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China-US Trade War: The Opening Salvo In An Epic Struggle

Jul 24, 2019
  • Su Jingxiang

    Fellow, China Institutes for Contemporary International Relations

On the sidelines of the June G20 Leaders' Summit in Osaka in June, President Xi Jinping and President Donald Trump agreed to resume trade negotiation and suspend additional tariffs. The meeting kept further escalation of the trade friction at bay and mitigated some tensions between the two countries.

Officials from both sides are engaged in preparatory talks to resume trade negotiations in order to deliver on the consensus reached by the two leaders. White House economic adviser Larry Kudlow said that US Trade Representative Robert Lighthizer and Finance Secretary Steven Mnuchin have been engaged with Chinese Vice Premier Liu He, and that the two sides plan to have multiple rounds of negotiations going forward. Neither side has elaborated on any timeline or deadlines regarding the talks.

Nevertheless, Larry Kudlow stressed that existing tariffs would not be canceled, and that the US expected a major increase in China’s purchase of US goods. It seems the true intention of the US is not to reach a balanced deal with China, but only to buy time and quell criticism against the trade war at home.

The trade war provoked by the US has proved to be costly for both economies, with higher direct losses on the US side. One year into the trade war, Chinese exports to the US that were slapped with tariffs dropped by 14%, or a total of $18 billion, according to reports by Nikkei news. The decrease was equivalent to 3% of China's total annual shipments to the US. In the meantime, the US suffered a heavier blow, with tariff-hit exports to China falling 38%, or $23 billion. The drop was equivalent to about 15% of the country’s total annual exports to China. On the agriculture front, the US Soybeans Export Council issued a report saying the US exported soybeans worth more than $12.25 billion to China in 2017, but that in 2018 exports declined by a sharp 74% to around $3.1 billion. In the absence of a deal, there is no way US soybean exports could regain their heyday glory in the Chinese market.

The future path of the trade war should be understood in the context of the US’s economic prospects. According to the National Bureau of Economic Research, the month of June marked the tenth year of continuous economic expansion in the US, on par with its previous cycle of 1991 to 2001. In 2017, the US economy expanded at 2.9%, the highest since 2015. In Q1 2019, US economy remained robust with a growth rate exceeding 3%. Also, the US Federal Reserve has raised interest rates for 9 times, leaving it headroom to hike interest rate should growth moderate. The strength of the US economy has emboldened the leadership’s attempts to launch multiple trade disputes against China and other countries.

The US economy is moderating, as indicated by softening forward indicators such as household spending, property sales, manufacturing order, and business investment, as well as by Fed rate lowering since the second half of this year. Financial institutions expect markets to be hit by massive gyrations later this year or early next, accompanying a US recession. In light of this, the Trump administration may seek to reach a deal with China before the 2020 presidential election, likely ready to make concession on the technology front and conveniently call any deal a “major victory”.

That said, a trade deal by no means heralds an automatic end to the trade war. The dispute has spilled over to multiple fronts including technology, military, foreign policy, culture, and ideology and it is widely expected that tensions will reignite after the 2020 presidential election. Competition in technology is likely to be at the front, as neoconservatives and hawks around Trump believe that China’s progress in AI, cybersecurity, and 5G will eventually upend US military dominance in the world.

Since the end of the Cold War, the US has been seeking to establish a unipolar world order, whereby it remains the sole sovereign wielding enough power to dominate resources and control the global economy by maneuvering capital allocation. For this purpose, the US resorts to military invasion, proxy war, economic sanctions, and regime change, all with the intent to eliminate enemies or rivals, or just to gain political and economic concessions from target countries. Going against the prevailing trend of multipolarity, the US has become more blatant and all-encompassing in pursuing a unipolar world order.

In essence, the conflict between unipolarity and multipolarity besets the world today. China is one of the natural core members underpinning the multipolar world. China’s rise itself is a vindication of the multipolarity model, and it carves out a new path leading to peaceful development. While the US seeks overarching control, China believes in the adage that development is the key to resolving all issues. It is increasingly clear that the US-China trade dispute is not only about the two countries concerned, but also is a prelude to an epic struggle between a multipolar and unipolar world order.

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