What's behind the US trade war against China? It's not about trade deficits

By Xu Qinduo

The Trump administration wants to fix the problem of America's trade deficit with China, which they say is costing the United States hundreds of billions of dollars a year. That's why President Trump is leading his country towards a costly and disruptive trade war with its largest trading partner and the world's second largest economy.

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

That's what they've been telling everyone, at least. But as the dispute has progressed, it has become clearer and clearer that what America really thinks is the problem is China's growing competitiveness, and the challenge it poses to the United States status as the world's only superpower.

The proposed tariffs on $50 billion worth of Chinese goods are almost all targeted at the industries associated with "Made in China 2025," an initiative seeking to comprehensively upgrade China's industrial base.

There's nothing unusual about a country mapping out a development plan. Just as China has "Made in China 2025", and Germany has its "Industry 4.0" plan. The United States even had its own plan under President Barack Obama to revitalize American manufacturing.

But the Trump Administration seems intent on picking a bone with China. Why? Because, if well implemented, China could beat the United States in the race to dominate major emerging industries, such as artificial intelligence (AI) and robotics.

The Trump Administration is filled with China hawks, such as Peter Navarro, the author of "Death by China: Confronting the Dragon - A Global Call to Action". Navarro has tried to highlight what he sees as danger in China's economic and military rise. Despite most economists dismissing Navarro's fringe and oddball views, including, according to Reuters, "that Chinese goods are literally poisoning Americans," President Trump has hailed him as a "visionary".

Before Navarro came along, Steve Bannon, arguably the brains of the Trump team well before the presidential election, was an enthusiastic supporter of confrontation with China. Before his firing last year, he said "we're at economic war with China... One of us is going to be a hegemon in 25 or 30 years and it's gonna be them if we go down this path." Back in September Bannon said the United States would use Section 301 of the 1974 Trade Act against China, and followed up with complaints against steel and aluminum dumping. Given the events that have since transpired, it's clear that the Trump administration game plan of today is the one that was written by Bannon.

China's economy has been growing at a dazzling speed for four decades. That growth shows no signs of stopping. China is the world's largest exporter of goods, and the biggest trading partner for some 130 countries, including the United States. It is building world-leading infrastructure of which its massive high-speed rail network is one high-profile example. And it's investing heavily in science and technology as part of its "Made in China 2025" plan.

Could China overtake the United States as the world's largest economy? Many economists think so. And that moment might only be 10 years away. But that doesn't spell anything close to doom for America. China's population is more than four times that of the United States, so why shouldn't its economy be bigger as well?

In the eyes of President Trump, and the likes of Peter Navarro and Steve Bannon, China's continuing economic development is a threat to be countered. This view was made plain in the administration's first National Security Strategy, which described China as a rival and a strategic competitor. The Trump administration appears determined to prevent China from continuing along its path of peaceful development by sabotaging its economic expansion. The question is: can they do it?

It's unlikely. China already has the world's largest reserves of foreign currency. The size of China's middle class surpassed that of the United States to become the world's largest in 2015. China has been predicted to overtake the United States as the largest retail market this year. And in Shanghai in November, China will host the first ever International Import Expo – a strong symbol of the country's resolution to continue along the path of reform and opening up, and strengthen its relationships with countries around the world.

Given its size, its population, and the sophistication of its economy, China is well placed to ride out the storms blowing across the Pacific from the United States. Despite the Trump administration pushing forward its policies of unilateral protectionism and isolationism, China will continue to forge ahead with its development, including "Made in China 2025." 

(Xu Qinduo is CRI's former chief correspondent to Washington DC, the United States and a senior fellow of the Pangoal Institution.)