US-China trade war offers silver lining, opportunities for developing countries: LSE don

SINGAPORE – While the world may fret over the US-China trade war, this rivalry presents an opportunity for the developing world, an economics don said at the World Economic Forum (WEF) meeting in China.

Given the US and European tariffs on Chinese exports like electric vehicles (EV), China has turned to places like South America to grow its EV and lithium mining industries instead. For instance, Chinese manufacturers such as BYD and Great Wall Motor have established production, research and development, and sales centres in Brazil.

The economic activity and innovation spurred by the US-China rivalry is a “phenomenal opportunity” for smaller and developing countries, said Professor Jin Keyu of the London School of Economics and Political Science.

These countries might be able to bypass traditional industries like manufacturing to go up the value chain by adopting more advanced technologies, said Prof Jin.

This is especially critical as foreign direct investment into developing countries fell by 9 per cent in 2023, at a time when these countries have been largely left behind in green development, she said on June 27 during a panel discussion on US-China relations.

Prof Jin said there is no way the US and China can “decouple” given how deeply embedded they are with each other, as the world’s largest and second-largest economies.

“Tariff wars are more political posturing than anything else,” she added. “It used to be that economics drive politics in the Western world. Now, it’s the other way around.”

In May, US President Joe Biden hiked tariffs on a wide range of Chinese imports, targeting strategic sectors from EVs to semiconductors, batteries to critical minerals.

Another speaker, Professor Graham Allison of Harvard University, said the two great powers must recognise that they can be rivals and partners at the same time, instead of viewing it as a zero-sum game.

The US-China rivalry, in which there are irresolvable differences, will continue to be fiercely competitive yet have an element of cooperation, especially when dealing with common challenges such as climate issues, he said.

Prof Allison noted that the concept of “rivalry partnership” has roots in Chinese history -- an emperor of the Song Dynasty (960 to 1279) negotiated a treaty with the neighbouring Liao, a Manchurian kingdom, after concluding that the Song armies would not be able to win in a military conflict.

A more recent example is tech giants Apple and Samsung’s competition in smartphones, he said.

“But who is Apple’s principal supplier? Samsung. Wait a minute, how can one of your fiercest rivals be your essential supplier? Well, as Tim Cook said, life is complicated,” said Prof Allison, who is the Douglas Dillon Professor of Government at Harvard.

Sir Robin Niblett, distinguished fellow at British think tank Chatham House, said China and the US are confronting each other not just as military competitors but also as ideological competitors – a top-down government versus a bottom-up government.

The two sides have to look for small, targeted gaps for cooperation outside of the zero-sum competition lane and what might be a misinterpretation of each side’s motivation, said Dr Niblett.

For example, on climate, given China’s competitiveness in EVs and dominance in critical minerals, cooperation could be on carbon capture and storage, he added.

Dr Lynn Kuok, Lee Kuan Yew Chair in Southeast Asia Studies at Brookings Institution, said a coalition of an ad-hoc grouping of major Western and non-Western middle power countries could play an important role in moderating US-China tensions.

“If the US and China start undermining the rule of law, undermining the military, multilateral order, these middle powers can step in to moderate their worst impulses, establish diplomatic channels for them to lower their rhetoric,” she said.

In response to a question from the audience on how the US presidential race between Mr Biden and former president Donald Trump might impact US-China relations, Political Science Professor Li Cheng at the University of Hong Kong said he is deeply worried as neither men is good for China, nor will they be good for the US.

He said “both sides can benefit from each other’s confidence and stability”.

“But we’re not seeing that at the moment,” he added.