THE stage is set. It’s April 6 and 7 at the “Southern White House” — US President Donald Trump’s Mar-a-Lago estate in Palm Beach, Florida. The world is watching Trump’s first face-to-face meeting with Chinese President Xi Jinping — and it is not just to see if he will “miss a handshake”. (Trump “didn’t hear” German Chancellor Angela Merkel’s handshake request in front of the camera.)

As @realDonaldTrump’s March 31 twin-tweet goes: “The meeting next week with China will be a very difficult one in that we can no longer have massive trade deficits … and job losses. American companies must be prepared to look at other alternatives.”

Is this another populist campaign promise or Trump telling the world that he will be pushing through import tariffs one way or another? As its president, Trump can withdraw the US from the World Trade Organization (WTO), just as he binned the Trans-Pacific Partnership, pundits say. Is a trade and currency war imminent?

“I won’t rule it [a trade war] out completely but the chances are low. Selective tariffs have been around, not just during Nixon’s time but even back in the 1930s [as well as] during Bush and Obama’s time within the WTO framework ... But if you look at the [stock] markets, there is no fear of a trade war,” says Arup Raha, managing director and chief economist of the CIMB ASEAN Research Institute, commenting on how markets had rallied following Trump’s election and only recently retraced after the back-off on repealing Obamacare.

“The border tax has many opponents. If you notice, the wall has not been mentioned of late. He has also backed down on calling China a currency manipulator, he has recognised there is a One China policy and as he goes more and more into the job, I think he has realised that trade is a complicated matter. A lot of the Chinese trades are intra-company trades, the Chinese entity of a US company exporting to the US. So I think there is a realisation that it [a trade war] is not going to serve any larger purpose,” Arup says. After its defeat on Obamacare, the Trump administration “needs a win” and will go for an “easier win”, such as a corporate or income tax cut, he adds.

Dr Yeah Kim Leng, economics professor at Sunway University Business School and former RAM Holdings group chief economist, shares this view: “Given Trump’s defeat in repealing Obamacare, taxes and trade would now be on his front burner. Although he will tread more carefully to ensure the first defeat is not followed by a second one, his administration will likely take a more calibrated approach to the other issues, especially trade, where many US industries and firms have been key beneficiaries with their global footprint in China and elsewhere. The huge presence of US firms in other countries will be a bulwark against a trade or currency war.”

On a scale of 1 to 10 (high), Yeah sees a “two to four” chance of a full-scale trade war, expecting “give and take” that will ensure trade and investment flows are not disrupted to the detriment of both economies.

George Magnus, an associate at Oxford University’s China Centre and former UBS Group AG chief economist, however, is less sanguine. He says, “Earlier this year, I’d have said the likelihood was about 8. Then Trump seemed to back away from more aggressive China talk and the threat of across-the-board 45% tariffs faded … Until last weekend, I thought maybe the risk had dialled down to about 4 or 5. Since Trump lost his Obamacare repeal, though, the government’s need for ‘wins’ is even greater, and my view now is that Trump’s best chance of wins is via routes that don’t require congressional approval. They would also detract from domestic difficulties, of course. So, I have pushed the risk of US-China trade conflict back up to around 7. My belief is that this isn’t like trade with Mexico or Germany but about tools with which to weaken China, which is, of course, America’s geopolitical rival.”

But isn’t global trade too intertwined for any country to escape unscathed?

“I don’t think we should assume, just because the levels of globalisation today are high and very intricate, that globalisation can’t be undermined or reversed by trade conflicts, or worse, trade wars in which nations retaliate against one another. The climate for such a scenario is clearly around now — and in ways which were not the case at any time since 1945,” says Magnus, who notes there is scope for the US to raise tariffs “even under WTO rules”.

“Think also about the background. Since the 2007/08 financial crisis, growth in world trade has barely kept pace with world GDP, whereas in the prior 25 years, it grew about twice as fast. This isn’t due to protectionism in the main but it does mean that the globalisation of trade has stalled. The same goes for cross-border capital flows and FDI. Neither has recovered the intensity it had before 2008. So, we are looking at a more fragile globalisation anyway, and now one that the US, long the guardian and protector of a liberal trade and investment world order, is threatening to walk away from. That, in a nutshell, is where US populism might lead the global system,” he adds. Magnus reckons that the US “would not threaten or impose tariffs on generic goods but carefully target them so as to not harm US firms”.

