“Trade War” threat spells trouble for U.S.-China ties

By Zhiqun Zhu

Despite President Donald Trump’s attempt to reassure an anxious American public that “we are not in a trade war with China”, people both in and outside of the United States are increasingly concerned about a looming trade showdown between the world’s two largest economies.  Such a head-on clash will not only be a disaster for businesses and consumers in both countries but also seriously hurt the global economy. 

National flags of China and the U.S. [Photo: VCG]

As days go by, the bilateral trade relationship is getting very ugly with the United States threatening with additional tariffs on Chinese exports and China vowing retaliation in kind.  One needs to figure out why Trump initiated this round of trade brawl with China.  First of all, if Trump could score some points in trade, he may potentially help the Republican Party in the upcoming mid-term election.  Second, Trump needs to fulfill his campaign promise to fix the trade deficit with China and bring jobs back to America.  Third, with recent changes of his cabinet members and advisors, Trump is now surrounded by trade hawks and hardliners toward China.  Fourthly, Trump may wish to divert public attention from the alleged sex scandals and the Russia investigation.  Finally, Trump has relied on China to deal with North Korea. Now that he has accepted an invitation to meet with Kim Jong-un face to face, perhaps he feels he can proceed without China's support.  Unfortunately Trump has misjudged both domestic and international situations.  His wrong rhetoric on trade at the wrong time will only harm US-China relations with little help to alleviate his woes at home.     

The opposition to Trump’s reckless tariffs threat comes not just from China but also from within America. The US National Retail Federation and dozens of trade associations including US Chamber of Commerce have already voiced their disapproval.  Republican Senator Ben Sasse commented that Trump’s tariffs war is “the dumbest possible way” to fix trade problems with China since agricultural states such as Sasse’s home state of Nebraska could be particularly hard-hit by retaliatory Chinese tariffs against key exports including soybeans and corns.

Trade disputes should be resolved through negotiations and through the WTO mechanism.  The United States and China have long had problems in trade such as the growing trade imbalance, market access and intellectual property rights.  Neither country has paid enough attention to the other's concerns.  While the United States complains about trade deficit and theft of intellectual property, China is unhappy with America’s protectionist policies such as high-tech export ban and investment restrictions for China on national security grounds.  

The United States and China, as the two largest economies and two most influential countries, must take the leadership role in maintaining integrity of the WTO.  Settling trade disputes through tariffs or a trade war sets a bad precedent for other WTO members.  If other countries follow suit, the international trade regime and international economic order will be disrupted.  

In this era of high interdependence with close-knit global value chains, bilateral trade is not simply between two countries anymore.  The huge trade imbalance between the United States and China is structural since many of the Chinese exports to the US markets are not made by China alone.  Multinational corporations including US businesses have moved their production facilities to China over the years.  Many countries ship semi-finished products to China, where they are re-processed and packaged before being exported to overseas markets.  So it is unrealistic to eliminate US trade deficit with China.  One also needs to know that although the US has a deficit in commodity trade, it actually enjoys a surplus in service trade with China.  

The trade dispute, if handled improperly, will affect the two countries' cooperation in other urgent issues such as North Korea.  China-North Korea relations are apparently improving after Kim Jong-un’s recent surprise visit to China.  US-China cooperation remains critical to the satisfactory resolution of North Korea’s nuclear issue no matter how the planned Trump-Kim meeting will evolve. 

Trump’s “trade war” threat reflects a bigger problem in US foreign policy: how to deal with the rising power of China.  Trump is not the first US president to face this daunting job and the US government has not developed an effective way of coping with China’s rise.  Under the strong leadership of Xi Jinping, China is moving closer to realizing the "Chinese dream" of becoming a powerful, wealthy, and modern state, restoring its historical status.  The United States is unprepared to co-exist with another major power and is unwilling to relinquish its dominant position in the world.  The conflict is inherent as global power transition continues; but it is not inevitable if managed well.  Peacefully managing US-China relations will be a major challenge not just for the two counties but for the international community in the years ahead. 

(Zhiqun Zhu, PhD, is Professor of Political Science and International Relations at Bucknell University, USA)