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Trump’s Gift to China

If US President Donald Trump follows through on his protectionist threats against China, the short-run consequences – including a trade war – could be serious. But, in the longer term, US protectionism could be a blessing in disguise for all emerging economies as they seek to boost their international clout.

NEW YORK – US President Donald Trump’s protectionist threats against China have spurred much concern. If he follows through on his promises and, say, officially labels China a currency manipulator or imposes higher import tariffs, the short-run consequences – including a trade war – could be serious. But, in the longer term, a turn toward protectionism by the United States could well be a blessing in disguise for China.

There is no doubt that China is going through a difficult phase in its development. After three decades of double-digit GDP growth – an achievement with few historical parallels – the pace of China’s economic expansion has slowed markedly. The combination of rising labor costs and weaker demand for Chinese exports has reduced China’s annual GDP growth to 6.9% in 2015 and 6.7% last year. The Chinese government has now lowered its growth target for 2016-2020 to 6.5-7%.

This is still a respectable pace; but it is not the best China could do. As Justin Yifu Lin and Wing Thye Woo have noted, in 1951, when Japan’s per capita income relative to that of the US was the same as China’s is today, Japan was experiencing sustained growth of 9.2%.

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