RHB Research Institute executive chairman and chief economist Lim Chee Sing does not expect a full-scale US-China trade war or the US slapping a 45% blanket tariff on Chinese imports. But he does see a 6 out of 10 chances of the Trump administration implementing “some form of protectionist and anti-trade policies”.

“A trade war may still happen in a globalised world. And if that materialises, it will likely slow down global trade, demand for goods and services and exports of export-dependent countries, and therefore economic growth over time. In the short term, the US may gain at the expense of the rest of the world but in the longer run, everybody loses,” Lim says.

While trade protectionist policies — be it high import tariffs or border adjustment taxes — would encourage US companies to invest and manufacture, and source more of their products domestically, it would also harm the country by raising costs for consumers and reducing the competitiveness of its economy over time, he explains.

According to Lim, more than a third of Chinese exports to the US are computer and electronic products (34.6% of total China exports to the US), followed by electrical equipment (8.8%), manufactured goods (8.6%), clothing (6.7%), machinery (6.6%) and furniture (4.5%).

Meanwhile, American exports to China are transport equipment (22.5% of total US exports to China), computer and electronic products (15%), agricultural products (14%), chemicals (11.7%) and machinery (7.2%).

Based on previous anti-dumping and anti-subsidy cases, Lim expects the steel, chemical, ferrous/non-ferrous metal, paper/timber, agricultural product, textile and machinery industries to be in the line of fire of the Trump administration, if there is a trade war.

Lim reckons that China may impose higher tariffs on automobile products from the US as well eliminate orders of aircraft from Boeing if a trade war breaks out. “Over the past few years, China has begun investigating some anti-dumping measures and anti-subsidies on chemicals, paper, steel, transport and agricultural products imported from the US. Industries related to these products may be potential targets if a US-China trade war occurs,” he says.

If the US succeeds in implementing a border adjustment tax — exempting ­exports from taxes but imposing a high tax on imports, a form of protectionist and anti-trade policy — affected trade partners will likely retaliate.

“One way to better prepare for the impact is via diversification of export markets, including signing more trade agreements with other countries. The RCEP (Regional Comprehensive Economic Partnership), if it materialises, should boost trade for the member countries and cushion the impact of fewer exports to the US. China, for that matter, may also tighten relationships in the region by promoting its One Belt One Road programme.

“If there is a trade war … the tech sector in Malaysia, for instance, being part of the global supply chain, could be impacted negatively,” says Lim, adding that slower exports would hit economic growth.

Thus, the worst possible outcome of the Trump-Xi meeting would be if China were labelled a currency manipulator and the US immediately moved to censure Chinese trade. The world would likely breathe a lot easier if “both countries agreed to address the current account/trade imbalances via positive measures without triggering a trade war”, something that Lim hopes to see.

“A clear policy direction that both countries will commit to peaceful and orderly trade negotiations, and a reduction in frictions will buoy the markets and growth prospects of the world’s two largest economies. Since Malaysia has high exposure to both economies, its large export sector will benefit from harmonious trade relations and a rise in global trade and investment,” Yeah comments.

Arup, who notes that China “has been taking a much more constructive stance”, is also looking for “some indication of US and China working with each other”.

Magnus, however, is “not optimistic that much will be achieved” post the Trump-Xi meet.

“If the purpose of the meeting is handshakes and photo opportunities, and a non-committal communique in which the US and China make vague claims to cooperate, then it’ll be quickly forgotten — and assumed to be a win for Xi since everyone expects Trump to want to make his mark.

“My hunch is that Trump will want to boast that he got some concessions and therefore will raise issues — not human rights, of course — that are contentious. For example, the South China Sea and something trade-specific like automobiles, which is a bone of contention [but] I doubt the meeting will end in hostility. Xi needs to show he’s in control of his country’s most important external relationship, especially since this is the year of the 19th Party Congress. And Xi doesn’t want upsets. So my guess is that both men will want to appear tough and in control, and there may be some insights into contentious areas where the two sides are, for now, to disagree.”

