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ATLANTA, Georgia: Donald Trump’s aggressive approach to China has helped create a trade war more virulent than any seen in decades.
Donald Trump has long criticized the deep-seated trade deficit between the two countries, which in 2017 amounted to more than $ 375 billion in goods. For Trump and his supporters, who have a mercantilist view of zero-sum trade, this deficit proves that China is taking advantage of the United States.
And, perhaps more disturbing to the administration, China’s huge treasury holdings mean that its leaders could bring down the value of the dollar by hastily selling off their assets.
In truth, if China took such extreme action, it would also devastate its own economy. This reality gets down to the basic fact about the relationship between the United States and China: the two countries are deeply interdependent.
More than that, for the United States, China, with its 1.4 billion people and decades of phenomenal growth, represents both a great danger and a tremendous opportunity.
People dine at a restaurant in Beijing, China, October 22, 2020. Photo taken on October 22, 2020. (File Photo: REUTERS / Tingshu Wang)
AMERICAN TRADE POLICY BEFORE TRUMP
Over the past decades, the primary response of US politicians to this complex reality has been to manage and channel China’s growing influence through existing institutions such as the World Trade Organization (WTO) and its predecessor.
The United States was unable to stop China’s rise, and in many ways it was benefiting from it, so Washington sought to contain Beijing within the postwar international system.
But in Trump’s view, his predecessors were duped by the deceptive Beijing regime. China’s leaders manipulated its currency to boost exports, use its non-market economy status at the WTO to engage in unfair industrial policies and, worst of all, repeatedly violate American intellectual property rights.
For newly elected President Trump, the time had come to take a more aggressive approach.
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MAIN MOVEMENTS AGAINST CHINA
Trump’s first major trade actions against China came in January 2018, when he imposed tariffs on washing machines and solar panels. Immediately after this action, tariffs of 25 percent were applied to steel and 10 percent to aluminum in March, both justified as necessary for national security.
Although none of these actions were specifically directed at China, that country was clearly the most important thing on President Trump’s mind.
And when Beijing backed down with its own 25 percent tariffs on a wide variety of American goods, the United States began to seriously target Chinese goods.
The trade war between the United States and China entered its first reciprocal phase between April and December 2018, when Washington and Beijing began a series of tit-for-tat exchanges. There was a détente in December, when both countries agreed to suspend new tariffs and begin talks.
Chinese Vice Premier Liu He (center) gestures to the media between US Trade Representative Robert Lighthizer (left) and Treasury Secretary Steve Mnuchin (right) ahead of trade negotiations for the two countries in Washington, DC, on October 10, 2019 (Photo: Reuters / Yuri Gripas)
This respite was not going to last. In May 2019, after Xi backtracked on the newly negotiated deal, Trump raised US tariffs to 25 percent on $ 200 billion worth of Chinese goods.
New efforts to strike a compromise began again almost immediately, but quickly faded, leading to even more U.S. tariffs, this time 10 percent on $ 300 billion worth of goods (though some of them were suspended. ).
The United States too, related or not to the trade war, launched sanctions against Huawei and other Chinese companies associated with Beijing’s crackdown on the Uighurs.
China, for its part, retaliated with more tariffs on US products worth $ 75 billion and additional sanctions on agricultural products.
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WHO WINS OR LOSES IN THIS WAR?
By the end of this tit-for-tat action, America’s inherent and perhaps ironic advantage in this dispute had become clear. Due to the deep trade deficit, Washington could continue to penalize Chinese trade long after Beijing has run out of targets.
At the height of the trade war, the United States had imposed tariffs on Chinese goods worth $ 550 billion, while Beijing was targeting a paltry $ 185 billion.
The announcement of a “Phase One” agreement came in October, and the agreement was finally signed in January of this year. In the months since, COVID-19 has come to dominate the relationship between the United States and China, while both countries, for the most part, have begun to slowly move away from their retaliatory tariffs.
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The trade war with China is just one of the ways that US President Donald Trump disrupted the global economy. (File photo: AFP / STR)
Does all this mean that Trump has won the trade war?
Trump is right that China has often not played fair in trade. And in fact he has managed to extract concessions from China where other US presidents have failed.
The Phase One deal forces China to purchase additional US $ 200 billion worth of goods and services, much of it agricultural, over the next two years. It also contains new Chinese commitments in the areas of intellectual property protection and access to financial services.
This undoubted success has led many commentators to praise the president’s aggressive approach as the only way forward.
MODEST EARNINGS AND HIGH PRICES
The problem is that these advances appear to be quite modest and short-lived.
The United States’ trade deficit with China increased by nearly $ 75 billion during Trump’s second year in office, although it moderated in 2019.
China’s deficit is likely to be modestly lower in 2020, but at the same time, America’s global trade deficit has risen to almost unprecedented levels. And China is already falling behind in its purchase obligations from the Phase One deal.
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So there is little evidence that Trump’s trade war has brought lasting change. Unfortunately, however, the costs of the conflict are likely to last longer.
Workers in import-competing industries that are directly protected by tariffs have likely benefited from Trump’s trade policies. But by levying huge tariffs on Chinese imports, the administration has raised the prices of many products.
Trump once tweeted that China had agreed to reduce tariffs on cars, but did not explain which ones would be removed and which ones would be lowered. (Photo: AFP / Johannes EISELE)
For example, a rigorous study of washing machine fees shows a price increase of about 12 percent, and another study finds that the total loss to US importers due to tariffs in 2018 alone was $ 23.8 billion.
Chinese retaliation has also hit some US producers badly, especially in the agricultural sector. As a result, the United States government has spent billions in tax dollars to keep American producers afloat.
More recently, Trump’s aggressive policies toward Beijing have led to a ruling against the United States at the World Trade Organization (WTO), where a dispute settlement panel found that US tariffs on Chinese goods worth $ 234 billion they violated international trade law.
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THE INTERNATIONAL SYSTEM UNDER EFFORT
But these problems are of short-term importance compared to the potential damage caused to the international economic system.
The problem is that its rules and institutions, including the WTO, the World Bank and the International Monetary Fund (IMF), were created during a period of American hegemony, after World War II. More than that, they were, in many ways, created in the image of the United States.
China, however, could surpass the United States as the world’s largest economy in just 10 years, the first time since the late 1800s that the United States will not occupy that spot.
This upcoming shift in the distribution of power means that Beijing wants to put its own stamp on how the world economy is governed.
The United States has not moved on the need for new judges by the WTO trade dispute body. (Photo: AFP / THOMAS COEX)
Structural conditions are ripe, not only for short-term clashes over trade, but also for struggles over the guiding principles of the world economy.
These issues obviously predate Trump and are not directly under his control. But adapting and preserving the international system will require subtle and wise American leadership that we have yet to see from his administration.
Without the cooperation of America’s allies and without a rules-based global trading system, the United States will be in a much weaker position to channel China’s growth into a world of greater stability and prosperity.
“America First”, then, threatens to mean “America Alone”.
Time is running out. Continuing down that unilateralist, or even isolationist path, will lead to a further decline in America’s influence in the world.
Charles R. Hankla is associate professor of political science at Georgia State University in Atlanta.
