Economic, technological and strategic rivalry drive US President Donald Trump’s trade war against China. What started as a trade war in 2018 when Washington’s unilateral imposition of tariffs on Chinese imports to the US sparked retaliatory levies from Beijing has escalated to broader campaigns aimed at crippling China’s telecom giants, especially Huawei, by cutting off their access to American hi-tech suppliers. The punitive American tariffs aim more at checking Beijing’s technological ambitions and less at reducing the US trade deficit. Washington’s long-term fear is that China seeks to dislodge the US from its global primacy.
China’s economic progress — and the competition it poses to the US in many areas of commerce and technology — are the main drivers of the trade and technology war. America’s USD 18 trillion economy confirms its military and economic ascendancy. With its USD 14 trillion economy, China is far from becoming the economic or military peer of the US. But the Trump administration sees China as an economic and strategic foe — one which can change the global balance of power, which is currently held by the US. To blunt the chances of China gaining an economic edge, Trump has initiated the trade war. Commercial ties, once the cement of the US-China relationship, have now become the casus belli.
Trump complained about China’s unfair trading practices while campaigning for president in 2016. Since July 2018, Washington has imposed three rounds of tariffs on more than USD 250 billion worth of Chinese goods. The duties of up to 25 percent cover a wide range of industrial and consumer items from handbags to railway equipment.
Accusing the US of starting “the largest trade war in economic history”, China has retaliated with levies on USD 110 billion of US goods. China has targeted products including coal, chemicals and medical equipment with tariffs ranging from 5 percent to 25 percent. In December 2018, both countries halted new trade tariffs to enter into negotiations. The parleys failed to resolve the conflict.
Now the US has more than doubled tariffs on USD 200 billion worth of Chinese goods. China hit back by announcing plans to raise levies on USD 60 billion of American imports from June 1, 2019. The Trump administration has threatened to impose duties on another USD 300 billion worth of Chinese goods. Tit-for-tat threats are being made by both countries if they fail to strike a deal at the G-20 summit in late June.
The US and China are trying to surpass each other in technology rather than military power. Technological innovations ranging from smartphones to advanced artificial intelligence and clean energy have all ranked high on the agenda of Chinese President Xi Jinping. In November 2017, an American report advised that China is a peer that may have the capability to overtake the US in Artificial Intelligence. The US and China are competitors in every field from submarines, smartphones and semiconductors to lunar exploration.
The American fear that China’s economic prowess augurs its military superiority is unsurprising. Historically, technological advance has often been a precursor to military clout. In the 18th century, Britain’s rise as a great power owed much to it being the birthplace of the Industrial Revolution. Subsequently, the need for raw materials and markets prompted it to become an expansionist imperial power. More generally, commercial and economic power inspired European innovation in military technology and the quest for empire. Europe’s industrialized countries rightly calculated that it would be cheaper to obtain raw materials and resources from colonies than from other countries.
After the end of the Second World War in 1945, the US replaced Britain as the dominant western power and established itself as a superpower because it had the world’s most advanced economy, scientific research and nuclear technology. The erstwhile USSR sought to rival the US through its political and economic ideology and model. But it failed to sustain its military superpower with a weak economy. That weakness caused, and was exposed by, the collapse of the Soviet Union in 1991. With the end of the Cold War, US once again emerged as the sole international player with global economic and military reach.
Now, Trump’s trade war and ban on Huawei is steered by concern that China’s progress could be translated into military gains which could adversely affect America’s global ascendancy. So, when trade talks collapsed on May 10, Washington announced on May 15 that US companies would need a special license to deal with several Chinese firms, including Huawei. Washington targeted Huawei by putting the firm on a trade blacklist — the so-called Entity List. Trump’s order declares hostile foreign threats to communications networks, technology and services a national emergency. In effect, the order bans Huawei from acquiring technology from American firms without government approval.
The US itself remains dependent on China for trade. Trade between the two countries is now around USD 2 billion a day. Despite the increased tariffs, early 2019 saw China’s trade surplus with the US at a record high.
It also signifies Washington’s intention to apply additional pressure on China in trade talks, with stiffer tariffs affecting billions of dollars of goods. That is one reason why Trump has held out the possibility that Huawei could be part of any trade agreement with Beijing. But his linking the firm to trade talks suggests that his aim is to stunt China’s growth as an economic rival to the US. “Huawei is very powerful, very strong,” he said in an interview to the American news channel CNBC on June 10. But he does not want China “to do as well as us.”
The US case against Huawei is that Chinese companies and workers are obliged by Chinese law to share sensitive information with their government. China’s riposte is that Huawei is not a military company. China opposes the US attempt to impose sanctions on private firms. In retaliation, China is preparing a blacklist of foreign firms that block supplies to Chinese companies for “non-commercial reasons” or otherwise damage their interests. Such a national technological security management list system is intended to counter US technical restrictions and supply cut-off to Chinese high-tech firms. The aim is to protect Chinese high-tech enterprises and provide a legal basis for the management of technology exports. Beijing holds that since the US has used its domestic laws to put pressure on Chinese high-tech enterprises, China needs to develop more legal measures to counter Washington’s moves.
The ban on Huawei shows up the contradictions and conflicts of interest that characterize Trump’s trade and technology war. American firms sell most of the components to Huawei, especially semiconductors and software, so they would lose from an export ban. But Chinese telecom titans are dependent on American components, so they could be severely affected by the ban since firms from other countries cannot supply the parts in comparable amounts. Washington’s ban could therefore harm both the US and China.
Both countries are asking others to choose between them. The US will not transfer sensitive technology if they fail to comply with its demand that they ban Huawei. And China will not let countries invest if they go along with the US embargo on Huawei.
This situation does not suit America’s Asian friends neighboring China. Washington’s stance on Huawei creates conflict with Asian countries. Like America’s European allies, they seek to balance ties with the intent of reaping the benefits of trade with China while relying militarily on the US to counter Beijing’s claims to their territories.
Some Asian countries whose factories produce some of the components for Huawei smartphones would be hurt by the ban. They include Taiwan, South Korea, Singapore and Malaysia. In October 2017, components for smartphones accounted for some 16 percent of the exports of Singapore and Malaysia. Singapore wants to maintain neutrality between the US and China. Malaysia has refused to impose a ban on Huawei. Malaysia’s Prime Minister Mahathir Mohamad recently said that China currently boasted the best technology in the world. The US must accept the new status quo: it could not always have the best technology. The West must accept that this capability could also be found in the East. To Washington’s allegation that Huawei has links with the Chinese military and is likely to add “back doors” into network equipment to spy on Beijing’s strategic rivals, Mahathir has retorted that the CIA keeps watch on Malaysia and China. “We did not carry out a boycott of America because of that.”
The US itself remains dependent on China for trade. Trade between the two countries is now around USD 2 billion a day. Despite the increased tariffs, early 2019 saw China’s trade surplus with the US at a record high. Moreover, in crucial technologies such as chipmaking and 5G, it is hard to draw the dividing line between trading interests and military security. Dependent on trade with China, many Asian and European countries are against cutting economic links with Huawei.
More generally, if the US and China were to deny each other technology, investment and commerce, the gains of decades of globalization would be reversed. The tensions triggered by Trump’s trade and technology war could lead to a huge fall in global trade. Trump’s commercial offensive against China has made technological superiority a new and dangerous currency of international power politics.