© 2019 by RsA Asia Tax Advisors

Between Anniversaries and Trade Wars

October 31, 2019

“Between Anniversaries and Trade Wars” article by Lorenzo Riccardi on Wall Street Italia November 2019

 

On October 1, 2019, China celebrated the 70th anniversary of its founding, from Mao's time to Xi's. For those who work with this country and have experienced the latest economic changes, these are special days.

 

President Xi relaunches Beijing's role in a long, uninterrupted march, showing off the muscles of the new military apparatus with a grand parade in Tiananmen Square.

President Trump promises tariffs and new tensions in the trade relationship between the two countries, with the idea of banning listing on American exchanges to Chinese companies and in any way discouraging the flow of foreign investment to China.

In Hong Kong, where people have always worked on entry strategies in the country and M&A projects, protests continue, trying to divert media attention away from the celebrations in Beijing.

 

The economic profiles, from Guangzhou to Dalian, follow political logic, and almost always, even those who deal with investment projects often discuss geopolitical implications on doing business with China. Traveling to different regions fo the world grants a better understanding of the global development of the economy and the contrast between this country and the United States. The tariff war between Washington and Beijing is only the most visible symbol of the distinction between the two largest economies.

 

The trade war is not only perceived in Chinese factories or American customs but is well understood in Southeast Asia, Oceania, and the countries of the African continent.

Trump triggered the tariff battle in 2018 by announcing a series of specific measures and, despite several negotiations, he has increased the impact of tariffs on imports from 10% to 25% several times, hitting 200 billion dollars of goods imported from China.

China's response was announced by the State Council, with new tariffs from June 2019, hitting 60 billion dollars of imports from the United States. 

Trump in August confirmed a new 10% tariff on products imported from China worth 300 billion Dollars in force since September 1.

 

Washington has also announced that a ban on Chinese companies listing on American stock exchanges is under evaluation. The announcement marks the most significant escalation the Trump administration has taken.

 

This climate of tension, linked to the American attempt to slow technological development and China's commercial influence on the rest of the world, is captured in every region. 

 

In Southeast Asia, Thailand and Vietnam today promote themselves as ideal partners in relations with the US, promoting projects made in ASEAN (Association of Southeast Asian countries) that will eliminate tariffs issue from America. This grants the United States a reduction in new investments to China but could also strengthen China-ASEAN relations that are already considered the largest free trade area in the world.

In Africa, the relations between the US and China is now un-balanced, Beijing has invested heavily in each country, building infrastructures in the largest economies, in Nigeria, South Africa, Egypt, Algeria, Morocco, and Angola. It is easy to understand the influence of Beijing while traveling to Africa; the new airport in Algiers, the railways along the coast of Nigeria, the African Union building in Addis Ababa, and the largest mosque on the continent are all built by Chinese companies.

In the Pacific, despite being the region of the smallest economies in terms of size, the US-China rivalry is even more evident. Oceania has always been one of the regions most influenced by Washington, which has its own territories (Guam, Hawaii) and associated states (Marshall Islands, Micronesia) but the Belt Road projects have led to the construction of new airports, roads, and infrastructure, with the Solomon Islands and Kiribati who have recently stopped relations with Taiwan in order to promote only China Mainland. 

Beijing is linking the Pacific with Asia from a geo-economic and as a geographical point of view. China-US trade war has a high significance. It demonstrates that the world’s center of gravity is changing. President Xi’s desire to see economic globalization in line with China’s development is welcome in many regions, as is his willingness to put forward an alternative view to that of Washington. Regardless of who the next American president will be, the United States will have to counter China's race from a regional leader to global leader.

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