Understanding the Sino-US Trade War
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By Yu Fu

Understanding the Sino-US Trade War

Dec. 12, 2018  |     |  0 comments

Since the start of a trade war in early July, the US has put new tariffs on USD 250 billion in Chinese imports, while China has done the same to USD 110 billion worth of US goods. Speculation and comments on the trade war have not stopped. Since the US and China are maintaining more high-level exchanges currently, and new trends have appeared following the recent G20 meetings in December 2018, there seems to be signs of easing tension on the trade disputes. However, it is too optimistic to say the trade war will end up soon.

We do have reasons to be elated since it has gradually become the common aspiration of the international community to resolve the Sino-US trade disputes as soon as possible. Since the start of the trade war, the international community has been inconsistent in its attitude towards the Sino-US economic and trade disputes. On the one hand, some countries questioned the unilateral protectionist measures of the Trump administration, and sympathized with China’s response to the US, assuming that China’s move is conducive to maintaining the current achievements of the globalization. However, on the other hand, certain countries have been suspicious of some aspects of China’s economic system, thus the US’ denunciations of China’s economic system have struck a chord, which may threaten the healthy development of multilateral trade.

More recently, a growing number of countries and international organizations have tended to disapprove of the continuation and escalation of the trade war, putting Trump under more pressure. As the Trump administration marches forward to promote its new trade policy agenda, relentlessly attacking on the WTO and threatening to pull his country out of the global trade body; blocking the appointments of new judges to the WTO’s dispute settlement mechanism; and imposing tariffs on steel and aluminum imports, a growing number of WTO members are questioning some of Trump’s trade policies and practices. During the Ottawa Ministerial on WTO Reform in October 2018, the danger of protectionism to the entire multilateral trading system was repeatedly highlighted.

In addition, since the Sino-US trade war involves more than China and the US themselves, certain countries which are in cooperative relations with China hope to see the end of the trade war. As a major global financial power, China has a more dynamic economy and a larger consumer market after launching new development initiatives such as the Belt and Road Initiative and the Asian Infrastructure Investment Bank. With China’s increasing emphasis on science and technology, China’s market demand for high-tech products from Germany, Japan and other countries is expanding rapidly, prompting Japan and other countries to conduct further economic cooperation with China. The Sino-US trade war could disrupt the integration of Asian supply chains and give rise to inconsistent trade rules around the world. As the South China Morning Post has pointed out, the United States can try to separate itself from China by limiting the flow of goods, capital, technology and people, but other countries, particularly Asian countries, cannot afford to be separated from China. At the ASEAN regional summit in November 2018, Singapore Prime Minister Lee Hsien Loong showed concern about the situation where Southeast Asian countries have to “choose sides” between the US and China because of the intensified trade war. In fact, a host of countries which have partnerships with China, including the UK, do not want to face an “either-or” choice between the US and China.

Besides, the academic community is actively promoting reconciliation between China and the US on the issue of the trade war. Some influential China experts including Bonnie Glaser, Michael Swaine, Abraham M. Denmark and Evan A. Feigenbaum maintain that China has shown goodwill to open China-US trade negotiations. To avoid being isolated, the United States should show more sincerity in ending the trade war. There are also experts who are eager to offer advice on how to avoid a trade war. Robert Skidelsky, Emeritus Professor of the University of Warwick, suggested using Vladimir Masch’s Compensated Free Trade plan as a way to achieve the reasonable objectives of protectionism without interfering with the world economic system and automatically prevent the occurrence of a trade war.

Nevertheless, it will be too dewy-eyed to some degree if we overestimate the positive effects of the US mid-term election and current interactions between China and the US. In the recent US midterm elections, Democrats regained the control of the House of Representatives while Republicans dominated the Senate. Some have speculated that the Trump administration’s agenda of domestic and foreign affairs is going to be constrained and challenged by the Democrats, and thus tensions on the Sino-US trade war will ease. But just like what CNN and The Straits Times have pointed out, the results of the mid-term election will only have a slight effect on the US’s policies towards China. Bowing to the pressure of the 2020 American presidential election as well as the desire for submitting a “shining report card,” the Democratic takeover of the House may not lead to a softening of Trump’s tariff policy, but may instead boost his confidence, making it harder to strike a deal with China. In addition, Trump faces less domestic pressure than before to some extent. At the beginning, the start of the trade war faced great resistance from domestic actors including the National Retail Federation, the Information Technology Industry Council, the National Association of Manufacturers, and other organizations. However, since the adverse consequences of trade war, such as its influence on consumer confidence, will take time to manifest themselves, more Americans have started to focus on the positive effects of the US’ requirements in the trade war and have a more positive view on current economic situation.

