As of 2018, the trade war between the US and China took root and up until recently, it has taken a turn for the worse. President Donald Trump has taken issue with China’s trading policies since before he stepped into the office. In 2017, the US launched an inquiry into China’s trade policies to protect American interest. In a conference with reporters after signing the “Memorandum Addressing China’s Laws, Policies, Practices, and Actions Related to Intellectual Property, Innovation, and Technology”, Trump stated: “We will stand up to any country that unlawfully forces American companies to transfer their valuable technology as a condition of market access.”
Following the announcement, the US administration imposed tariffs of billions of dollars on Chinese goods, with China retaliating in kind. While the countries decided to come to a halt with the issuing of tariffs in December to allow dialogue to commence, the talks broke down in May 2019 when Trump accused China of attempting to back out from its commitments and wanting to renegotiate the original terms of the deal. Trump wrote on Twitter, “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”. Therefore, Trump opted to engage his threat, which led to tariff after tariff being imposed from either side.
Protectionism, Tariffs, and Sanctions courtesy of the US
On the surface, Donald Trump’s policies are cloaked in the rhetoric of protectionism, whereby he has imposed tariffs and quotas on imported goods, along with other subsidies, to ensure there is equal competition between local and imported goods. The same logic can be applied to the President exiting the Trans-Pacific Partnership initiative and leading the North American Free Trade Agreement and the Korea-US Free Trade Agreement toward restrictive terms via renegotiation.
In the same vein, Trump has imposed protection on steel and aluminum through the national security case, ignited a trade war with China, and has thrown trade relations with other countries into jeopardy through another national security case on the trade of automobiles and parts. In March 2018, the President imposed tariffs of 25% on steel and 10% on aluminum. While tariffs were imposed on countries such as Brazil and Korea, the sole focus of national security-based tariffs has been China.
This was clearly demonstrated when the US government proposed tariffs on imported products valued at $100 billion from China. The first phase to implement the plan involved the application of 25% tariffs on products worth $34 billion from China in 2018. In September, 25% of tariffs were imposed on imported goods worth $16 billion from China. These included products such as chemicals, semiconductors, and motorcycles. In October, tariffs on products worth $200 billion were introduced.
The Chinese Retaliation
During the first leg, China’s retaliation in kind was tame. It imposed tariffs on a small set of US exports like pork, fruits, nuts, and aluminum waste. But it quickly rose to the occasion in July 2018, when it was subjected to tariffs on $200 billion worth of product. It responded quickly and aggressively with 25% tariff on products worth $50 billion from the US. Much like the US course of action, the tariffs were imposed in two phases. When China was subjected to duties on another $200 billion’ worth of product, China launched an attack in the shape of 5 or 10% tariff on $60 billion worth of US exports.
During this time, a truce was called to renegotiate. But the talks failed when the US claimed that China was not fulfilling its promises, which then lead to the second round of the trade war which has been far more brutal and aggressive, Also read about South Korea-Japan Trade War. As of August 2019, the total US tariffs applied exclusively to Chinese goods are US$250 billion and the total Chinese tariffs applied exclusively to US goods are US$110 billion. Following the breakdown of the talks, China took on a sharper edge while still hoping for reconciliation. The Chinese Ministry of Commerce stated, “China deeply regrets that it will have to take necessary countermeasures. The eleventh round of China-US high-level economic and trade consultations is underway. It is hoped that the US and the Chinese side will work together and work together to resolve existing problems through cooperation and consultation.”
The Huawei Story and the Second Phase
The second phase also involved one of the most controversial moves on part of the President. The tariffs were now coupled with US sanctions on products, one of which was a ban on the use of Chinese telecom giant Huawei’s technology in the 5G rollout in the US. The ban was imposed on the claim that it would be used for espionage.
