What Trade War? China Records Increased Trade Surplus With United States

Trade war by numbers 

China has released its trading statistics for the first nine months of 2018. While this year was supposed to be dominated by a Trump trade war that the US President said would be “easy to win“, judging by the numbers, China has won the trade way thus far with just over two months left in the year. From January to September China recorded a trade surplus with the United States of $225.79 billion. This is $34 billion more than the same period last year – an increase of 14.5%.

While the statistics in respect of the US may be surprising, China’s overall trade growth of 9.9% over last year (a total of $3.23 trillion) is far less surprising. While trade with the US increase 14.5% over last year, China also exported more goods to the European Union, ASEAN and Russia compared with last year.

Beyond the hype 

While the temptation to blame Donald Trump for statistically losing a trade war he claimed he could easily win remains tempting, the reality has far more to due to China’s long term strategic model as well as global market forces which were ironically influenced by the United States in China’s favour.

The world needs China

The fact of the matter is that a majority of the world is utterly dependent on Chinese goods across multiple sectors. Big businesses, governments, and consumers in every country in the world are using machines, electronics and other tools that are either partly or wholly made in China. Far from being a one-sided relationship, the affordability of Chinese goods has helped to raise global living standards while China looks to “pay it forward” by investing the profits of its exports not only into its own economy but into economies of multiple partner nations in Asia, Africa, Europe and Latin America. In the last month alone, China gave $60 billion to multiple African development projects and this is on top of the billions give earlier this year.

As China seeks to shift to the Created in China model in-line with Xi Jinping’s vision for consecrating a moderately prosperous society, in future years much of the world’s goods will not only be made in China but designed and conceptualised in China too.

Because of this, anything sort of a full scale trade embargo with China means that Chinese goods will still find their way into the US as they will in respect of other countries pursuing hostile protectionist policies including India.

Beyond this, due to the fact that China’s purchasing power parity (PPP) is now higher than the US, China’s internal market represents the world’s biggest both in terms of size and scope. In this sense, even if the entire world embraced unilateralism, something that is simply not going to happen; China would perhaps ironically be better placed to survive under a self-sufficient economic regime than other countries who deceive themselves into believing that such regressive steps are advisable.

American consumers and Chinese producers are in a win-win relationship due to a strong Dollar 

The Obama era policy of inflation creating quantitative easing is long over and the US Federal Reserve is keen to hike interest rates even more. While Trump criticised the Federal Reserve for its recent rate increases, the overvalued tech stocks on the New York Stock Exchange forced the Federal Reserve to engage in another rate hike in order to correct certain trends in the US stock market. This when combined with Trump’s tariff/sanctions barrage has put pressure on multiple emerging markets who tend to trade in and pay back loans dominated in US Dollars.

As a holistic result, the Dollar is up and just about every Asian, African and Latin American currency is down – including China’s Renminbi. Far from worrying about this, China has taken advantage of this as the rise in the Dollar and commensurate 10% drop in the value of Renminbi vis-a-vis the Dollar has helped to offset America’s taxation on Chinese goods known as the Trump tariffs.

This is one of the many reasons why China’s gradualist moves towards de-Dollarisation have been vindicated by practical policy decisions. China’s gradual steps taken to detach its economy from the US currency represent a strategy in line with the long term goal of freely floating the Renminbi at such a time when China’s overall GDP is about to outstrip that of the US (this will likely occur in around 20 years time). China is also preparing to broaden its options at a time when the US economy remains strong but highly unpredictable. As country that still owns substantial amounts of US debt and as a net exporter of goods to America, China does not yet feel the immediate need to ditch the Dollar.

China’s monetary strategy of winning the race by acting in a manner that is slow and steady has just been supremely vindicated in the short term, while China’s cooperation with its Eurasian, African and Latin American partners who do feel a more pressing need to develop non-Dollar based trading structures demonstrates that for Beijing, both de-Dollarisation and Dollar based trade can co-exist, at least for the medium term. China’s monetary policy is diverse enough for there not to be a contradiction inherent in such a long term strategy.

