Veteran Chinese diplomat He Yafei talks about why the relationship with the U.S. has been an important factor for China’s success in the last 40 years in its reform and opening-up effort, explaining China’s market potential and the assumptions of the American leaders that economic liberalization would eventually lead to democracy for the country. “China has not adopted the American model,” he says. The watershed year came in 2017 after Trump took office when a consensus emerged that the U.S. has failed its China policy.

On July 6, the U.S. government made threats of a trade war with China a reality, with tariffs on $34 billion worth of Chinese goods. China responded with tariffs of a similar amount on U.S. imports. While some in the U.S. may feel the Trump administration has made an important move in defense of American workers, many are increasingly concerned about the damage a trade war could cause to U.S. producers.

Trump’s tariffs against China directly hurt American companies that rely on imported Chinese products for their operations. Furthermore, China’s counter-tariffs can also devastate American producers that export to China, by driving up their prices abroad.

About 1.7 million U.S. jobs are in industries subject to China’s counter tariffs. The tariffs will not affect all U.S. states equally: they will hit agricultural states hard and have a smaller impact on service-heavy states like New York. In fact, 38 percent of products on the tariff list are agricultural, including soybeans, sorghum, tobacco and pork. The impact on one group in particular has garnered special attention: American soybean farmers.

Beijing’s 25 percent tariff on U.S.-produced soybeans has already dealt a pivotal blow to the U.S. soybean industry and the 300,000 American farmers that work in it. Nearly a quarter of U.S. soybean exports go to China, generating 14 billion U.S. dollars annually. In the state of Minnesota alone, it is estimated that every third row of soybeans planted is sent to China. The Chinese government’s drive to increase domestic soybean production, as well as import more from other countries, like Brazil, may keep American soybean farmers out in the cold.

On July 24 President Trump announced the provision of $12 billion in emergency relief for farmers harmed in the fallout from his trade policies. While this move may grant the American farming industry some comfort, it could also indicate Trump’s plans to further escalate the trade war.

Both the U.S. and China have threatened to impose even more tariffs by the end of the year. With no end in sight, American producers are operating in an environment of uncertainty. To many Americans workers and producers, the trade war hits much closer to home than most grand geopolitical disputes: local economies and jobs hang in the balance.

The rivalry between China and the U.S. in high-tech industries has become increasingly tense. This is in part because both governments have begun to associate supremacy in technology with national security. In the current trade disputes between the two economic giants, technology will like be a sticking point.

Transcript:

Supercomputers, 5G, microchips, quantum communications, artificial intelligence - these are the technologies of the future. The country that masters them first stands to dominate the global marketplace. That’s why some have argued that the brewing trade war between China and the U.S. is actually rooted in technology, not the trade deficit.

Since 2015, the rivalry between China and the U.S. in high-tech industries has become increasingly tense. This is in part because both governments have begun to associate supremacy in technology with national security. In 2015, the U.S. government banned the American company Intel from selling chips to China, which had been using them to power the Tianhe-2, the fastest supercomputer in the world at the time. This year, the US government began blocking Chinese companies from buying or merging with American tech firms in so-called “sensitive industries.” Chinese companies Huawei and ZTE, considered security risks, have become particular targets. President Trump also announced tariffs on Chinese imports in response to the theft of American intellectual property.

These sanctions by the US government have highlighted China’s dependence on foreign imports to make products like cell phones and supercomputers. In 2015, the Chinese government announced a plan called “Made in China 2025” to encourage innovation and upgrade China’s manufacturing capability. The government hopes this plan will allow China to move up the value chain and avoid dependence on tech imports.

"Made in China 2025" has worried some in the American government, who consider its potential impact an “existential threat” to the U.S. Chinese officials, however, have said that the initiative is not up for discussion, and have noted that foreign firms can participate in it as well.

In a bid to beat each other to the next invention, China and the U.S. are sparking a technology arms race. In the current trade dispute, technology will likely be a sticking point, with the future of global marketplace leadership at stake.

China’s activities in its surrounding seas may be as much a recognition of its weaknesses as an assertion of strengths. What is certain is that the East and South China Seas will continue to be sources of contention in the immediate future.

If the U.S. only insists on its own way focusing on short-term "America First" goals, it is almost suicidal as its global leadership will be undercut.

Former senior diplomat He Yafei believes that Trump's rhetoric contradicts the action he takes. "There is still room for negotiation" when it comes to solving trade frictions, but viewing China as a strategic competitor or adversary is a sign of danger.

China is exemplary in fulfilling its commitments to WTO, while one major violation of the rules has been the refusal by the U.S. and the European Union to recognize China as a full market economy – a "gentlemen's agreement" made when China joined WTO in 2001, says He Yafei, a former Chinese diplomat.

The problem with the Freedom of Navigation operations by the U.S., China-US Focus contributor Richard Javad Heydarian says, is that it’s provocative enough to give China pretext to further militarize the dispute, but not robust enough to deter China from dominating the area.

China-US Contributor Richard Javad Heydarian speaks on why the mid-level powers in the South China Sea need to "step up to the plate."