[New Year Interview] David Dollar "Ceasefire in Disputes Until US Presidential Election"

[Insights from US-China Experts] The 2020 Economy of G2 After Phase 1 Trade Agreement
- David Dollar, Senior Fellow at Brookings Institution

The trade agreement between the United States and China, which had been dragged on for over a year, came to a conclusion at the end of last month, ushering the global economy into a new phase. Once the US and China officially sign the Phase 1 trade agreement on the 15th, some of the uncertainties that weighed down the world economy last year will be alleviated. However, even with the two largest economies in the world reaching an agreement, there is still a long way to go. Experts believe that the Phase 2 negotiations, expected to begin this year, will be much more difficult than Phase 1. Experts from both the US and China have assessed the economic outlook for the two countries following the Phase 1 negotiations.

[Asia Economy Reporter Joselina] "The trade dispute truce will continue until the US presidential election this year. The trade war with China does not benefit US President Donald Trump either."

David Dollar, a leading China economic expert in the US and senior fellow at the Brookings Institution, recently dismissed the possibility of further trade wars between the US and China in a New Year interview with Asia Economy. He believes that the US-China trade war, which has lasted for over a year, has already damaged the economy of the US Midwest, the core support base for President Trump. Dollar majored in Chinese history and language at Dartmouth College and is one of the top China experts in the US, having served as a special envoy for economic and financial affairs at the US Treasury Department in Beijing.

The US and China agreed on a Phase 1 deal at the end of last year, which includes China purchasing US agricultural products. Ahead of the US-China Phase 1 trade agreement signing on the 15th, Dollar said, "While the truce in the trade dispute following the Phase 1 agreement may not last long, it will continue until the election." He explained that President Trump, who is running for re-election in November, will likely maintain a conciliatory atmosphere with China, mindful of the cooling voter sentiment in the so-called Rust Belt and Farm Belt regions. These regions, which played a pivotal role in Trump's 2016 election victory, have been among the hardest hit since the outbreak of the trade war.

Dollar explained that the fundamental cause of the trade war is China's rapid growth, which threatens the US, making conflicts over trade and technological hegemony inevitable. However, he added, "Considering the large-scale trade and investment between the US and China, I do not think a Cold War will unfold," predicting that a "complete Cold War" will be avoided. He further noted, "The current situation is completely different from the Soviet era," drawing a line against concerns that US-China tensions could escalate into a new Cold War.

He also dismissed concerns that the US-China trade war, represented by retaliatory tariffs, could soon expand into a currency war. Dollar said, "If it escalates into a currency war, it would inevitably damage the global and Chinese economies," and predicted, "China will not engage in a currency war." He refuted President Trump's claims that China is manipulating its currency, stating, "That is not the case." Instead, he sarcastically noted, "The dollar has strengthened due to President Trump's tax cuts and tariff impositions," adding, "The Trump administration is effectively pursuing a strong dollar policy." President Trump has been more openly accusing China of currency manipulation since the Chinese yuan surpassed 7 yuan per dollar last year, a level referred to as 'Po Qi (破七).' When asked if the yuan would exceed 7.5 yuan per dollar this year, Dollar said, "I cannot predict," but added, "There is a high possibility of yuan depreciation."

Dollar also saw little chance that the US congressional impeachment investigation targeting President Trump or the Hong Kong situation would affect the trade war. He asserted, "Impeachment will have no impact on the trade war." He also predicted that unless large-scale violence occurs in Hong Kong, its impact on the US election will be limited.

Dollar expressed strong concern over the growing protectionist trend since President Trump's inauguration, which threatens the multilateral international trade order. He said, "Global economic growth and prosperity ultimately depend on the international order," adding, "If this international order is permanently damaged, growth will slow further."

In particular, he pointed out, "It is worrisome that the World Trade Organization (WTO), which has led the multilateral international trade order, has weakened in function," warning, "If the WTO does not perform its proper role, powerful countries could push out smaller nations." Currently, the WTO appellate body, which arbitrates international trade disputes, is effectively non-operational. Although the appellate body has seven members, since 2017, no new members have been appointed due to opposition from President Trump, leaving only one member with a remaining term.

Dollar also warned of the risk of entering another economic crisis, saying, "The level of global risk is increasing," and citing high debt levels as a major risk factor, including US government debt and Chinese corporate debt. According to the Institute of International Finance (IIF), global total debt surpassed $250 trillion (approximately 29,650 trillion won) as of the end of June last year, exceeding three times the world's gross domestic product (GDP).

Regarding the Korean economy, which is highly dependent on exports and inevitably vulnerable to the direct impact of the trade war, he suggested, "Structural reforms that can make the system more efficient are possible," and recommended, "It is necessary to open up the service sector, which has a large scale of job creation, to enhance competitiveness."

◆ David Dollar, Senior Fellow

- Bachelor’s degree from Dartmouth College, PhD in Economics from New York University

- Current Senior Fellow at the John L. Thornton China Center, Brookings Institution

- Former US Treasury Department Special Envoy for China Economic and Financial Affairs, Director for China and Mongolia at the World Bank

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