The Sky is not Falling -- Chinese Economist Lawrence J. Lau’s Optimism for Sino-U.S. Trade Relations

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In 2019, one of the major issues effecting the international landscape is the China-U.S. trade friction. Some people has been taking a dim view of the world economy. Lawrence J. Lau, an insightful economist who experts in the economic development of both China and the U.S., Kwoh-Ting Li Professor in Economic Development, Emeritus, at Stanford University, and Ralph and Claire Landau Professor of Economics at The Chinese University of Hong Kong, an old friend of CDF, like many others, has always been optimistic.

“There is no need to be pessimistic, since the overall impact of China-U.S. trade friction on the two economies is not severe. The sky is not falling!” Lawrence J. Lau observed.

Lau expressed his optimism about China’s economy in his series of articles titled The Sky is not Falling. “In 1997, at the height of the Asian financial crisis, I wrote an article, The Sky is not Falling, basically saying that the Chinese economy would emerge from the crisis more or less unscathed.” Lau wrote.

In 2008, “I wrote another article, The Sky is not Falling II, arguing once again that the Chinese economy would not only survive but also continue to grow through the global financial crisis.” “At the beginning of 2012, at the height of the European sovereign debt crisis, I wrote yet another article, The Sky is not Falling III, explaining why the Chinese economy would achieve a ‘soft landing’ and continue to grow at around 8% per annum amidst the crisis, based on its own domestic demand.”

“Since 2013, the Chinese economy has been adjusting to a new normal–lower rate of growth, more environmentally conscious, less export-oriented, more service-sector focused, less tangible inputs-driven and more innovation-driven. …Today, I write another article in the series, The Sky is not Falling IV, explaining why the Chinese economy could make a smooth transition to a new normal, with average annual rate of growth at around 7% over the next few years, based once again on its own domestic demand.”

Lau has always been positive that the effects of the China-U.S. trade friction in 2018 are relatively manageable for both. Behind the friction is the potential economic and technological competition between China and the U.S., which is likely to become the new normal. It is up to both governments to battle against the rise of protectionism, since China-U.S. economic collaboration could be a positive-sum game through better coordination and fully utilizing each other's underutilized resources. Balancing China-U.S. trade and enhancing economic interdependence are not only possible, but desirable. After all, the sky is not falling.