China leads the way in protectionism

Malcolm Moore

Malcolm Moore is the Telegraph's Shanghai Correspondent. He arrived in China in July 2008 after three years in Italy as the Telegraph's Rome Correspondent. Before that, he was the paper's Economics Correspondent.

By Malcolm Moore World Last updated: March 2nd, 2009

5 Comments Comment on this article

After India led the way and boycotted Chinese-made toys last month, China is now terrified the rest of the world could follow suit.

So I wasn’t too surprised to see a hysterical outburst from Long Guoqiang, a fairly senior official at a State Council think tank.

He said China should prepare for a trade war. “We should draw up a list of retaliatory products [to boycott],” he said. “Personally I also think the retaliation does not need to be limited to goods. The retaliation could be more extensive,” he told a conference in Beijing.

Mr Long added that China could even consider a military response. “The best way to deal with trade protectionism is to have a nuclear threat,” he said. Needless to say, he wasn’t taken terribly seriously.

His shrillness, however, points to China’s weakness. The country ran record trade surpluses in December and January as it continued to push its goods out into the world market. As Michael Pettis, an economist at the Guanghua School of Management in Beijing, points out, this is simply not fair.

Major economies should be working together to rebalance the system, and if China is flooding the world with its goods while not buying any in return, why should politicians in the US or Europe, or in South East Asia, keep their trade barriers open and watch their own workers lose their jobs?

Even worse, China is working as hard as it can to increase its manufacturing. It has cut interest rates, increased credit lines to manufacturers, cut taxes and stalled discussions over minimum wages for workers.

Indeed, China may point the finger at the US and shout about protectionism, but China is one of the most protectionist major economies around. I talked with Joerg Wuttke, the head of the European Chamber of Commerce in China. He keeps telling the Chinese that the playing field is not level, but his appeals fall on deaf ears.

“There’s a lot of rhetoric about protectionism from the Chinese at the moment because they are very very afraid. But they have very little leverage when it comes to talking about trade. From our perspective they buy very little from Europe,” he said.

to continue reading