate it. And this has worked so well that the
Chinese are now considerably ahead of the U.S. in 5G and Artificial
Intelligence, among other significant developments.
In this question of technological supremacy, there is a radical change
because the Chinese have the means to develop these technologies
without American support.
This situation could have arisen with Japan a few years ago, but the
Japanese always opted for remaining in the US fold, which is not the
case in Beijing –says Waechter– because China has a very large
internal market and this them to create conditions for autonomous
technological dynamics.
The stakes are simple:
Whoever sets the standards for these new technologies will have a
considerable comparative advantage. It will be easier to develop
innovations using these technologies. That’s why this is where the
negotiations get stuck.
The Chinese have devoted significant resources to achieving this
technological advantage and will not fall naively under U.S. control.
This technological stagnation will not be resolved spontaneously, and
the possibility of an agreement between the two countries seems
unlikely.
“The dynamics of the world economy are changing. This is the first
time in modern history that a situation occurs that makes it likely
that the world economy moves to a new region due to criteria related
to technological innovation.”
When the core of the world economy moved from the United Kingdom to
the United States, there was a continuity that does not exist in the
current situation. This will alter the dynamics of the world economy
and will inevitably redistribute the cards among the regions of the
world,” concludes Philippe Waechter.
A CubaNews translation by Walter Lippmann.
*Manuel E. Yepe, is a lawyer, economist and journalist. He was a professor at the Higher Institute of International Relations in Havana. He was Cuba’s ambassador to Romania, general director of the Prensa Latina agency; vice president of the Cuban Institute of Radio and Television; founder and national director of the Technological Information System (TIPS) of the United Nations Program for Development in Cuba, and secretary of the Cuban Movement for the Peace and Sovereignty of the Peoples.
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