China's Trump Card

Preface

When I submitted the manuscript to the Wiley team, China and the rest of the world were battling against the COVID-19 pandemic. To prevent the virus from spreading, the Chinese government imposed a lockdown policy unprecedentedly. Economic activity was weighed down acutely. Supply chains were interrupted. The global situation was also alarming as the virus cases soared in other countries, including the US. In response to the negative economic impact, the Federal Reserve reduced policy interest rate to zero and restarted quantitative easing. Other central banks also followed the Fed and eased their monetary policy.

The virus shock represented an unpredictable “Black Swan” event in a fashion similar to Trump's initiated trade war. When the 45th US president took over the White House in early 2017, not too many people treated his “America First” claim seriously. His tweets, his tariff, and his “friendship” with president Xi Jinping stirred up market volatility. When he started the trade war in 2018 shortly after hosting Xi in Florida, exporters were caught off guard. Many people in the financial markets regarded the trade war as the “black swan” of the year.

In this book, however, I argue that this US–China trade war is not a black swan. Unlike coronavirus, the trade tension is predictable. When the trade war was looming in July 2017, a high-profile editorial in People's Daily warned that China should be on guard against not only the black swan but also the “grey rhino.” ...