Ning Gaoning discusses the challenges and future of the global trade system, noting that the U.S. launching a trade war will not improve its trade balance.

Release Date:

2018-09-25

On September 16, the China Development Forum 2018 Special Symposium was held in Beijing. Representatives from academia and the business community around the world gathered to engage in in-depth discussions on topics such as the remarkable achievements of China’s 40-year reform and opening-up process and the international economic landscape amid escalating global trade tensions. At the forum, Ning Gaoning, Chairman of Sinochem Group, delivered a speech on the theme “Challenges and the Future of the Global Trade System.” He argued that the global economy, trade, and investment form an inseparable whole—a cyclical, self-reinforcing system. Under the trend of globalization, no country can achieve development through isolation. Initiating trade…

On September 16, the China Development Forum 2018 Special Symposium was held in Beijing. Representatives from the global academic and business communities gathered to engage in in-depth discussions on such topics as the remarkable achievements of China’s 40-year reform and opening-up process and the international economic landscape amid escalating global trade tensions.

At the forum, Ning Gaoning, Chairman of Sinochem Group, delivered a speech on the topic of “Challenges and the Future of the Global Trade System.” Ning Gaoning argued that the global economy, trade, and investment form an inseparable whole—a cyclical process that repeats itself endlessly. In the context of globalization, no country can achieve development through isolation. Initiating a trade war against China will not create more jobs in the United States. The growth and flow of world trade and investment will not be halted by isolated trade frictions.

The following is Ning Gaoning’s speech delivered at the China Development Forum’s special seminar (translated and abridged from the audio recording, and not reviewed by the speaker):

Ladies and gentlemen, good morning!

I see that today there are many participants from abroad. As Chinese entrepreneurs, I would like to share with you the insights we have gained, the perspectives we have observed, and the ideas and discussions we have engaged in—focusing on three key areas.

First, has the world changed?

I meet many friends every day and hear a variety of stories. The UK’s Secretary of State for International Trade told me that, since the UK decided to leave the European Union, its economy has actually performed very well: job opportunities have increased, the currency is strong, and economic growth has been robust. What he said bears a striking resemblance to what President Trump stated just a few months earlier. After becoming U.S. president, Trump claimed that the American economy was in excellent shape, with low unemployment and rapid GDP growth.

So, has the world changed? When nations and individuals try to isolate themselves from the global order, does the economy actually fare better? If you had met with your American friends six months ago and asked whether President Trump would be reelected, most would have replied, “No,” “There’s no way he’d win a second term,” or “He might even face impeachment before his four years are up.” But today, if you ask those same friends whether Trump will be reelected, they’ll say, “He’s sure to win.” Suddenly, you sense that the world has shifted: the principles we once took for granted—such as the World Trade Organization, free trade, globalization, and economic integration—have all undergone a dramatic transformation.

During the earlier discussion, someone asked: Are these phenomena attributable solely to Donald Trump? We replied, “No”—this has nothing to do with whether or not he was elected president; such developments would have occurred regardless. So, is it already the case that the world is beginning to move away from free trade?

Interestingly, over the past six months, many people have begun to support so‑called “fair trade,” or what is also known as “reciprocal trade.” Whatever the reasons, ordinary citizens have started backing policies that reflect their own preferences, and this support is growing. So I told the UK’s Secretary of State for International Trade that we once studied your country’s Ricardo‑based theory, but the underlying principles have evolved. He replied that this is perfectly normal—after all, we are a democracy, and this is the people’s choice. This, in turn, raises an important question: what exactly is democracy? Among those of you here, did you vote to leave the EU? If it had been up to this audience, Britain would likely still be in the EU; and if you had voted for the U.S. president, Donald Trump probably wouldn’t have won. What is democracy? One person, one vote. Therefore, you must abide by the rules of the game.

This indeed raises the question: when decisions are made on a one‑person‑one‑vote basis, they can have global implications. Are such decisions the right ones? Will they always be right? The answer remains uncertain.

Second, how will the trade dispute unfold?

