US-China trade
What trade tells us about the myths in the US-China economic contest
Published 03 December 2024
The next few years are likely to see considerable changes in trade patterns as superpower rivalry intensifies. A sifting of trade data reveals that China’s growth narrative, attractive as it may be, is at risk of failing on a substantial scale, in part because of its policies of self-reliance and national rejuvenation. While the US narrative of “America First” is unattractive to trade partners, the American market has in fact outgrown China as an export destination.
In the past 20 years, Beijing – and Washington in the early part of this period – actively promoted a powerful narrative that China’s rise will be a "win-win" economic scenario for the world. Indeed, the allure of the size of and rapid growth in China’s economy lent considerable credence later to the idea that China would surpass the United States, generating a strong incentive for governments and companies around the world to engage with China’s growth.
America, meanwhile, has been a picture of growing self-doubt. Its constant and rising concerns over the sustainability of its trade position found policy manifestation under Donald Trump and is by now a bipartisan consensus. The US withdrawal from the Trans-Pacific Partnership it had created to solidify a cutting-edge model of developing trade ties with the vibrant Asian trading economies gave way to the imposition of tariffs that led many to question the future worth of the United States as an export destination at the least, and a dependable strategic ally at the worst.
This narrative serves the purposes of the Chinese government. As long as both the existing Chinese and US political narratives on trade remain, Beijing can enjoy far greater leeway to exert pressure – often in the form of economic coercion – on foreign companies and governments to fall in line with Chinese policies and work to promote the ruling party’s agenda.
Download When narratives fail: What trade tells us about the myths in the US-China economic contest by Stewart Paterson:
Yet, the signs grow ever clearer that China isn’t quite as invested in its own mythmaking about its open economy. In 2020, China’s President Xi Jinping first began to promote his concept of the Dual Circulation Strategy (DCS). While somewhat vague at first, DCS marked a policy shift toward China’s economic self-reliance and a move to import substitution wherever strategic. Where import substitution was not possible, Beijing placed its emphasis on securing supplies of critical products overseas. Despite this policy turn, however, China remained committed to advancing a narrative of no-strings-attached overseas economic engagement and mutually beneficial outcomes.
In this paper, Senior Research Fellow Stewart Paterson parses trade data to assess the mythology of the Chinese and US economic narratives. Were companies right in pinning their future on growth in the Chinese market? Do the forecasts of Chinese economic dominance still have the same validity that some thought they had ten years ago? Did US protectionism reduce the importance of the United States as a destination market for the rest of the world to sell into? What do trade patterns say about each superpower’s narrative and where does the reality lie?
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Stewart Paterson is a Senior Research Fellow at the Hinrich Foundation who spent 25 years in capital markets as an equity researcher, strategist and fund manager, working for Credit Suisse, CLSA and most recently, as a Partner and Portfolio Manager of Tiburon Partners LLP.
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