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Economy

Washington's Overconfidence in the Trade War

May 24 , 2019
  • Wei Jianguo

    Former Vice Minister, China's Ministry of Commerce

By insisting on imposing a 25% tariff on imported Chinese goods, the United States has provoked a trade war with China. Even worse, the US side is trying to blame China for failing to consult them, which is a totally untenable claim. On the contrary, many rounds of negotiations have failed to reach an agreement, due to the American position. In my view, throughout this process, that there have been three outcomes that the United States did not anticipate.

First, China's will and determination to defend its national interests has exceeded American expectations. While serving in senior Chinese governmental posts, I have participated in many bilateral and multilateral negotiations. From experience, it is clear that any good final agreement must satisfy both sides to the greatest extent. In other words, the core interests and major concerns of both parties must be taken into account. Otherwise it is difficult to implement an agreement after it is reached, if one party is satisfied and the other suffers heavy losses. This time the United States has gone too far, directly infringing on China's core interests. China cannot compromise on this bottom line. The U.S. side says that China's position is backward-looking, which is an unfounded accusation. In the current round of negotiations, the Chinese delegation stuck to its bottom line at the last moment. China was not asking for too much in demanding a respectful and equal agreement. China's will and determination to defend its national dignity is certainly beyond whatever the United States had imagined.

Second, the United States failed to appreciate China's ability to resist US pressure. When it comes to overall bilateral relations, the Chinese side has shown great sincerity to the United States, hoping to solve their shared problems through negotiation. But the US side viewed this as China's softness and weakness, choosing to exert "extreme pressure" in the negotiations, which China has to resist. The United States might believe that, as no country in the world has been able to withstand their "extreme pressure", China would have to make concessions too. In reality, China has resisted the US pressure and is prepared for the possible consequences of the trade war. The US did not expect this level of resilience.

Third, during this round of trade talks, the US side failed to cancel the original tariffs it had imposed, but instead increased them, insisting on continuing to fight the trade war. The fact that American consumers, importers, and trade lobbies—not to mention the global business community—have all reacted strongly against the tariffs, with drastic turbulence in the U.S. stock market, is also beyond the expectation of American policymakers. I believe that in the coming months, the American response to these tariffs, especially from consumers, will grow stronger, prompting the U.S. government to reconsider its position.

The root cause of this US failure of understanding lies in their misjudgments about China and itself.

First, the United States has failed to correctly evaluate China’s achievements in the past four decades of reform and opening up. American policymakers have kept saying that it is America that has “fed” China over the past 40 years, as though China’s achievements are just a favor given by the US. They also wrongly believe that in their bilateral relationship, China relies more on the United States than vice-versa. Thus they express an exasperating attitude that says “you can’t do without me,” expecting China to accept being hit without hitting back

Second, the US has underestimated the resilience and potential of China's economy. The reason why China has not yielded to American is that China's overall economic trajectory is stable and upward. With time on its side, China may suffer some losses in the short term, but in the medium and long term it will certainly overcome difficulties and achieve greater development.

Third, the short-term improvement of the U.S. economy may have misled the U.S. government. The U.S. believes that its improving economy is due to a series of new policies, so U.S. policymakers have the wrong impression that it is, in President Trump’s phrasing, “easy” to wage and win a trade war. In fact, the short-term improvement of the U.S. economy is only an immediate effect of the Republican tax cut, the impact of which will gradually disappear over time.

We should look at the current outcome of Sino-US negotiations in a logical and rational manner. The relationship between China and the United States has not turned into a full-scale confrontation, as some experts and scholars have suggested.

Although the United States has shifted its policy from its earlier stance of containment and engagement towards an all-out suppression of China, no country can stop the worldwide trend towards development. The global economic transfer to Asia and developing countries will continue. China has a huge and growing consumer market with great potential. If such a massive market excludes the United States, no tariff duties can compensate for the losses America will experience. Therefore, the United States will still be attracted by the Chinese market. In the long run, the trend of cooperation between China and the United States will not change.

Historically, cooperation is the only way out for Sino-US relations. China cannot accept a trade war — neither can most Americans. At this juncture, we must remain calm and clearly identify the general direction of win-win cooperation between China and the United States. China and the United States need to move towards each other, avoid confrontation, and handle economic, trade and overall Sino-US relations with mutual respect and equality.

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