07 Apr 2017
LBS economist analyses two different views of a ‘level playing field’
As US President Donald Trump and Chinese President Xi Jinping meet face-to-face for the first time at Trump’s Florida resort, LBS economist Linda Yueh analyses two different views of a ‘level playing field’.
Speaking earlier this morning to the BBC, Linda Yueh, Adjunct Professor of Economics at London Business School, analysed the critical challenge the two presidents face – reaching a shared agreement on what a ‘level playing field’ means.
“They’re both going to say they want a level playing field, but they define fairness very differently,” Yueh said.
“The Chinese want to know is it Trump the businessman or the campaigner on the trail, and Trump wants to get a feel for Xi Jinping – will he really play fair in the American sense of levelling out this deficit?”
Yueh suspects that the “Chinese will give [the US] some carrots”, but also that they will hold a few sticks, like keeping the currency cheap.
China, which holds a lot of US currency, could influence the value of the US dollar, but Yueh thinks it would do so very cautiously. “What China probably has more at its disposal is to say, ‘We have a vast market. The best way to equalize trade between the two countries is that we’re willing to liberalize more of our market if you play fair,’” Yueh said.
But President Trump has just announced an executive order that in 90 days he will review all of the countries which have a trade deficit with the US – and China is top of the list.
“America buying more from China than China buys from America is what the Trump administration is trying to change,” Yueh explained.
The US can’t force China; all it can do is to use taxes. But, as Yueh explained, “President Trump also exerts a lot of pressure on American companies in terms of pulling back their supply chains.”
This, Yueh believes, is very damaging for American companies.
“Exerting moral pressure on US companies to produce more at home, and the very real prospect that the US will levy tariffs in order to deter Chinese imports, would be very damaging to US-Chinese trade relations, despite falling short of a trade war,” Yueh said.
While their first meeting is unlikely to conclude with any big pronouncements, Yueh concedes, it’s an important meeting since, with such diverse views; a ‘level playing field’ is a tall order to achieve.