This is not just about trade and exchange of goods between the United States and China, but about who will have a greater influence on the world in terms of trade, economy, and even technology and other things.
Chinese ministries of Commerce and Foreign Affairs announced in a joint statement: “China will fight to the end at any cost” against the US threat to impose new tariffs on imports from China. However, President Donald Trump famously tweeted in response: “When you are already $500 billion down, you can’t lose,” and later enunciated that a trade war would be “easy to win.”
Not everyone is so optimistic. Opinions on recent decisions are mixed. Chinese media are taking a tough approach, rejecting American arguments and actions as “ridiculous” or even as expressing “deep arrogance.” And Global Times, very well known for its bellicose tone, stated in one of its editorials: “A strategic resolution is being established in China, which is to fight Trump administration’s trade aggression in the same way the country fought US troops during the Korean War.”
American lawmakers and experts are less belligerent and see the Trump administration’s new duties and tariffs threats on Chinese goods rather as misconduct than a remedy. This position is summed up well by the statement of the Republican Senator Ben Sasse: “Hopefully the president is just blowing steam again, but if he is even half-serious, this is nuts.”
American lawmakers and experts see the Trump administration’s new duties and tariffs threats on Chinese goods rather as misconduct than a remedy.
However, we have a completely new vocabulary on the agenda, with such frequently used terms like “arbitrary restrictions,” “unreasonable proposals,” “unusual responses,” “countermeasures,” “heavy blow,” “rebuttal,” “damage,” “strategic spirit of sacrifices.” No question that a bellicose rhetoric is on top of the agenda. With some real actions already looming.
Further Course Is Difficult to Predict
At the time of writing, we have an open dispute and an extremely dynamic situation, its further course difficult to predict. We do not know if this will end in just words and threats or if both sides will take some real actions. So far the facts are as follows. A mission of Liu He—a special envoy (and a long-time friend) of President Xi Jinping, formally deputy prime minister and in fact the person in charge of the Chinese economy now—to Washington ended in failure. Both sides confirmed that talks and trade negotiations had been broken.
Instead we have another sequence of events: in early March Donald Trump announces special tariffs on steel and aluminum (and then he exempts several countries, including Canada and South Korea, from it), and a month later he asks the office of the US Trade Representative (USTR) to prepare a special list of goods imported from China bought last year for 50 trillion dollars. Which the Chinese immediately countered with their own list. However, Trump did not back down and asked the USTR to make another list, this time for the sum of 100 trillion dollars. You get an impression that the spiral is winding up.
We do not know if anyone will bring the relations between the two strongest economic powers on the globe out of this spiral. But we do know what the American intentions are. Politicians in the USA, including President Trump himself, are unhappy about the too high trade deficit with China (375 billion dollars last year), “unethical practices” of the Chinese in adapting American high-tech, a “frivolous approach” to the question of copyright, and the ambitious program “Made in China 2025,” which is nothing other than an open challenge to the existing American technological domination.
A Question of Domination and Leadership
So this time it is not just about trade and exchange of goods, but about something much wider—about domination and leadership, about who will have a greater influence on the world in terms of trade, economy, and even technology and other things. And such a dispute concerning dominance or hegemony between two powers which are giants just by dint of their size may have disastrous effects on the whole global trade and world economy. Not only in the military sense, we are dealing with the “Thucydides trap” when—as was recently demonstrated by Graham Allison and experts from Harvard in a widely publicized study—the current hegemon is doomed to a violent clash or even war (only a trade war?) with the rapidly growing rival and pretender.
This is why the World Trade Organization (WTO) has already entered the stage and soon—if the situation continues to be dynamic and if Americans and Chinese do not return to the table—other organizations and institutions, and then governments, will be forced to join the fray, for many of them will be affected in one way or another. There are speculations—so far only speculations—about the impact of American and mutual sanctions on, for example, producers of technologies (negative), exporters of soya (positive), or even large corporations producing civilian airplanes (could Airbus replace Boeing on the Chinese market?).
This time it is not just about trade and exchange of goods, but about something much wider— about domination and leadership, about who will have a greater influence on the world.
There are signals from all over the world that a genuine trade war is nobody’s dream or something desired. Most observers and analysts agree with the opinion pronounced by the Chinese Prime Minister Li Keqiang and then repeated by many prominent Chinese: “In a trade war there will be no winners, only losers.”
The Stakes Are Very High
And we have not seen such trade war for a long time. A classic example quoted is the Smoot-Hawley Act from June 1930, when in reaction to the Great Depression the US administration raised tariffs on over 20,000 imported goods. We know what happened then: many other countries adopted similar “beggar-thy-neighbor” approach, in three years US trade with Europe fell by some two thirds in volume and the whole global trade declined by some 66 percent between 1929 and 1934.
Here the calculations obviously go beyond purely commercial and economic ones, they have a political and geostrategic aspect, where slightly different arguments are brought into play.
No wonder that literally no single expert wants a repeat of this situation, but here the calculations obviously go beyond purely commercial and economic ones, they have a political and geostrategic aspect, where slightly different arguments are brought into play.
Both sides know very well how high the stakes are. Moreover, experts emphasize that the USA is a system of checks and balances, and a hearing in US Congress is scheduled for May 15, 2018. Until then, the tariffs are still only in proposal stage. As President Trump’s economic adviser Larry Kudlow said: “Nothing happened. Nothing’s been executed.”
But things have gone very far, and at least in the verbal sphere we already have an open conflict, exacerbated by the decisions, sanctions, and tariffs. After two Trump-Xi summits last year it seemed that the two titans had come to an agreement. Not unnecessarily. Exactly the opposite is true. What will this roaring rollercoaster bring us?
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