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Foreign Policy

Sino-US Trade War Threatens Global Prosperity and Stability

Jun 06, 2019
  • He Wenping

    Senior Research Fellow, Charhar Institute and West Asia and Africa Studies Institute of the China Academy of Social Sciences

Sino-US relations have temporarily run aground after 11 rounds of negotiations to resolve trade frictions — rhetoric about conflict between China and the US, and even a “clash of civilizations,” have begun to permeate the media, academia, and politics.

The proliferation of this view, alongside the intentional or unintentional expansion of Sino-US economic and trade friction into the political and military fields — the conflict drawing in questions of values, governance models, or even so-called "civilizations" — has done great damage to the stability of Sino-US relations. The two sides benefit from cooperation, and would be damaged by confrontation. Especially at a moment when the world's political and economic landscape is facing drastic adjustment and turmoil, it is necessary to maintain overall stability in Sino-US relations, which is essential not only for China and the United States, but also for the recovery of the world economy and the maintenance of an orderly, balanced, and stable international order.

First, the Sino-US trade war is not helpful for either of the two major countries themselves, nor conducive to the stable and healthy development of Sino-US bilateral relations.
The ostensible reason for Trump to wave a tariff stick is the so-called trade imbalance between China and the United States — he argues that the US deficit is too large. But to solve a long-term, major trade deficit, the United States must improve the international competitiveness of American goods, raising its own internal strength by changing its pattern of excessive consumption and low domestic savings, and increasing investment in manufacturing and infrastructure. Otherwise, if the US does not find a solution to its domestic problems, but continues to increase tariffs on China, Europe, Mexico, Canada, Japan, India and others to solve America’s long-term trade deficit problem, it is like someone suffering a heart attack but only taking pills for indigestion. The effect is counterproductive to say the least.

The reality is that, since the United States started the trade war two years ago, the US trade deficit for the year 2018 not only did not diminish, but continued to grow. According to the latest trade data released by the Bureau of Economic Analysis (BEA) of the US Department of Commerce's on March 6, 2019, the US trade deficit in goods for 2018 was $891.3 billion, an all-time record high in US history and an increase of $83.8 billion over the 2017 deficit. On the one hand, as the growth of global demand slows down and the dollar continues to be strong, the competitiveness of US goods in international markets is weakened and US exports are hard to boost; on the other hand, the crackdown on China's trade has either passed on the tariff burden on to American consumers or created market vacancies due to the withdrawal of Chinese goods where the vacuums are quickly filled by third parties such as Vietnam, the Philippines, and Bangladesh.

Furthermore, the United States has used its governmental power to suppress Chinese private high-tech enterprises such as Huawei, which is not only against the principles of market competition that the US has long advocated, but also is at odds with the "American spirit" of encouraging innovation and meeting challenges. Moreover, in the global era of next-generation industrialization with growing interdependence in world trade, the suppression of Chinese manufacturing also affects those US industries closely related to China's upstream and downstream industries. Therefore the trade war itself basically is a “Pyrrhic victory” where the US suffers nearly as much as China does.

Second, the Sino-US trade war is not conducive to the recovery of the world economy. China and the United States are the world's #1 and #2 largest economies, with a combined total GDP comprising about 40% of the world economy, while China’s contribution to world economic growth is about 35%. It is not hard to imagine that these two economic giants could become the greatest threat to global prosperity by waging a bilateral trade war. If these two elephants are fighting, they will surely trample the lawn of the world economy so that everyone suffers. According to rough statistical estimates, the outbreak of a full-blown trade war between China and the United States will cause global economic losses of at least $600 billion, while the world economy’s growth rate may lose several percentage points. For example, the South Korean Trade Association has reported that "South Korea's total exports will be reduced by more than $870 million a year as a result of the Sino-US trade war." The International Monetary Fund, taking into account the great uncertainty surrounding the Sino-US trade war, also reduced its expected growth rate for the global economy from 3.6% in 2018 to 3.3% in 2019 in April of this year.

Nor is the Sino-US trade war conducive to an orderly, balanced, and stable international order. The current architecture of the international order was formed after World War II. Though not perfect, it was able to generally maintain world peace and stability for more than 70 years after the war, so that mankind could avoid the path of a potential World War III. However, the recent escalation of the Sino-US trade war has made many countries, especially the vast number of developing countries, deeply worried about the orderly and balanced nature of the existing world order, fearing that the world may return to a Cold War era marked by bipolar confrontation, eventually producing two divided economic systems of production and circulation.

In sum, the Sino-US trade war concerns not only a dispute over specific issues of tariffs and trade deficits, but is related to the future direction of Sino-US relations, the healthy development of the world economy, and the stability of the entire international system.

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