Breakout

China vs. The World: Trade Spats Mount and Spread

Breakout

If you scan the news about Chinese trade policy, you'll be hard pressed to find anything being said that's positive or complimentary. Instead, descriptive phrases like "trust deficit" or "ball and chain" or "abusing trade laws" are more likely to appear - and that's just from the past week!

While some might think this terse talk is bilaterally limited to relations between Beijing and Washington, the reality is, China's trade turbulence has taken on global proportions.

"China is pushing out on its periphery," says Gordon Chang, author of The Coming Collapse of China and a contributor to Forbes Magazine. "This is a problem for China because they can't take on everybody at the same time and they're doing that. China has sort of lost its strategic focus and is just lashing out."

Whether it's the U.S., the EU, or its neighbors in Asia, experts say the spats are not only growing in number, but also in importance, as China's economy has grown to be the world's second largest. In fact, the Chinese have become so rich and economically powerful that some (including me) have questioned how the U.S. can maintain its leverage while being indebted to the Chinese for more than a trillion dollars.

As much as Chang agrees that ''it's nice" to have strong Chinese demand for our debt, he says if they disappeared from the market somebody else would take their place. "I don't think we're really beholden to them," he says, adding that "our problem isn't that there are too few people willing to lend us money , but rather that there are too many."

And then there's the debate of who needs whom more, which cuts to the true interconnectedness and co-dependence of industrialized nations. But Chang disputes this, and uses the ongoing Sino-Japanese rift (that's led to demonstrations and destroyed Toyotas) as an example that maybe China doesn't have the upper hand.

"The Japanese were already starting to shift production out of China to southeast Asia," Chang explains, adding that foreign direct investment into the country is turning down too. "This will accelerate the process at a time when China really does need even more foreign technology and the money it brings in."

As you might guess from the title of his book, Chang does not buy into the hoopla that typically surrounds the fastest growing large economy in the world. In short, he says when it comes to Chinese trade relations, the times have changed and talk of their economy eclipsing ours is a century or two ahead of reality.

"The conditions that really made China pop during the reform era no longer exist," he says. "They're no longer reforming, the international environment is no longer benign and its demographic dividend -- the extraordinary bulge in its workforce -- has become a demographic bust." He says until recently, countries wanted to integrate China and were therefore indulgent of china's mercantilist policies. That's no longer true.

As for the near term, particularly as it applies to our upcoming election, Chang does not see the trend of trade tensions reversing. "Whoever is elected, we're going to see new China policies. I think it's because Beijing is really pushing other countries, including the U.S., and that's going to cause a reaction. I think there will be real policy change in the next administration."

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