‘Protectionism will lead nowhere,’ China’s Xi says as he begins Southeast Asia tour

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There are no winners in a trade war, Chinese leader Xi Jinping said Monday, as he kicked off a high-profile tour of Southeast Asia, where Beijing is seeking to shore up exports and alliances amid growing competition with the United States.

Writing in Vietnamese media hours before he landed in that country, Mr. Xi warned “global, epoch-making and historical changes are unfolding like never before, and the world has entered a new period of turbulent transformation.” He called on countries in Asia to increase co-operation and remain committed to “universally beneficial and inclusive economic globalization.”

“Protectionism will lead nowhere,” Mr. Xi said.

Long planned, Mr. Xi’s visit to Vietnam, Malaysia and Cambodia seemed perfectly timed after U.S. President Donald Trump slapped stringent tariffs on all three countries as part of his global-economy-shaking “Liberation Day” measures. Facing even heavier tariffs of its own, Beijing had presented itself as a key counterweight to the U.S. for economies around the world, but this message was undercut when Mr. Trump flip-flopped, pausing most of his tariffs for all countries but China.

This has forced Mr. Xi – and his hosts – into a far more delicate position, with Beijing seeking to expand economic co-operation with countries at a time when they will be wary of being seen by the White House as too close to China.

Vietnam in particular faces a tricky situation. The country had been a major winner of Mr. Trump’s first trade war against China, which saw many companies shift final-stage manufacturing to Vietnam and other developing countries in order to bypass tariffs on Chinese exports.

But since returning to office, Mr. Trump and his trade negotiators have taken aim at such schemes, and as part of talks aimed at avoiding a threatened 46-per-cent tariff on Vietnamese exports to the U.S., Hanoi has suggested it could tighten controls to make sure “Made in Vietnam” goods are not simply relabelled Chinese products.

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Writing in the Financial Times last week, Mr. Trump’s senior counsellor for trade, Peter Navarro, said the White House wanted “to hear from countries including Cambodia, Mexico and Vietnam that you will stop allowing China to evade U.S. tariffs by transshipping exports through your countries.”

Vietnam imports most goods from China while the United States is its main export market. In the first three months of this year Hanoi imported goods worth about US$30-billion from Beijing while its exports to Washington amounted to US$31.4-billion, Vietnam’s customs data show, confirming a long-term trend in which imports from China closely match the value and swings of exports to Washington.

China is Southeast Asia’s most important trading partner, and a major market for Vietnamese electronic and agricultural exports. Mr. Xi on Monday hailed the two socialist countries’ long friendship, and Chinese media was flooded with stories promoting economic progress, including new railway links, partnerships and investment. In the first half of last year, Chinese companies invested US$1.97-billion in Vietnam, according to data from China’s Ministry of Commerce.

Vietnam and China are set to sign about 40 agreements in multiple sectors during Mr. Xi’s visit, according to Vietnamese Deputy Prime Minister Bui Thanh Son.

On Monday, Mr. Xi called for Beijing and Hanoi to “strengthen co-operation in production and supply chains,” adding China “remains a key engine of the world economy.”

But exports to the U.S. account for a whopping 30 per cent of Vietnam’s GDP, and many other countries in the region are similarly dependent on the American market, even as ties with China have grown stronger in recent years.

China is trying to reform its economy to boost domestic consumption and be less reliant on exports, a transformation that would benefit both Chinese companies now cut off from the U.S. and make Beijing a more attractive economic partner for developing nations increasingly wary of being flooded by cheap Chinese goods, who would then stand to increase their exports to China in turn.

Those reforms are years away from fruition, however, and such measures have been floated by Beijing in the past with little success, said Jacob Gunter, lead economic analyst at the Berlin-based Mercator Institute for China Studies.

“When you’re looking at the value proposition, it would probably lean toward the very big U.S. market,” he said. “I don’t think any country in the world wants to be forced to choose. But the consumption card is a really big card.”

Despite growing security ties in the region, particularly with Cambodia, where China has funded a major port expansion, displacing the U.S., Beijing also has territorial disputes with almost every country in Southeast Asia, which in the past has seen many governments lean closer to Washington.

This was highlighted on Monday by the Philippines, which said it has raised concerns about Chinese aggression in the South China Sea during long-running negotiations between Beijing and the Association of Southeast Asian Nations for a code of conduct in those waters. Recent months have seen repeated clashes between Philippine and Chinese vessels around several disputed shoals.

On Tuesday, Mr. Xi will travel to Malaysia, another country trying to balance relations with both Beijing and Washington. China accounts for around 17 per cent of Malaysia’s total global trade, according to the country’s Foreign Ministry, and has been Kuala Lumpur’s largest trading partner for 16 years.

Speaking to ASEAN ministers last week, Malaysian Prime Minister Anwar Ibrahim acknowledged the bloc’s balancing act between Washington and Beijing, adding, however, “China is a very important player we can’t ignore.”

With files from Reuters