President Trump’s trip to Asia was a chance for face-to-face with Chinese leader Xi Jinping. Who will win it out? The story will tell, but I’m afraid Europe’s defeated is out. Unfortunately, the Old Continent is now set to play a marginal role in the world’s arena, but there may be an opportunities for Europe, but something must be done soon.
Trump has sought and will continue to seek two goals that will help his domestic narrative:
1) to reduce trade deficit with China, either with import restriction or more push for exports;
2) open the door to China for the development of infrastructure in America.
In other words, try to close the door on the current account but open the capital account
As far US-China deficit is concerned, about $ 350 billion on goods and $250 billion on goods and services, Trump must use all possible means to narrow this gap, and this will include increasing duties on imports. At the same, new orders on Boeing and natural gas could increase US exports to China, thus reducing the deficit even without the need for duties. Today it was reported that new deals valued at 250bn were signed. Probably, not all of those will materialise and some others are not new deal, but it does not really matter: the narrative is more important than the reality. Whether higher duties will actually lead to a real decrease in trade deficit, it is also irrelevant. Nor does it matter to China that, in fact and paradoxically, would also be happy to see its surplus diminished in order to reduce its commercial dependence on the US. But when communicating this, a decrease of China’s surplus will be considered as a victory for Trump, who will then have to put something else on the plate.
In exchange improving trade balance, America will open the door to Chinese investment. It will mostly welcome greenfield investments, those that create economic growth, bring new capital, create new jobs, and ideally even open the Chinese market to American products of the target company, a phenomenon that would be also help meet the first goal, that of reducing trade deficit. Among the most urgent investments, priority will be given to those that will lead to modernization of the infrastructure, transports such as railways, ports and airports.
This more open investment environment will also be described as a victory for China and a concession by America, which compensates for the “defeat” of trade. But even here, it will be a win-win, as the US economy needs a big boost on investment, which only China can do, with its ability to simultaneously mobilize capital, labor, and raw materials.
What about Europe? There is a risk of being left out of the game, but there are companies that could benefit from such agreements between Trump and Xi. Europe remains the final terminal of the New Silk Road, and the sectors that will benefit from this are linked to the development of the transport network. Chinese culture is very close to the Mediterranean and every Southern European country, such as Italy, has a good chance in hand if it can make of itself the primary European partners in the eyes of Chinese investors for specific sectors. China, unlike what people believe in Brussels, does not speak with Europe, but with individual countries. Italy can become a center of culture and sustainable tourism, not only to attract flows from China, but above all to propose a tourism model that China can use to manage the its own fragmented domestic mass tourism. But it must be done soon, and above all, all Government and ministries concerned (Transport, Development) must focus on these issues. Quickly!