Donald Trump
(age 70)
President of the United States

March 30, 2017 27.2 million Twitter followers (No 44 globally)

March 24, 2017 Trump forced to withdraw Obamacare replacement healthcare bill

Feb 2017 Trump sets in motion plans to build a wall between the US and Mexico

Jan 23, 2017 Pulled the US out of the Trans-Pacific Partnership

Jan 20, 2017 Assumed office as 45th US president, first without any prior experience in public service or military

Jan 9, 2017 Names son-in-law Jared Kushner as senior White House advisor

Nov 8, 2016 Won US presidency, despite losing popular vote to democratic candidate and former US Secretary of State Hillary Clinton

March 2009 Joined Twitter as @realDonaldTrump

2003-2015 Host and co-producer of NBC reality show The Apprentice for the first 14 seasons. Trump began licensing out his name and image to a number of real-estate development he didn’t build himself, an asset Forbes valued at more than US$500 million at one point

1995 Trump paid under US$10 million for 40 Wall Street or the Bank of Manhattan Trust building, and renovated it. By 2006, Forbes put a US$260 million price tag on the 70-storey tower

1989-1991 Took on too much debt in expanding, restructured his debt, giving creditors half-ownership of Taj Mahal Casino. Trump was forced to sell the Trump Shuttle airline and his 282-foot Trump Princess yacht

1987 Trump’s business book The Art of the Deal spent 52 weeks on the bestseller list

1986 Trump lambasted inefficiencies of government agencies in charge of renovation of Wollman Rink in Central Park. Trump offered to complete the renovation for free. He finished in three months for well-below the city’s budget, proving his point.

1983 Trump’s stamp on New York City with 68-storey Trump Tower in midtown Manhattan

1980 Rescued Commodore Hotel from bankruptcy and transformed it into the Grand Hyatt

1971 Took over The Trump Organisation (founded by his grandmother and father Fred in 1923 as Elizabeth Trump & Son). Trump renamed the company when he took over

1968 Graduated at 22 from Wharton School, University of Pennsylvania

June 14, 1946 Born in Queens, New York City, youngest of five children of Fred Trump and Mary Anne MacLeod

Xi Jinping
(age 63)
President of the People’s Republic of China

Jan 17, 2017 Without naming Trump or the US, Xi, in his speech at the World Economic Forum, made a pro-globalisation stance, saying “no one will emerge as a winner in a trade war”. He also said Beijing will not boost its trade competitiveness by devaluing the yuan

2016 Over 120 high-ranking officials and at least 100,000 people had reportedly been indicted for corruption

September 2013 Proposed the ‘One Belt, One Road’ economic belt initiative

March 14, 2013 Introduced the term the “Chinese Dream” in his first speech as president, laying out his vision of a stronger nation based on “the Chinese path”, “the Chinese spirit” and “Chinese strength”.

January 2013 As president-in-waiting, Xi vowed to  crack down on “tigers and flies”, being corruption and abuse of power among high-ranking leaders and civil servants alike.

November 2012 Named seventh president of the People’s Republic of China, a five-year term that can be renewed once consecutively

March 2008-2013 Made Communist Party vice president

Oct 2007 Xi appointed to nine-man Politburo Standing Committee at 17th Party Congress, an indication he was going to succeed Hu Jintao as China’s next leader

March 2007 Party chief in Shanghai

2002 Elected full member of the 16th Central Committee, marking his ascension to the national stage

2000 Became governor of Fujian

1998-2002 Obtained a Doctor of Law degree “on-the-job” at Tsinghua University

1997 Xi named alternate member of the 15th Central Committee of the Communist Party of China

1987 Married folk singer Peng Liyuan, who holds the rank of army general

1985 Visited the town of Muscatine, Iowa as part of a Chinese delegation to study American agriculture

1983 Promoted to Secretary of Zhengding Country in Hebei

1979-1982 Served as secretary for his father’s former subordinate Geng Biao, the then vice premier and secretary general of the Central Military Commission

1975-1979 Studied chemical engineering at Tsinghua University

1974 Accepted into the Communist Party of China

1969-1975 Sent, at the age of 15, to work in the remote village for seven years like other “intellectual youths” in Mao Zedong’s ‘Down to the Countryside Movement’

May 1966 Xi’s secondary education cut short by the Cultural Revolution

1962 His father Xi Zhongxun, one of the Communist Party’s founding fathers, was purged from vice-premier post and eventually imprisoned in 1968

June 15, 1953 Born in Beijing, second son of Xi Zhongxun and Qi Xin

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