Jack Ma said that Chinese consumers are already among the largest driving forces of global trade and America, which was once home to free and open markets will miss out on profitable opportunities by adopting a protectionist stance. He even called the move to be stupid.
“Trade war is the most stupid thing in this world,” Ma said Monday at a conference in Shanghai hosted by the Chinese government.
Ma said that as a businessman, he has been encouraged by pro-business policies of the US administration including lowering corporate taxes. However, he is struggling to understand why a trade war with China would be good for the US economy. The US has a systematic trade deficit with China because of the market forces having a comparative advantage. It is only obvious that economies produce what they are best at making and import things they do not make. Due to this, dollars earned from trade surpluses are recycled to finance the American borrowing which keep the US interest low along with favorable economic conditions. So much so that in the last 17 years, the unemployment rate has been its lowest with 4.1 percent. All these economic factors indicate that the US economy is doing well despite of the trade deposit.
For the last 30 years, American economic policy has been unchanged with US companies encouraged to outsource labor-intensive manufacturing to China and other Asian countries while retaining the technology, innovation and brand which are far more valuable and profitable. Now China has embraced this American-led globalization it is undoubtedly the best path for China’s development as a leading global economy. The Chinese government promoted foreign investment and built the economy based on its key strength that is its large and incredibly skilled labor force. This not only improved the living standard of 1.3 billion people but also made China the world’s largest exporter with an incredible trade surplus. This also benefited American consumers with low prices and giant profits.
The biggest example of a beneficiary of this symbiotic relationship is one of the leaders in technology today, Apple. The company designs the iPhone, iPads and other products along with software and chips. Then, they hire millions of workers in China to assemble components which are manufactures in South Korea. Finally, these products are then sold to millions world wide through smart marketing to make the brand more valuable.
From this, you now know that countries like China and South Korea collect revenue from selling components and assembly of the final products whereas Americans make almost all of the profits in the sales. Under this symbiotic relationship, the US became a dominant technology leader and its brands are today the most influential among competitors. China has improved the standard of loving hundreds of millions of citizens with a big increase in per capita GDP over the past 20 years. However, things are changing now and the US-China relations in the next 20 years will be quite different from the past 20 years especially after China embracing this sound strategy.
China is rapidly shifting its economy from the world’s largest exporter to the world’s largest consumer. Chinese citizens now have the income and wealth to pursue non-compulsory spending. They now want to and can buy high-quality imported food, cosmetics, fashions, and health and wellness products for themselves and their children unlike the previous generations. Urban income is rapidly growing and today there are over 300 million emerging middle-class citizens which is over 90 percent of the total population of the US. Now, Chinese consumers are demanding for imports from all around the world and it is expected that in the next five years, China will import nearly 8 trillion dollars’ worth of goods.
It is therefore strange that the US administration is waging a trade war with a global powerhouse especially at a time when the largest potential market in the world with 1.3 billion prospects is open for business. Will this be the greatest missed opportunity is America forfeits it? Definitely!
This trade war has already hurt millions of American small businesses and farmers. Ma said that he felt for those men and women, because he met many of them on his last tour to host his “gateway” trade showcase in Detroit. Farmers and Small-business owners travelled from all over the country to learn how the could connect their businesses with the huge potential consumer market in China. Those who attended the event understood what the future could hold for their respective businesses.