by Michael Thawley, Matt Miller, Capital Group
China's relations with the West are at a crossroads. Capital Group political economist Michael Thawley discusses what to expect from U.S.-China negotiations and how it could affect global investors.
Matt Miller: How do you think about Trump's approach to China, which has differed from his predecessors'? What do you expect in the relationship in the next few years, and how might that impact markets?
Michael Thawley: Well, this is a key question — maybe more important than any of the others we have discussed. There's a political dimension to this and an economic dimension. The political dimension is that I think we Western countries were very favourable to China joining the global economic system. And we saw this as something which was beneficial to our economies, but also beneficial in the long term to global stability. And if China would evolve, it would become more like us, in effect. And I think what we're discovering is that that probably was mistaken — that in fact, right now we have a leadership in China which is increasing party control, the role of the state in the economy, and is really almost cracking down in a very old-fashioned way on diversity of opinion and so on.
We obviously have all benefited enormously from China's economic growth, and it's been a wonderful-- it's been a phenomenon. I mean, what China has achieved is remarkable, and for its own people a real blessing. And we've gained by exporting to China and so on. But people feel that there's not a reciprocal openness, that we've been more open to — our economies are more open to — China, to its investment, than China has been to us. And Mr. Trump is clearly looking to reset the economic relationship.
To do that, I think, will probably require some disruption to the relationship. Mr. Obama already initiated quite a number of anti-dumping cases against Chinese steel and other products, and I think we'll see more of that. The Chinese, of course, don't want serious disruption to the economic relationship. No one wants a trade war. And we'll have to see to what extent China understands the need for some resetting of this relationship and is prepared to accommodate some of the U.S.'s and other countries' concerns. There's clearly quite a bit of contact going on between senior U.S. business leaders and the Chinese leadership.
I think we can say both sides are looking for a deal, but they will have different perspectives on that deal. It's going to be difficult, I think, to see an outcome before the Chinese party congress, which is in, I think, November this year. Clearly, Xi Jinping would not want a major fight before that, because he would not want to be looking as if he couldn't control, manage, the relationship with the United States. Equally, he can't cave in to any particular U.S. demand in that period. So I think we'll see some uncertainty for some time. But I think we'd be foolish to underestimate the determination of the Trump administration to see some serious changes in that economic relationship.
Matt Miller: Are you surprised at all that Xi Jinping has been as assertive in the South China Sea, asserting the security interest?