Lift and aim, but just don't pull the trigger

LU Xiankun China Plus Published: 2018-04-06 11:29:16
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By LU Xiankun

Shortly after April Fools' Day, trade relations between the US and China faced turbulence with a possible trade war on the horizon. Many leaders and experts have expressed concern that the tariffs being suggested by Washington, which have forced Beijing to respond in kind, will not help the economies on either side, nor will it be beneficial to the world's multilateral trading system.

After the Trump administration announced its Section 232 tariffs on steel and aluminum imports in March, but then exempted many countries excluding China, Chinese officials announced retaliation on April 3rd by ending tariff concessions on 128 products from the US worth 3 billion dollars. On that same day in April, the office of the US Trade Representative unveiled a proposed list of the Chinese products to be affected by tariffs. The 1,300 products named have a combined annual value of 50 billion US dollars and they would be subject to a 25 percent tariff. The next day, the Chinese Ministry of Commerce issued a list with 106 products imported from the US, also totaling 50 billion US dollars and facing a tariff of 25 percent. 

A man chooses bananas near imported apples from the United States at a supermarket in Beijing, Monday, April 2, 2018. [Photo: AP/Andy Wong]

A man chooses bananas near imported apples from the United States at a supermarket in Beijing, Monday, April 2, 2018. [Photo: AP/Andy Wong]

The situation is unfolding very much like the conflicts I remember from childhood. The quarrel escalates with words before one side threatens the other with a stick. When the second boy gets a stick to retaliate, the first boy reaches for a bigger stick, and so forth. The end result is often a deadlock, with each side unsure of how to deescalate the situation. And in the meantime, much damaged has been done to both sides, and possibly to others who could do little more than watch the spectacle helplessly.  

But China-US trade is not a game, and this isn't a pushing match or a fight with sticks or stones. This is business and business has already suffered under the current tit-for-tat manoeuvres initiated by Washington. Stock Markets in the US and in Europe have experienced sharp declines in recent days, with share prices for major companies including Boeing and Tesla falling just hours after China's announcement of its tariff retaliation plan. US soybean farmers lost an estimated 1.7 billion US dollars on Wednesday morning alone as soybean futures tumbled. 

On the Chinese side, while playing tit-for-tat to defend its interests, its reaction in general has been responsive and measured, in proportion to the magnitude of measures by the Trump Administration. Beijing has resorted to the World Trade Organization Safeguards Agreement to request consultations to solve the trade issue. China, from the very beginning, also repeatedly emphasized that the door for negotiation "is always open," including the most recent statement by Wang Shouwen, Vice Minister of Commerce of China, on April 4th at a briefing with reporters that Beijing doesn't want a trade war but will fight one if forced to.

On the US side, Trump Administration also seemed to soften its tone. President Trump, on Twitter, tried to play down the concerns of an imminent trade war by announcing that the US is "not in a trade war with China." US Commerce Secretary Wilbur Ross also urged calm, saying that trade measures by the two countries are just "a fraction of 1% of both economies."

Most importantly, the trade measures announced by both countries are still on paper only, and there is a short window of opportunity. The US has announced an extended review period of 60 days while China specifically declared that whether it will apply the announced measures "depend on whether the US governments will apply additional tariff on Chinese products." Reports also say that the two governments are already sitting down to negotiate with each other for a non-confrontational resolution. Let's keep our fingers crossed that they will calm down and reach a rational agreement within that window of opportunity.

In conclusion, the China-US relationship is the very relationship that will continue to shape the global political and economic landscape for the long-term future. If anything goes wrong between these two, the repercussions would be global. While recognizing that playing games with trade threats is part of the political reality, nobody, neither the international community nor domestic voters, would want a real trade war. So, a word for the US and China negotiators: you may lift and aim, but don't pull the trigger. You may end up not only shooting yourselves in the foot but also causing collateral damage to many others. 

(Professor LU Xiankun is former senior trade diplomat of China and now Emeritus professor of University of International Business and Economics and Wuhan University of China. He is also Managing Director of LEDECO Geneva and Senior Vice President of Shenzhen UEB Technology Co. LTD.)

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