In May 2019, Trump’s administration issued an executive order to legalize this threat to prevent US-based companies from utilizing any telecom equipment produced by Chinese companies like Huawei and Zhongxing Telecommunications Equipment. Therefore, the imports from Huawei 5G technology have been barred based on the Chinese link. Moreover, other companies have been discouraged from purchasing equipment from Huawei based on the national security case. Another move was placing Huawei on the Entity List, which means that any company wanting to do business with the company would have to acquire a license.
Other countries have also started following the footsteps of the US by cutting ties with the company fearing a loss of cordial relations with the US. The impact on Huawei was detrimental, as the company bought nearly $11 billion worth of products – mainly computer chips from the US.
Moreover, their ties with Google have been impacted as the giant withdrew Huawei’s license. Huawei was thus blocked in the mobile phone business from the demand and production side. The latest move by the government has been to ban federal agencies from buying Huawei. Jacob Wood, spokesperson for the Office of Management and Budget stated in an email: “The administration has a strong commitment to defending our nation from foreign adversaries and will fully comply with Congress on the implementation of the prohibition of Chinese telecom and video surveillance equipment companies, including Huawei.” The US retaliation also involved the arrest of Meng Wanzhou, Huawei Technologies Co Ltd’s Chief Financial Officer, upon US request in Canada. The move drove the wedge further between the two countries.
The escalation from beyond tariffs and trade has taken place on the Chinese end as well, as the country saw beyond the façade of protectionism and recognized that the US may be threatened by Chinese superiority in the hi-tech area. It announced the intention to list the foreign companies that hurt Chinese interests and rights. Chinese Ministry of Commerce spokesperson Gao Feng told the Global Times, “Foreign enterprises, organizations or individuals that do not comply with market rules, deviate from a contract’s spirit or impose blockades or stop supplies to Chinese enterprises for non-commercial purposes, and seriously damage the legitimate rights and interests of Chinese enterprises, will be included on a list of ‘unreliable entities’.”
Chinese Containment and the Indian Hope
For the US, the solution to the detriments of Chinese containment lies in India. An intimate relationship with India is seen as “protecting American hegemony” as it will keep China away from the Indian Ocean and support America’s balancing efforts in Southeast Asia, thereby leading to greater US-led economic and political order in Asia. The bet on India is strategic and well-planned, but the US cannot merely count on India’s loyalty and their capacity to help the country as India itself is facing throes of instability in the shape of its jingoistic regime, domestic challenges, and the constraints placed by strong adversaries on the sides.
The Losses and the Wins
While the two countries battle for domination, the impact of the war is felt on a micro and macro level. The procession begs one question: who is benefitting? In terms of the US, a glance at the jobs data indicates a victory for Trump’s protectionist policy. Ever since the tariffs were announced in April 2018, 2.6 million new jobs have been created, including 204,000 jobs in manufacturing – a sector previously restricted by free trade and China.
Industries of fabricated metals, machinery, and electronic instruments have also gained 15 to 30 thousand jobs over the last year. Nevertheless, some industries are facing the sharp edge of the blade; only six of the manufacturing categories in the Bureau of Labour Statistics data have grown faster during the war. Moreover, these industries have faced retaliation from other countries; for example, after steel tariffs were imposed on the EU, the EU retaliated in kind to America’s textile industry.
In terms of the pressure on China, the war is pushing the manufacturers in China to sell their products at a discount rate, which has tipped prices into deflationary territory. The producer price index (PPI), reflecting the prices that factories charge wholesalers for their products, has also tipped into the trench at minus 0.3%. While the proceedings indicated the pressure placed on China due to the imposition of tariffs, they also point to the impending detriments on the global economy, which according to analysts is veering teeteringly close to recession.
The question of who needs who is complicated. The US relies on cheap Chinese labor, and China relies on the US for their goods. While attempts at dialogue have continued, the future for the two countries seems bleak, as Trump remains ‘unsure’ about the negotiations. In the end, the resolution to the war seems far off and it seems like it will come down to who can hold out for the longest period of time without the support of the other.
