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With US-China Trade War Set To Escalate World Stands At Edge Of Precipice – Analysis

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While there has been no perceptible effect of tariffs on the economy of either the US or China so far, additional tariffs which could eventually cover the entire $500 billion of US imports from China will most certainly have a negative effect on both countries and the world.

By Manoj Joshi

With the clock ticking towards 6 September, the world stands at the edge of a precipice. On that date, the public comment period on the US’s plans to impose fresh tariffs on 6,000 products worth $200 billion worth of imports will come to an end, and the betting is that the Donald Trump administration is likely to go ahead with the move.

China is expected to retaliate by levying duties on $60 billion worth of US goods. Given Xi Jinping’s political posture, China cannot compromise on its “Made in China 2025” and will therefore fight on, or seek compromise on, other issues relating to market access and intellectual property protection issues.

Efforts to restart US-China trade talks through discussions between mid-level officials in Washington DC at the end of August do not seem to have worked and the reckoning is that a trade compromise, if indeed it is possible, will have to wait for the November elections in the US.

The two countries have already imposed 25% tariffs on $50 billion worth of each other’s imports so far. While there has been no perceptible effect of these tariffs on the economy of either the US or China, additional tariffs which could eventually cover the entire $500 billion of US imports from China will most certainly have a negative effect on both countries and the world.

The likelihood of the additional China tariffs has been strengthened by the deal that the US has struck with Mexico and the possibility that Canada will join in to make a revised North American Free Trade Agreement is being seen as a victory for Trump. This has reinforced the US president’s conviction that tariffs are a winner amongst his electorate and will play well for the November elections.

Another issue roiling US-China relations arise from the difficulties the US is facing in its negotiations with North Korea. In late August, Trump issued a statement on Twitter noting that he felt “strongly that North Korea is under tremendous pressure from China because of our major trade disputes with the Chinese government.” He accused China of providing North Korea with a range of goods that were supposed to be embargoed.

Some reports say that Xi Jinping may visit Pyongyang in September for the 70th founding anniversary of the DPRK; this is only likely to happen if Beijing has decided not to pressure Pyongyang at the US’s behest. On the other hand, in his statement cited above, Trump enigmatically noted that his relationship with “China’s great President Xi Jinping” remained strong.

So far this year, Trump and Xi have not met. But they could meet at the Asia-Pacific Economic Cooperation meeting in November to be held at Port Moresby in Papua New Guinea, and again later at the sidelines of the G20 summit at the end of November in Argentina.

Those who believed that Beijing could ride out the issue till the November elections are having to redo their calculations. It’s clear now that whether the Congress is dominated by the Republicans or the Democrats, there will be little change in US policy with regard to China. This becomes clear from the language of the 2019 version of the National Defence Authorisation Act (NDAA), as well as the voting in both houses of Congress.

On 13 August, Trump signed the Act which had passed by overwhelming majorities in both Houses of Congress. The Bill declared, “long term strategic competition with China is a principal priority for the United States.” It authorised defence expenditure of $716 billion and called on the president to submit a report on the “whole of government” strategy of the US government with regard to China by 1 March 2019. The secretaries of defence and state have been asked to submit reports to relevant congressional committees on the military and coercive activities of the People’s Liberation Army in the South China Sea. The US government has been barred from using Huawei and ZTE equipment, the key Committee on Foreign Investment in the United States (CIFUS) has been strengthened.

Many now believe that Beijing underestimated Washington’s resolve in taking on China on the issue of trade and that their bigger failure was in not understanding that the issue actually went beyond trade, and that the US political elites are now united in seeing China as a “strategic competitor.”

In an article in People’s Daily, Long Guoqiang, vice president of the State Council’s Development Research Centre, has called for “strategic patience” on the part of China. In a commentary in People’s Daily, Long said that this was not just about the US gaining more economic benefits, but an “important strategy to contain China.” Long’s comments come in the wake of similar articles in the Chinese media and an editorial on 10 August declaring that the trade war was part of the US’s containment strategy. The idea that trade is just one of a multi-pronged strategy to “thwart China’s rise” has now probably become the official consensus view in Beijing.

Meanwhile, China watchers who were caught up in rumours of Xi’s declining influence and stability in the last few months are eating crow. Since reappearing from the summer party seniors’ retreat in Beidaihe on 16 August, Xi has held four major high-level meetings, beginning with one with the PLA brass, followed by an important first meeting of a commission dealing with propaganda and ideology. The third meeting last week dealt with law and order and deepening reforms, and finally last Monday, Xi chaired a meeting on the Belt and Road Initiative signalling that China intended to stay the course on his signature foreign policy venture.

This article originally appeared on The Wire.


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Observer Research Foundation

Observer Research Foundation

ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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