Mercantilism is a loaded term that’s endured 500 years, and U.S. President Barack Obama cited it in an interview with CNN to describe the other world superpower China. It means a nation increasing anti-outsider trade regulation to ensure its own companies prosper. As China hosted a meeting of the 20 most influential world leaders Sunday and Monday, its President Xi Jinping urged them to “resolutely oppose” the practice better known as protectionism.
It’s unlikely anyone outside China took him seriously.
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“Actions speak louder than words, and the ball is in China’s court to implement its own needed domestic reforms and to provide greater market access for foreign goods, services, and technology,” James Zimmerman, chairman of the American Chamber of Commerce in China, said in a statement Monday. That day, leaders whose countries account for 80% of world trade met in Hangzhou’s Chinese city for another session of the Group of Twenty or G20. Other big players are India, Japan, and Russia.
Obama was blunter and used not only the old “M” word in his CNN interview before the G20 leadership summit this week: “Even though you still have a lot of poor people, you know, you can’t just export problems,” he was quoted saying in comments aimed at China. “You’ve got to have fair trade and not just free trade. You have to open up your markets if you expect other people to open up their markets.”
Obama has alleged that China illegally subsidizes automotive exports, making rival foreign manufacturers move production overseas so they can compete. Another common charge is that China keeps its yuan undervalued rather than adjusting the foreign exchange rate in line with shifts in other world currencies. A weaker currency allows Chinese exporters to earn more money, and China enjoys a trade surplus with the United States.
Last week the European Chamber of Commerce in China asked for “reciprocity” in openness to foreign investment between the host country and Europe. It noted automobiles, banking, and infrastructure. “Chinese companies have successfully completed several eye-catching deals to acquire leading European companies in a wide range of areas…yet European business is still heavily restricted from making similar investments in China,” the chamber said in a statement. “This lack of reciprocity is unsustainable and could lead to protectionism and increased tension.”
China has come under the spotlight for protectionism because of its market size, aggressive outbound investment, and slow-to-change trade rules, says Eng Teck Tan, senior portfolio manager with Tokyo-based Nikko Asset Management. “My view is that…China will continue to protect certain industries it wants to nurture,” he says. “Things will change slowly but not at the rate foreign investors want it to.”
Chinese state-run media drew attention this week to populist pressure on leaders in numerous countries to impose more trade barriers, reminding critics that protectionism is not only China’s game. Other countries in Asia are known for many the same practices that have China under fire, Tan notes. The United States has faced criticism for using Cold War-era rules to determine what Chinese imports are being “dumped” into the American market.