Heading for a USA-China trade war: US desperately trying to avoid being turned into 'Chinese paper' tiger!
On March 16th, in its public announcement on the release of GEAB N°13, LEAP/E2020 described that the US were about to enter into direct trade confrontration with China about paper mills:
« ... Chinese leaders are probably sending signals about the risk for Washington to engage their country in protectionist policies with direct consequences on Chinese (but also Japanese) (1) exports. It is indeed in the very next weeks that the US Congress, led by the Democrats with the support of part of the Republicans (and the rather explicit support of Fed's president Ben Bernanke), prepares to vote for a whole array of protectionist measures specially designed to hinder part of Chinese exports, such as for instance those – emblematic – aimed at protecting US paper mills (2). The message thus sent by Beijing will nevertheless only contribute to the « action / reaction » spiral and reinforce the trans-Pacific trade confrontation. As highlighted by the US-China Business Council, the trade limitations the US considers to undertake can only endanger the two countries' trade relationships altogether (3)... »
Since Friday March 30th, this anticipation became reality, thus provoking a sharp fall of Wall Street and initiating a sustainable degradation of US-China trade relations (4).
For the readers of GEAB, this tendency towards a China-USA trade conflict and its consequences on the dollar and on global trade, have been familiar for months already. Indeed, on December 15th, 2006 already (GEAB N°10), LEAP/E2020 described the characteristcs of what they considered as one of the four major global trends in the year 2007, i.e. the return of US protectionism and the start of a China-USA direct trade confrontation developing into a trans-pacific trade war as a result of a new balance of power prevailing in the region. Speaking of that, LEAP/E2020 anticipates that the project of USA-South Korea free trade agreement will fall victim to the same political reasons, and to the parliamentary ratifications required in Washington and Seoul.
« ... According to LEAP/E2020, there is a good reason why US leaders keep hustling in Beijing: they are trying to prevent a direct economic and financial confrontation from emerging between the US and China in 2007. Repeated travels on the part of many prominent US figures to the Chinese capital, such as those being made by no less than seven cabinet Secretaries plus the US Federal Reserve's president on the occasion of the « Strategic Economic Dialogue » (5), are a clear signal of tensions growing between the two countries and of Washington's weakness on an issue in which the US do not have much to offer. Indeed, despite the efforts made by the US Treasury Secretary Henry Paulson, the United States are probably about to implement severe protectionist policies as soon as the Democrats will take control of the Congress next January. Last November's US mid-term election was won by the Democrats on that particular theme. And all political leaders, Democrat or Republican, are well aware that in 2008 the presidential election will be won on that same theme. In a framework of economic recession, in the next two year the US Congress will be the theatre of a fierce overbidding on protectionism seen as the only way to protect national jobs.
[Blockierte Grafik: http://www.leap2020.eu/photo/600903-733710.jpg]
The debate launched by David W. Boles on Urbansemiotics is a remarkable illustration of the fact that the US presidential campaign in 2008 could in fact be won on the “anti-China”. If such a theme can appeal to Washington or deeper in the country, it is nevertheless suicidal for the United States as a whole ; indeed, protectionist measures might aim at China only in the first place, but they will in the end affect the totality of the US trade policies and accelerate the collapse of multilateral trade processes... ».
And to conclude its anticipations on this theme, LEAP/E2020 considered in mid-December last year that « the economic and commercial relation between China and the US is stuck and likely to end up into a major confrontation between the two superpowers at the beginning of 2007, since US leaders cannot handle much longer the current status quo, and since China shows no intention whatsoever to modify significantly its development strategy (one planned over a long period of time) but on the contrary wishes to fix certain rules of the game from now on (6). Let's not forget that a significant revaluation of the Yuan would increase competitiveness of foreign agricultural products on the Chinese market, a situation simply unacceptable for Beijing which has enough difficulties already in maintaining its countryside quiet with 750 million Chinese farmers working there.
However, the purely internal political games played by leaders who have not yet understood that their country too is under the influence of the rest of the world, will probably drag the US in this direction, thus reproducing in the commercial and economic fields mistakes similar to the invasion of Iraq in the diplomatic and military fields.
Among various consequences for the financial spheres, the juicy business big US banks made these months in China (and a large amount of Goldman Sacks', Morgan Stanley's… recent super dividends) will not happen again in 2007.»
Here is another example of the quality and accuracy of LEAP/E2020 anticipations delivered each month in the Global Europe Anticipation Bulletin (on subscription). Such strategic and operational added-value is only made possible by a unique blend of multidisciplinary approach and grass-root knowledge of the concerned countries and players.
