Beijing would prefer to deescalate commercial tensions with the U.S., but its greatest concession on the key issue of exchange rates is likely to be limited to a move away from any drive to promote alternatives to the dollar, a prominent Australian economist and geopolitical expert told MNI.
While a paper by the new head of the U.S. National Council of Economic Advisers has sparked talk of a potential “Mar-a-Lago Accord” aimed at lowering the value of the U.S. dollar, Beijing will be very aware of the economic consequences for Japan of 1985’s Plaza Accord, which pushed up the yen and eventually ended its years of high growth, said Huw McKay, visiting fellow at the Australian National University and BHP Billiton's top economist from 2016-2024 based in Singapore.
"If [Beijing] were to go into some kind of grand bargain, they have a great card to play here, because almost uniquely in the global system, [Donald] Trump takes the BRICS currency seriously," he argued. "So I think the Chinese would put that on the table."
The Bank for International Settlements withdrew from the China-led cross-border central bank digital currency payment platform mBridge last October, as speculation mounted that it might overlap with a BRICS platform. China is likely to add more participants from Asia and emerging-market central banks to mBridge, insiders and advisors in China told MNI in December. (See MNI: China-led mBridge To Expand In Asia, EM Markets)
While McKay believes China is open to wider trade negotiations, Beijing has spent the last few years diversifying its markets and de-risking from the West.
“In any deal that China signs on to, especially managed trade with import targets, or voluntary export restraints, the onus will be on the other parties to track compliance and quickly identify drift,” he continued, noting China had a long history of shifting away from the spirit of agreements.
“The West is de-risking China, but China is also de-risking from the West and from other dependencies like the Middle East oil trade. With its ability to direct strategy top down and the stamina to persist with those strategies once enacted, China is probably going to be more efficient achieving that end than western democracies." (See MNI INTERVIEW2: China-U.S Trade Deal Possible But Not On Yuan)
OTHER LEVERS
While China has avoided tit-for-tat escalation in its response to U.S. tariffs, its controls on critical minerals and duties on a small basket of mainly agricultural products showed readiness to fight, McKay said. The country has other levers too, he added, noting that Beijing can quietly direct state-owned importers to avoid products of any country, or make customs clearance laborious.
Chinese companies ceased taking calls for months before official recognition that China would no longer import Australian coal in 2021, he noted, a move which saw AUD13.7 billion of yearly exports reduced to nil.
Risks are greater in more concentrated markets on the import side, he said, highlighting fertilizer as one example, or where there is an obvious alternative to U.S. products, such as Brazil’s soybeans. Beijing can also lean more heavily into its relationship with Moscow, as it currently enjoys preferential access to Russian commodities due to western sanctions.