The US can misread the statistics if they want to 

While China’s overall trade with the entire world including the US is up, a professional class of Sino-cynics in the US like to point out that the Chinese stock-market has performed poorly in 2018 while internal Chinese debt is up. That being said, China’s stock market plays a vastly less important role in China’s economy than the stock market does in the US. As a country that runs a trade deficit with most of the world’s major industrial powers, the US is overly reliant on market speculation to create economic confidence. For China, export numbers are vastly more important than a Chinese stock market which admittedly has growing pains but as such is still too small a component of the overall Chinese economic to effect meaningful change to the overall economy.

As for Chinese debt, unlike that of the US, most European nations and emerging markets throughout much of Asia and Latin America, Chinese debt is mostly internal. This means that it is uniformly regulated by the same government sources and is mostly denominated in the national currency. Because of this, Chinese internal debt has both a very different origin and consequence than America’s rising debt.

Belt and Road remains more popular than US based unilateralism 

Outside of Donald Trump’s inner circle and some of his more economically nationalistic supporters, the majority of the world, including the US Chamber of Commerce and most elected officials of both the Republican and Democratic parties in the US favour free trade over unilateralism. While the US infowar against the Belt and Road initiative falsely claims that China is placing its partners into a “debt trap”, the reality is that as was demonstrated by the recent US trade deal with Canada and Mexico, Donald Trump intends to put America’s partners into a sovereignty trap.

China follows a supremely flexible course of action both in its approach to domestic reforms and international partnerships. China’s reformist former leader Deng Xiaoping once said, “I do not care if a cat is black or white, so long as it catches mice”. It has been this attitude which prioritises problem solving over stagnant platitudes of inflexibility that has led China to take the best elements of a command economy and combine it with the best elements of a market economy in the context of Deng’s market socialism. This has led to China elevating more people out of poverty than any nation has ever accomplished in modern history.

When it comes to more narrow problem solving initiatives, China is also able to move with the times rather than go against the grain. While China has a long term goal of floating the Yuan on open currency markets which in the medium and long term would lead to the appreciation of the currency’s value, because of the present US trade war, China has allowed the value of the Yuan to slip against the US Dollar in order to rectify some of the short term set backs inherent in any unwelcome tariff war.

Likewise, in foreign relations, China is always willing to conduct agreements on a bilateral basis that makes each side feel contended. This win-win model differs from the ‘one size fits all’ zero-sum mentality which guides both American and most European trade deals. In particular, the US tends to couple trade agreements with security and diplomatic arrangements, thus transforming weaker trading partners into de-facto economic and military colonies of the US superpower. By contrast, China never combines security and economic relations unless this is specifically requested from a partner and likewise, China’s ability to offer bespoke solutions to the issues that arise during the course of trading relationships mean that when working with China, one is working with a superpower partner that is able to compromise based on the terms dictated by individual issues which require individuated solutions.

The problem inherent in partnerships with the United States is that the demands made on a partner nation far exceed the material benefits derived from such a partnership. By making harsh demands on how a partner nation runs its economy, its government, the style of governance a partner nation implements and which nations it can buy weapons from and make security agreements with, the United States enforcing a zero-sum mentality on its partners that runs contrary to the modern mentality of respect of a partner nation’s sovereignty and cultural characteristics.

By contrast, China helps to empower partner nations through the Belt and Road initiative which means that China’s partners are able to take a share of responsibility in all joint projects in exchange for a mutual share in such project’s dividends.  While the US continues to flaunt a defamatory “debt trap” myth regarding Belt and Road, the truth is exceedingly different.

The “debt-trap” myth is flawed not only in terms of the fact that it is based on exceptions which prove the rule that most Chinese projects throughout Asia and Africa result in win-win outcomes for both parties, but the myth is also flawed in the sense that it fails to grasp real world realities beyond the ideological and purely theoretical. In life like in geopolitics there is no such thing as a free lunch. While China is more generous in terms of loans, investments and cash injections than most other wealthy nations, it is not in any nation’s interest to rebuild entire continents without getting anything in return.

