Expert seminar analyzing the U.S.-China trade war and the Chinese economy

2018.12.26
Dr. Jia Kang
Dr. Xu Xiaonian
The Sasakawa Peace Foundation (SPF) Japan-China Cooperation Department sponsored an expert seminar on November 27, 2018, to examine two pressing issues – the escalating trade war between the U.S. and China and the future prospects of the Chinese economy. Since 2014, SPF has invited experts to the foundation for this seminar series as part of a larger effort to build constructive and cooperative ties between the people of Japan and China.

The panelists for the seminar included renowned economist Dr. Jia Kang and Dr. Xu Xiaonian, a professor at the China Europe International Business School (CEIBS) specializing in economics and finance. The event was moderated by Mr. Tatsuya Tsugami, the head of Tsugami-Workshop, a consulting firm that focuses on economic issues in modern China.
Expert panelists (from left): Dr. Xu Xiaonian, Dr. Jia Kang, Mr. Tatsuya Tsugami
Expert panelists (from left): Dr. Xu Xiaonian, Dr. Jia Kang, Mr. Tatsuya Tsugami

Dr. Jia began his remarks by commenting on the escalating tensions between the U.S. and China, but he maintained that he is “not pessimistic.” To support this view, he highlighted the historical background between the two nations. “There was a period of the time when the U.S. helped China build hospitals and universities and also trained doctors in advanced medical technology,” said Dr. Jia. In addition, a series of high-level diplomatic developments, including President Richard Nixon’s visit to China in 1972 followed by paramount leader Deng Xiaoping’s visit to the U.S. in 1979, ushered in a period when the two nations seemed to be moving toward greater cooperation. “After establishing diplomatic relations, the key concept in the relationship became the pursuit of ‘mutual interests.’ At this point, the two countries were enjoying a particularly close relationship, and the U.S. even backed China to join the World Trade Organization (WTO),” said Dr. Jia.

Regarding the current trade dispute between the U.S. and China, Dr. Jia explained that “some analysts have observed that the purchasing power parity (PPP) of China has become larger than the United States. There is a theory that any country that dominates the world order will always be threatened by the second-most powerful country and will attempt to block the other country from gaining power. The economic power of the U.S. has already reached a critical point, and therefore the nation has become more exclusive and intolerant of competitors. As a result, the U.S. has increasingly focused on containing and restraining China. However, it is the same situation in China. We also became too arrogant, so the trade battle may be prolonged.” According to Dr. Jia, the key concept for the U.S.-China relationship in the future will be transforming into “rivalling powers.” Rather than finding middle ground, trade wars between the two countries will likely come and go, repeatedly appearing and disappearing.

In spite of recent tensions, Dr. Jia remains optimistic about the broader relationship between the U.S. and China. “Metaphorically speaking, the U.S.-China trade war is like the tip of an iceberg floating on the surface of the sea. If you look underwater, you can see that the relationship is connected by strong bonds through the global nature of manufacturing, innovation, and the financial markets. As Deng Xiaoping argued, the U.S. and China should advance shoulder to shoulder in an ‘age of peaceful development.’ In order to achieve this goal, China ought to pursue economic reforms,” said Dr. Jia.

Dr. Xu, in his comments regarding the future of the Chinese economy, compared China’s situation with Japanese development. “In modern history, Japan achieved a miracle twice in its economic development – the Meiji Restoration, which industrialized Japanese society, and the postwar economic recovery after the destruction of World War II. In spite of the massive devastation, Japan's success in developing its economy while enduring a series of crises amazed the world and the country became known for its economy and manufacturing,” explained Dr. Xu.

In addition, Dr. Xu asserted that China can learn many lessons from Japan’s experience, especially the prolonged period of economic stagnation called the “lost two decades” that followed the collapse of the bubble economy in the 1990s and continued through the global financial crisis in 2007. “China must ensure it does not fall into the same economic rut,” said Dr. Zu. “However, in terms of developing private business and innovation, China lags a decade or two behind Japan. China simply copies America in its innovation development. In addition, the establishment of tax systems in China such as the fixed property tax and inheritance tax is far behind the U.S. and Japan. China also restricts internet use, which has a negative impact on the future of the country by stunting creativity and innovation,” said Dr. Xu.

The panelists answer questions from the audience

During the Q&A session following the lectures, Dr. Xu was also asked about his opinion about the challenges for the Japanese economy from a Chinese perspective. “Unlike in the U.S., there are few disruptive innovations in Japan. Instead, Japan is very good at renovating existing products. This demonstrates the fact that when compared with an individualistic society like the U.S., Japanese society instead emphasizes harmony, consensus, and balance within a group. Japan needs to look into structural issues within its corporate culture as it faces the demographic challenge of its rapidly aging population. Currently, if a young employee proposes an innovative idea, the older executives are likely to reject the proposal. Under this business environment, it is difficult for Japan to create something innovative. I believe that the framework of Japanese society ought to be transformed so that young generations are able to display their talents fully and their new ideas are welcomed,” said Dr. Xu.

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