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China Must Walk a Fine Line Between Nationalism and Global Trade

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Tags Global EconomyProtectionism and Free TradeWar and Foreign Policy

As the trade war between China and the United States heats up, some worry about a potential rise in Chinese nationalism which would then lead to protectionism. The Sino-American tension may stir up the patriotic sentiment of Chinese people, hence driving the Chinese government to close its door for world trade as well as foreign investment. However, I argue that Chinese nationalism is always guided by economic pragmatism. While Chinese nationalists celebrate for China’s list of tariffs against American soybeans, ginseng, cars, whiskey etc., and while they look much forward to fight off Western Imperialism, China does not has much bargaining power in this trade war. Losing the US as its trading partner would hamper the economic growth of the country. Hence, as a rational move, the Chinese government may channel the patriotism of the angry populace, and the public concern with the rise of Chinese nationalism/protectionism is unnecessary.

In the historian and sociological studies of Chinese nationalism, it is well established that the state and the populace share a different nationalistic understanding. In 2012, Chinese nationalists wrecked Japanese stores and car dealerships and boycotted Japanese cars because of the territorial dispute of Diaoyu/Senkaku Islands. Gustafsson (2014) investigated the patriotic sentiment of these nationalists and found that actually their destructive acts were condemned by the Chinese government. The state-controlled newspaper, China Youth Daily, criticized that it was necessary for the demonstrators to exercise ‘cool-headed restraint’ and ‘stay rational’. It further pinpointed, ‘sometimes there is only a single step between loving the country and harming the country’; a ‘healthy’ patriotism must not harm the Sino-Japanese friendship. The government then successfully softened the anti-Japanese sentiment of the nationalists. During that time, the government was seeking economic cooperation with Japan and such ‘patriotically’ hostile acts were not ideal1. Not only Gustafsson, in general researchers in the field have agreed that Chinese nationalism is rational and pragmatic, that it would not sacrifice the materialistic interest of China for the symbolic ‘national pride’/‘national emotion’2. By definition, pragmatism is behavior disciplined neither by a set of values or established principles, but the actual benefits and needs (Zhao, 2004)3.

On top of the rational character of Chinese nationalism, China is more vulnerable to the trade war than it admits.

First, China has fewer goods to tariff than the US does. Trump started the trade war not because he is a crazy man but because he is a businessman. The trade war is expected to increase the freedom of the Chinese market. More precisely, in my understanding, it is a combat to minimize the trade deficit between China and the US. Therefore, as a matter of fact, China does not have an import value from the US that is comparable to the US import value from China. In 2016, the US good trade with China totaled US$578.2 billion. The US goods export to China were US$115.6 billion while China’s goods export to the US were $462.6 billion4. Of no surprise, fighting back with an equal size of trade value is an unavailable option to China.

Second, China needs American goods more than the US needs Chinese goods. If we look at the lists of tariffed items of the two countries in details, we can see that China mainly taxes agricultural and food goods as well as manufactured goods which require no advanced tech for production, while the US taxes metals, machinery, agricultural equipment, and tech goods. The US is tariffing the goods that China has yet known how to make, and this is disastrous to the development of electronic and tech industry of China. For instance, when American tech companies were banned from selling semiconductors to the Chinese telecom giant ZTE; the market now expects ZTE to bankrupt in days5. The American developers such as Qualcomm, Intel etc. are truly on the top of the tech game, and we all know the ‘made-in-China’ stuff often involves copying and even stealing the tech of others. Unfortunately, the manufacturing and service sectors always need the support of the electronics and tech for growth; so, the trade war would limit the economic prospect of China. On the contrary, the impact of China’s tariffs on American goods is moderate. Take soybean as an example: When China announced a tariff on American soybeans, the price of the beans immediately went down. However, the beans then became cheaper than that offered by Brazil, the biggest soybean exporter in the world; so buyers turned from Brazil to the US. The price and transaction volume of American soybeans were scooped up again 6. In short, the global electronics and tech market is an oligarchy but the global agricultural/manufacturing market is close to complete competition. As the two superpowers are competing in different markets, they are not battling on an equal ground.

One may say—OK, China can still shame America by selling US treasury bonds. The problem is, after selling the bonds, what China would do with the money? China will probably buy RMB for domestic spending. Hence, the price of RMB will increase, and this is exactly what I would like to see if I were Trump. If RMB becomes more expensive, the trade deficit will decrease.

Hence, no matter China ‘avenges’ with trade or bond, the US still wins. After all, paradoxically, Trump started the trade war for facilitating free trade with China. The tariffs are a temporary measure in a long game for the ‘greater good’ of the free market. Above all, the seemingly strong attitude of China in face of the trade war challenge can be considered as a necessary political gesture. A trade war is not only about economics but politics—China has to present to its people that their government and country are unbreakable and proud. In my view, patriotism is unlikely to take over China’s determination for modernization and prosperity as economic pragmatism is elementary of Chinese nationalism. Under-table negotiations between the two world powers can be expected.

Katy Puiman Chan is a PhD student at the School of Social and Political Sciences of the University of Melbourne.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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