As mentioned by Christopher A. McNally, a new cold war is one of the most unlikely outcomes of Sino-American tensions since China has not engaged in direct ideological competition with the United States.

Almost at the same time, Sino-US relations have shown signs of detente. When the White House announced sanctions on Iran’s energy and banks, China, together with Japan and India, were included on the list of temporary exemptions. Also, the two countries resumed direct talks between top leaders in early November 2018, followed by several high-level talks on defense and diplomacy. In the new round of diplomatic and security dialogue between China and the United States, Secretary of State Mike Pompeo stressed that the United States is not conducting cold war containment policies against China. Similarly, Secretary of Defense James Mattis also emphasized that the two sides should cooperate in areas of mutual interest. The current friendly communications between China and the US would be better understood as preparations for the G20 Summit, rather than signs of the end of Sino-US trade frictions.

However, achievements of the G20 Summit, during which the US agreed to suspend new trade tariffs on Chinese products, should not be overstated. The G20 does help to ease the tension between China and the US, create opportunities for negotiation, but the trade disputes do not stop and may never stop.

The overall environment for China-US relations remains grim. During the APEC summit in November 2018, the United States strongly accused China of conducting “unfair trade practices,” while China reiterated her opposition to ongoing protectionism and unilateralism. A report recently released by the National Defense Strategy Commission stressed confronting China and Russia is still the primary goal of the United States to secure its national security. A report from the US-China Economic and Security Commission even lists a serious of countermeasures against the Belt and Road Initiative.

Fundamentally speaking, the trade war is neither a bet of the midterm elections, nor a bargaining chip on the G20 summit. The trade war is the result of a series of profound economic and political disputes. Economically, the rapid development of China’s manufacturing technology, the introduction of the “Made in China 2025” policy, and the high Sino-US trade deficit have caused widespread concern inside the US government. Politically, the initiation of the Sino-US trade war reflects changes in the US’s political considerations of China under the slogan of “America first” and is the inevitable result of the national strategy which aims to contain, or at least delay, the rise of China. Although leaders of China have repeatedly stressed the “peaceful rise” of China, the “tragedy of great power politics” and the “Thucydides trap” are still the haunting nightmares of the US. Therefore, it is less possible for the Sino-US trade conflict to end in haste. As long as there are economic, political disputes and misunderstandings or strategic miscalculations between the two countries based on their different development patterns and strategic targets, it is less possible for the Sino-US trade conflict to end in haste.

But do not blinded by the exaggerated adverse effects of the Sino-US trade war. Although it will be too optimistic when we underrate the difficulty of reaching trade consensus between the US and the PRC, it will be inappropriate if we overstate the negative effects of the trade war. The actual losses caused by the trade war may not as serious as we might think. Based on the data released by the General Administration of Customs of the PRC, in the first 10 months of 2018, the total value of China’s import and export of goods was RMB 25.05 trillion, seeing an increase of 11.3 percent over the same period last year. Imports and exports to major markets including the European Union, the United States, ASEAN and Japan all increased. The figure for countries along the Belt and Road Initiative grew even faster.

As for the US, although soybean exports have fallen to USD 1.88 billion in the past four months, exports of other petroleum products and non-monetary gold rose by USD 1.1 billion and USD 1 billion, respectively. Overall, the goods and services deficit of the US was USD 54.0 billion in September, up USD 0.7 billion from USD 53.3 billion in August. It seems like the Sino-US trade war cause a slower growth of trade at the very outside. In addition, just like what Yu Yong Ding, a member of the Chinese Academy of Social Sciences, has argued, for the US, costs of the trade with China are negligible compared with the huge benefits, while China could adjust its bloated economic volume through the trade war.

At the same time, the trade disputes will not lead China and the US to a new cold war, at least for now. In October, US Vice President Pence asserted in a sharply critical speech that Beijing has sought to undermine US interests across the globe and is spreading its influence by trade, diplomatic overtures and military expansion. Given that China and the United States are increasingly disengaging in political, military, economic, cultural and other aspects this year, and the trade wars have been increasingly intensified, some believe that China and the United States are moving towards a “new cold war” and may even start a military conflict. In fact, neither China nor the US can bear the responsibility of provoking a full-scale conflict and abolishing the current world order. As mentioned by Christopher A. McNally, a new cold war is one of the most unlikely outcomes of Sino-American tensions since China has not engaged in direct ideological competition with the United States. A new stage of Sino-US relations featuring cooperative competition is more possible.

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