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Economy

Ending the Trade War

Oct 15 , 2018
  • Wu Zurong

    Research Fellow, China Foundation for Int'l Studies

There is no end in sight for the Sino-US trade war.

The trade war is directed by the US intention to contain China strategically. US attitude and actions with regard to the war indicate that trade is not the only issue. The US has“challenged China on trade”, but it is not eager to find a solution. It plans to exert maximum pressure on China in order to get maximum benefits from the war. To take the accumulated US trade deficit with China for example, common sense says that it could be reduced by China increasing imports from the US. There is no need to fight a trade war so long as both sides map out detailed plans for the increased imports, and have those plans implemented responsibly. When China actually made the commitment and the US agreed to it during the four rounds of negotiations, and a feasible solution was reached, the US went back on its word in a few days. Furthermore, it went so far as to impose additional tariffs on $50 billion, then $200 billion worth of Chinese commodities. Thus, the workable piecemeal approach that could demonstrate Sino-US win-win cooperation was spoilt by the US. Regrettably, in the process China’s kindness and sincerity were taken by the US for weakness.

In addition to the US’ continued groundless accusations of Chinese intellectual property theft and unfair trade practices, America has made a series of other unfriendly moves against China. At the UN Security Council meeting in September, Trump accused China of attempting to interfere in the upcoming US midterm elections without offering any evidence. The US has also, quite ridiculously, announced sanctions on the Chinese military’s Equipment Development Department and its Director Li Shangfu, for purchasing SU-35 combat aircraft and the S-400 surface-to-air missile system from Russia. The US also decided to sell $330 million worth of weapons and military equipment to Taiwan in violation of the One-China principle. In recent months, US B-52 bombers have been very active in conducting so-called regular drills in the South and East China Seas to display their military muscle, and the guided-missile destroyer USS Decatur sailed within 12 miles of the Chinese islands in the South China Sea, threatening China’s sovereignty and security.

Therefore, it is quite obvious that the trade war is part of the series of US strategic actions aimed at checking China as a major strategic competitor.

The US believes that it will ultimately be the winner in the war and China will back down. In the last six months, Trump has been saying that it is easy to win the trade war, and that China is under pressure while the US is not. On September 26 at the UN Security Council meeting, Trump said even more explicitly “we are winning on trade. We are winning at every level.” People don’t know what the US has won from the trade war when it is losing a big market. Honestly, it is a pitiful misjudgment of China due to the lack of elementary knowledge on the part of the US policy makers. China is a great rising power with a glorious history of over 5000 years of civilization. It has a rich store of experience in dealing with all kinds of challenges. Its economy has been rapidly developing in the last 40 years. China’s high-quality economic growth is moving towards more reliance on domestic consumption and innovation. The US imposition of tariffs on almost all China’s exports, except those the US cannot do without, has caused a few difficulties for some businesses and localities in China, but it can’t stop China’s vigorous economic growth. Sino-US trade figures show that the trade war has inflicted almost no serious damage to bilateral trade in the past seven months. But from August on, bilateral trade has drastically shrunk. The shrinking trend will continue before the end of the war. So far the US has imposed tariffs on $253 billion worth of Chinese commodities. It is estimated that this year’s total Chinese exports to the US will not surpass that figure, and this figure is disputed by around $100 billion resulting from the different accounting methods of the two countries. Therefore, the US threat to impose tariffs on the final $267 billion worth Chinese commodities in fact means very little. Under such circumstances, it is unrealistic to expect a sharp down-turn or collapse of the Chinese economy this year or next year as a result of US tariffs.

The US believes that it is powerful enough to challenge China on trade. In the eyes of US policy makers, the huge aggregate economic volume, a little over $19 trillion, can withstand any shrinkage of its exports to China and other major trading partners. It can apply Section 232 of the Trade Expansion Act and conduct a Section 301 investigation into its major trading partners’ trade practices in disregard of the rules of the World Trade Organization. It can reduce trade deficits or change the disadvantageous situation it faces in world trade in the last few decades through exerting maximum pressure on its major trading partners and negotiating new trade agreements with them one by one. It is encouraged at the moment, since it has succeeded in reaching a new trade agreement with the Republic of Korea, Canada, and Mexico with its confrontational tactics.

However, it must be pointed out that the US’ unilateral actions and trade protectionist measures against its major trading partners have seriously damaged its credibility. Due to the new restrictions imposed by the US to protect its domestic industries, the new changes in the world economy will exert a deep negative impact on the US economy. Thanks to massive tax cuts provided for the businesses, the US economy recorded a 4.2% growth rate for the 2nd quarter of this year, and short-term prospects look comparatively bright. But as time goes on, an economic slow-down will be inevitable. In the long run, the US is on the losing side.

US domestic politics has played an increasingly important role in its foreign policy. The on-going investigation of Russian involvement in the US 2016 election and the continuing deterioration of US-Russia relations is an example. The US has sanctioned more and more countries for their dealings with Russia in order to seek an upper hand in its competition with Moscow. The implications of this development for international relations are profound. Many American scholars say that all politics is local in the US. As the political party in power is now more concerned about winning elections, foreign policy statements and decisions are often used to cater to the sentiments of different groups of voters in different regions. As a result, uncertainties and constant changes in US foreign policy have become the New Normal. Foreign countries may not know what to expect when foreign policy makers in the White House change their minds with changing voters’ attitudes. The US has big elections every two years, and neither of the two major political parties has had stable large majority support in the last few decades due to the deep division in American society. The US’ changeable statements and decisions often present foreign countries with enormous difficulties in dealing with it.

Undoubtedly, there would be no winner in the current Sino-US trade war. Both China and the US have suffered from market losses. There would be even more losses for both countries if one of them tries to set itself against the other. For China and the US, cooperation is always better than confrontation. US Secretary of State Mike Pompeo visited China on October 8. Hopefully the visit was helpful in increasing mutual understanding between the two countries. In order to successfully end the trade war, the US has to give up its erroneous judgment of China’s strategic intentions, objectively assess the course of development of Sino-US relations, and sincerely work with China to find out a win-win approach to resolve current problems.

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