Is China About to Overtake the US for World Trade Leadership?

SUMMING UP. It's better for the United States if China is an economic ally rather than a competitor for world trade leadership, James Heskett's readers conclude.
by James Heskett

SUMMING UP: Does It Matter If China Assumes Global Trade Leadership?

There are a variety of reasons why China is not a threat to the global trade leadership of the United States. They include demographic disadvantages, an unwillingness to make Chinese markets more available to imports, and a reluctance to open up the banking system and promote the yuan as a global reserve currency. These were the conclusions of nearly all respondents to this month’s column.

Nevertheless, there was an undertone to the comments suggesting that a more productive way of thinking about the matter would be to concentrate on fostering a stronger trade partnership between the US and China rather than thinking about it primarily as a competition.

Janik Kersten commented that “China today is not yet taking part in all the institutions that we (the Western economies) installed, but slowly and steadily they will improve their trade ‘interoperability...’" Nevertheless, "the US will stay a country with a young and ambitious population benefiting from the flow of immigrants while China is rapidly growing old due to its one-child policy.”

George added that unless China opens up its own markets, it cannot be a credible champion for world trade. “Xi Jinping’s words are more of a PR stunt,” he wrote. Wildebeest added, “[A]ttempting to do meaningful work in China is basically a hassle from day one, top to bottom. Large companies often are willing to pay the price, small companies much less so.” Judy observed that, “Seems like China needs to become a member of OECD for it to become the leader in world trade.”

Liel reminded us that, “Global trade leadership will have to go hand in hand with allowing the yuan/renminbi to be a major reserve currency. And for that to happen, there will be a need to expose the banking system to free market forces… We will have to see if Prime Minister Xi is prepared (to expose) China’s shadow banking and rumored zombie banks to such a discipline.”

China should not be an economic enemy, Greg reminded us. “It would be better for the US to view China as a global partner rather than a competitor for global trade and resources… Dealing with Asia, and especially China, requires a more nuanced point of view because understanding of language, culture and business practice can be easily misunderstood… Ultimately, this will lead to better economic performance for both the US and China.” But ProfPaul views this as a long-shot. As he put it, “China remains committed to its own economic and political advancement at the expense of its trade partners. It has never expressed a compelling world view that would rally global citizens to its side… .”

Others were not ready to lose much sleep over the question. For example, Shadrick Shaili commented “China’s motive is to make the best out of any economy they have an opportunity to trade or deal with so that the benefits manifest in its people at home ... In so doing, China seems to be taking over world trade.” Sat Goel added: “China has surplus trade with the world and the US has a deficit trade balance… As such, the US lost the race several years ago.” In the same tone, Salvatore posed a question for us: “Leadership in global trade is as fluid as leadership in the Kentucky Derby… So, sure, China could overtake the U.S. The more interesting question is, does it matter?”

So that’s it for this month. Does it matter if China assumes global trade leadership? What do you think?

For once, I’ll disclose a personal bias up front. In the early 1960s, I signed on as a member of a group that sponsored an ad in The Columbus Dispatch titled, “Trade With Red China.” Rather than advocate a position, the ad laid out the pros and cons of establishing a trade relationship between the United States and a largely isolated but feared China. Nevertheless, it got my name on a blacklist of faculty members attached to a letter from an alumnus to the president of The Ohio State University at the time, demanding a reprimand or worse.

How times change. Of course, a few years later, president Richard Nixon embarked on his momentous trip that literally changed the course of US-China relations and history. Little by little, trade relations between the two expanded. China, for a time, became a primary manufacturer of goods for US markets--economists estimate that up to 2 million manufacturing jobs shifted from America to China.

At one time, the Chinese government was taking obvious steps to hold down the value of its currency, triggering a chain reaction that some believe contributed to the Great Recession of 2008. Here’s their thinking: Although the depressed value of the yuan increased the cost of raw materials imported by China, it produced a huge flow of manufactured goods from China to this country. A large current account trade deficit for the US followed, with the resulting funds invested by the Chinese government in US Treasury bonds instead of going into increased consumption by Chinese consumers. This depressed global interest rates and encouraged what turned out to be imprudent borrowing (and lending) practices in the world’s largest economy.

Since then, labor costs in China have risen to the point where a great deal of the original kind of manufacturing performed there has moved to lower-cost countries. Currency manipulation is thought to have subsided. The current account trade imbalance has shrunk. Chinese consumers are being encouraged to spend more of it. And the leadership of the Chinese government appears to be adopting a new stance concerning free trade, one that appears to be at odds with core beliefs of China’s ruling Communist Party.

When President Xi Jinping spoke to the World Economic Forum in Davos recently, according to a report in The New York Times, “He championed free trade and open markets, setting the tone for the week.” The facts on the ground seem to support that position. China is overtaking the United States as a trade partner of Latin American countries, for example. The Chinese government/industrial complex (it’s hard to sort it out) is buying companies and investing in projects around the world. In the meantime, a populist and nationalist wave has produced a power shift in America. Whether it will lead to the threatened tariffs, border taxes, and renegotiated trade agreements (with an emphasis on bilateral agreements) mentioned by the new administration is still subject to debate. But the tone of utterances by those now in position to influence US trade policy is in distinct contrast to the position of free trade advocates in past administrations.

The biggest factor influencing world trade leadership is the relative health of the economies of the US and China. As Thomas Christensen put it in his book, The China Challenge, “before we worry ourselves about Chinese economic growth, it might be best to consider the implications of Chinese stagnation!”

So are the roles of the US and China in world trade reversing? If President Xi believes, as he says, in free trade, will he be in a position to deliver? In the meantime, is current US talk about renegotiating long-standing trade agreements along with tariffs and tighter borders just talk? Is Chinese world trade leadership on the horizon? If so, what will it mean for the rest of us? What do YOU think?


Thomas J. Christensen, The China Challenge: Shaping the Choices of a Rising Power (New York: W. W. Norton & Company, 2015)

Alexandra Stevenson, “Global Elites See an ‘Abyss’: The Populist Surge Upending the Status Quo,” The New York Times, January 20, 2017, p. B2.

Post A Comment

In order to be published, comments must be on-topic and civil in tone, with no name calling or personal attacks. Your comment may be edited for clarity and length.