Trade Wars, Sanctions and Business Appeasement

Journal of Political Risk, Vol. 7, No. 5, May 2019 

By William R. Hawkins

Chinese President Xi Jinping, center, addresses a U.S.-China business roundtable, comprised of U.S. and Chinese CEOs on September 23, 2015, in Seattle, Washington. The Paulson Institute, in partnership with the China Council for the Promotion of International Trade, co-hosted the event. Elaine Thompson-Pool/Getty Images.

In his book Appeasing Bankers, Jonathan Kirshner, the Stephen and Barbara Friedman Professor of International Political Economy at Cornell, argues that “Bankers dread war. More precisely, financial communities within states favor cautious national security strategies and are acutely averse to war and to policies that risk war.” He finds this to be a “universal” trait (at least within capitalist societies) evident throughout modern history. This should be kept in mind when watching the large swings in the stock market in response to reports about the progress, or lack of, in U.S.-China trade talks, Iranian threats and turmoil at the Mexican border. While Kirshner focuses on “stability” with an emphasis on inflation and debt accumulation, he notes the “breathtaking financial globalization” that took place in the post-Cold War period. This has made markets even more sensitive to the dynamics of a contentious international system. Fortunately, the stock market rapidly recovers from panics generated by headlines thanks to the fundamental strength of the U.S. economy.

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US-China Trade War: Time is on the Side of the US

Journal of Political Risk, Vol. 7, No. 5, May 2019

By Ho-fung Hung, Johns Hopkins University

The US-China trade war has unfolded for nearly a year now. After some false hope of a quick deal, China’s backpedaling in May from earlier promises to stop requiring a technology transfer from US firms in China, and to do more to protect intellectual property, obliterated such hope. Trump’s reaction of raising new tariffs on Chinese goods, followed by China’s retaliation in kind, led to an escalation.

Bipartisan Support of Trade War with China

This escalation of the trade war, interestingly, has not unleashed criticism of President Trump in the US. Sources from the US negotiation team and those from its Chinese counterparts both verified China’s last-minute withdrawal of earlier commitments. There is little doubt that Beijing rather than Trump is to be blamed for this re-escalation. Trump’s strong response to the Chinese backpedaling instead got rare bipartisan support. Congress Democrats are on the same side with the President, judging by Senate Minority Leader Chuck Schumer tweet, “Hang tough on China, President @realDonaldTrump. Don’t back down. Strength is the only way to win with China.”[1]

Figure 1. China’s External Financial Position. (Source: World Bank)

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