First, trade friction revolves around trade—trade embargoes, tariffs—and hinges on whether the figure is 50 billion or 200 billion. Countries each hold their own positions, and trade issues do have global implications, but that’s only the first step. The second step is about power: in the past, the West sought to ensure that the majority could benefit as much as possible from growth; now, however, the situation has changed—they demand that you neither surpass the United States nor take advantage of it.

In his speech in Vietnam, Trump said, “You Asian countries have been taking advantage of the United States, which is why your economies have performed so well. But today, I’m telling you: you can no longer take advantage of us.”

I don’t know what exactly China has gained at America’s expense. When China joined the WTO, both sides had already reached an agreement—America was the one that allowed China to enter the organization. But now, everything has changed.

Third, might disputes arise over the country’s political system or economic model?

The United States argues that the relationship between China and the U.S. is asymmetrical: as a democracy, it insists that China must adopt the same political and economic model. Yet, looking at China’s history—and particularly over the past four decades—its economy has consistently delivered robust growth, precisely because China has maintained a political and economic system tailored to its own national conditions. In the preceding one or two centuries, China scarcely managed to achieve sustained economic progress. Over these 40 years of reform and opening-up, the Chinese people’s living standards have improved markedly. But when Americans tell China it cannot proceed this way and must revert to the old path, China clearly will not comply.

I fully agree with everyone’s view: China needs to carry out further reforms, at every level and in every aspect—this is the consensus of contemporary Chinese society. However, as a major country with vast territory, abundant resources, and a large population, China must weigh numerous issues and balance the interests of diverse stakeholders, which means that its reform process will be gradual and incremental.

The global economy, trade, and investment form an inseparable whole—a cyclical process that repeats itself endlessly. I do not believe that launching a trade war against China would create more jobs in the United States; the U.S. has long since reached full employment—does it really need more jobs? Does it need more Mexican immigrants to fill those positions? Can the U.S. truly improve its trade balance? I think not. Even if the U.S. stopped buying from China, it would still have to source goods from other countries; and if China stopped selling to the U.S., it could simply redirect those exports to other markets.

Let me give you an example involving soybeans, which have become a central issue in this trade dispute. If China were to cut back on its imports of U.S. soybeans, it would buy more from Brazil, since China requires nearly 100 million tons of soybeans annually to meet domestic demand. In turn, if China purchases more soybeans from Brazil, Brazil would sell slightly less to Europe, while the United States could export more soybeans to Europe. The global economy operates in such a cyclical manner, and the same dynamic applies to all trade and investment. Unless the United States were to sever ties with the rest of the world and isolate itself, launching a trade war would not enable the U.S. to generate a larger trade surplus.

Interestingly, I used to be in the soybean business myself. Chinese companies buy soybeans from the United States, process them into finished products in China, and then supply those products—where do they end up? At KFC and McDonald’s! In other words, goods made from U.S. soybeans are sold back to U.S.-listed corporations, which in turn sell them to Chinese consumers. So, when the United States launches a trade war, whose interests is it really trying to protect? For now, it seems that such a trade conflict could lead to higher costs—at least in the short term—as the world adjusts and adapts. Trade frictions may alter the flow of inputs, components, finished goods, and capital along global supply chains, but the expansion and movement of world trade and investment will not come to a halt because of isolated disputes. Even if the trade war drags on, we will eventually see shifts in trade patterns. After all, the global economy and its trade networks form an endless cycle; under the trend of globalization, no country can achieve development through isolation.

The Chinese business community views the United States as a leader in technology. Companies like Apple, Google, Microsoft, and Amazon are at the forefront of technological innovation, driving progress, while Chinese firms have largely played the role of followers. Yet even as China has caught up in certain areas, the U.S. has managed to widen the gap once again. When I first went to the U.S. to study, the very first case I examined was Nike—back then, Nike had no manufacturing facilities in the U.S.; all production was outsourced to South Korea, Taiwan, and Singapore. At the time, we regarded Nike as a true success story. But today, you’re seeing Nike bring its entire shoe‑making operation back to America. I believe the U.S. should continue to position itself as a leader in technology and innovation, as well as in global trade—and that trade, in the end, benefits everyone. I offer this perspective for your consideration.

Source: Sinochem Group

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