Counterpoint: Trade war looms as US flounders to find

Illustration: Liu Rui

Protectionist measures by the US government against China have received great publicity. These include tariffs against China's solar panel exports, the rare earths dispute, a bill against "subsidized" exports passed by both houses of the US Congress and other steps.

These measures are real and China's government is justified in rejecting the arguments put forward to support them. Most of the "proofs" of subsidies are fake, and anyway it is ridiculous for the US to express outrage on such grounds when the world's most subsidized exports are US farm products.

But it is important not to exaggerate. Protectionism is not the main trend in the global economy, nor is it growing between the US and China. This is shown both by factual economic trends and considering the underlying forces at work. Protectionist measures affect trade at the margins but do not alter the core of world trade which continues to expand.

To show this first consider the facts. The volume of world trade fell severely during the international financial crisis, declining by 19.7 percent between April 2008 and May 2009. But it then more than recovered. According to the latest available data, by January 2012, the volume of world trade was 4.8 percent above pre-crisis levels.

After the crisis, the US imports fell sharply, from 15.7 percent of GDP in the third quarter of 2008 to 10.6 percent of GDP in the second quarter of 2009, but then recovered to 14.8 percent of GDP by the fourth quarter of 2011.

In dollar terms China's exports to the US rose 22 percent between their pre-crisis peak in September 2008 and the same month in 2011, well above the 15.4 percent increase to the EU, and not far behind the 27 per cent increase to Japan. In short, US post-financial crisis trends showed trade recovery, not deepening protectionism.

Claims that protectionism is the main trend are therefore factually exaggerated, and take individual developments out of context without examining their overall weight in the world economy.

Analysis of fundamental economic forces confirms why protectionism is not the main trend. Modern production is on such a large scale that it cannot find an adequate market for its volume of production, at efficient levels, purely within a national economy. That is why China's reform and opening-up was necessary, but it is exactly the same pressures that affect the US.

Even in 1929 serious retreat into protectionism led to disastrous economic decline and crisis, culminating in destabilization of all countries and finally world war. Today, when production is on a far larger scale than 1929, the economic results would be more catastrophic. Consequently all major economies have so far rejected large-scale protectionism.

Fundamental economic analysis therefore confirms what the facts reveal, that certainly there will be some protectionist actions, but these will be at the margins, and globalization, not protectionism, will remain the main trend in the world economy.

US anti-China neo-conservatives have much experience in how to slow Asian economies. This was successfully achieved against Japan and then the South Asian "Tiger" economies during the 1997 debt crisis. In neither case was protectionism the main weapon. Their first strategy was to transfer disputes from the economic realm, where the US is weakening, to the military and political fields, where the US remains much stronger.

This tactic is followed in the US pivot toward the Asia-Pacific region. Within the economic realm the main methods US neo-conservatives used were forcing other countries to overvalue their currency, forcing cuts in investment levels, which slow economies, and lower foreign inward investment to reduce technology transfer. All these methods are being attempted against China.

Attention must be paid to real protectionist measures but exaggerating the degree of protectionism is factually incorrect, not based on analysis of the world economy's main forces, and fails to identify the main economic attacks against China.

Competition within globalization, not protectionism, is still the world economy's main trend.

The author is a visiting professor at Antai College of Economics and Management, Shanghai Jiao Tong University. Johnross43@gmail.com

Counterpoint: Trade war looms as US flounders to find recovery