In this sense, China is engaging in normal business practices that are international standards when it comes to expecting to be paid back on loans that it readily gives to nations aspiring to further develop their economies and infrastructure and does so at levels that are history making in terms of their forward thinking generosity. Of course, instead of offering loans and other investment schemes or otherwise giving away money for free, China could simply come to a foreign state, build infrastructure and keep 100% of the profits from such projects forever more. This however would totally exclude China’s partner nations from the project and would amount to little more than soft imperialism.

Instead, China seeks to cultivate win-win partnerships by including the partner nation in question at all stages of a joint project. In this sense, China is willing to share the benefits and the responsibilities as is normal in a genuine partnership of any kind. Implicit in such relationships is the reality that every now and then one side will negate some of its responsibilities. In the case of Sri Lanka, the government simply bit off more than it could chew and in agreeing to take over Hambantota port, Beijing actually saved Colombo both money and grief.

While Sri Lanka clearly did not think ahead before signing the final agreements regarding Hambantota, the fact is that the port is there and being run by Chinese operations means that it is nevertheless still bringing added value to the Sri Lankan economy. Even if for example China took operational control/ownership of Zambia’s international airport, China would still be working towards making Zambia’s airport more functional and attractive. It goes without saying that having a functional and attractive airport brings added value to any economy irrespective of who owns the airport. This is for example true of England’s Heathrow airport which is operated by a company originating in Spain.

The fact of the matter is whether a Chinese project in a foreign nation goes well (as such things typically do) or whether they require some sort of reassessment as many kinds of projects throughout the world do, China is always blamed by those sowing Sinophobic narratives when in reality China is engaging in normal business practices yet tends to be hated by those infected with a zero-sum mentality because China tends to have a larger success record in foreign infrastructure projects than do rivals including the US and India.

Another problem that arises is that when nations take a step back from deals with China to reconsider – something Sri Lanka clearly did not do though it very well could have done, China absolutely gets the blame here too from those who see the world through a zero-sum prism. When Malaysia’s Prime Minister Mahathir Mohamad looked to suspend some of the vanity projects that his corrupt predecessor Najib Razak agreed to begin building with Chinese companies, he was, according to some hyper-Sinophobic media outlets “Standing up to China”. In reality he was simply revising business deals the way the new head of a private company would do so with a partner company after taking over from a failed predecessor. There was no anti-China malice in Mahathir’s revisions of deals – just normal business practices.

In this sense, Belt and Road’s bespoke solutions involve not only evolving mutual understandings between partners but also involve mutual problem solving initiatives. It is this element of problem solving in the pursuit of win–win solutions that makes Belt and Road a vastly preferable mechanism for global connectivity that the American sovereignty trap model. Thus, for all of the black propaganda against Belt and Road coming out of the US and Indian media, the initiative still remains the leading source of confidence among developing nations seeking to secure win-win relationships that strengthen rather than weaken national sovereignty.


It cannot be discounted that as Trump piles more tariffs on China that the trade numbers with America will cool in respect of Chinese exports. That being said, the impact looks to be far more minimal than the more apocalyptic analysts had prognosticated. As China increases its trade with the European Union, enters into a free trading agreement de-facto Russian led Eurasian Economic Union and continues to increase trade with ASEAN, China’s overall outlook remains healthy.

The fact is that while the US talks about bringing production “back” to the United States, it would realistically take at the very minimum a decade to even make the US even 25% less dependent on Chinese goods and this is a liberal estimate. Furthermore, as most US businesses remain bullish in respect of relations with China, there hardly even exists a real impetus in the US to do such things outside of Donald Trump’s circle of supporters which may include rapper Kanye West but which include very few serious economists.

China is well prepared to whether any future challenges, but thus far, the only people to suffer in the trade war between the US and China are the American farmers whose votes Donald Trump’s Republican party badly requires.

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