USA-China Trade War: Determining Loser, Not Winner | 2018-07-21 |

USA-China Trade War: Determining Loser, Not Winner

Anu Anwar

21 July, 2018 12:00 AM printer

USA-China Trade War: 
Determining Loser, Not Winner

Anu Anwar

As the US-China trade fray intensified, people in both the countries and elsewhere in the world are asking: who has more to lose? Since a less loser may aspire to become the hegemonic power, more damaging one may lose the potential to become a world leader!

Kishore Mahbubani, a Singaporean academic and former diplomat interviewed the founding father of Singapore Lee Kuan Yew about the future of hegemonic power. Lee said the future hegemonic power would be determined by who will rule the Asia-Pacific region. This regional dimension includes few dominant areas like the South China Sea, North Korea, and the booming Chinese economy which now become a battlefield in a trade war form. Therefore, engaging countries are most likely to put their utmost effort to bring the outcome in their favour.

Unlike a sporting event in which one side prevails and the other is defeated, there’s no guarantee that either side will win as the US and China engage in an escalating dispute over tariffs. In fact, in trade wars, both sides often lose – and bystanders get hurt, too. To be sure, there‘s a possibility of a big win if China quickly lowers trade barriers and tariffs. That’s what President Donald Trump is hoping for by slapping a 25 per cent tariff on $34 billion in Chinese imports, with another $16 billion on the way within weeks. He‘s also threatened 10 per cent tariffs on an additional $200 billion in the near term and yet another $200 billion if necessary.

With all that pressure, he’s betting that China will cave because it relies more on American buyers than the other way around. And theoretically, China is more vulnerable because the Chinese economy is largely dependent on exports, and nearly 20 per cent of its exports go to the United States alone. It sold $506 billion in stuff and services to the United States last year. In contrast, the United States sold $130 billion to the Chinese that makes $376 billion trade imbalance that has long irked Trump. But the reality is that trade wars often bring about unintended consequences. “Simplistic win-lose equations“ don‘t apply to trade disputes, said  Charles Skuba, an international business professor at Georgetown University‘s McDonough School of Business. Skuba, who served in a trade capacity under President George W. Bush‘s administration, noted that pure economic data suggest “China has more to lose.“

But this isn‘t just an economic fight, it’s also political, and considering the short-term effect in domestic politics, there’s a strong case that President Trump would be less able to sustain a protracted conflict than the Chinese — especially with the 2018 midterm elections coming. Chinese President Xi Jinping runs a communist country that has just granted him the ability to rule for life. Media has been censored in his country and is also sitting on top of about $3 trillion in surplus cash. All this means Xi can react quickly to Trump. He can even aid Chinese companies that get hurt in the coming months and subsidise soybean prices so that Chinese consumers don‘t face massive sticker shock at the store.

The Chinese used similar tactics during the global financial crisis of 2008 and 2009, spending heavily from their surplus reserves to stimulate their economy and insulate their people from pain. The Chinese cash reserves are not as large now, but they still have more than the United States has. However, today, what matters most is who can sustain the longest. Trump administration led by Peter Navarro, the mastermind behind this tariff tiff seems not in such a position to bow out fast! The US has deeper pockets than otherwise visible. China, on the other hand, has the problem with both its current and capital accounts, part of which is unrivalled global dominants of US dollar. Therefore, any dip dispute can cause potential political drama even inside Chain’s home territories too.

The tariff tussle that began today is linked to Beijing‘s ambitious flagship strategies ‘Made in China 2025’ and ‘Belt and Road Initiatives,’ which will transform the global economic and geopolitical landscape; this rivalry could last for decades or even longer. Far away beyond the first $34 billion shot in what could turn into a vicious trade war, the US-China tariff tussle must be seen in the context of the game-changing geopolitical and economic Big Picture. The blame game as well as all sorts of speculative scenarios on how the tariff tussle may evolve is a peripheral issue. The ultimate target of what started today is not allegedly dysfunctional “free trade”; the target is, Made in China 2025, or China configured as a high-tech powerhouse on a par or even surpassing, the US and the EU. It’s always crucial to stress that it was Germany that actually supplied the blueprint for ‘Made in China 2025’ via its ‘Industry 4.0 strategy’.

The Made in China 2025 targets ten techno-strategic fields: information technology including 5G networks and cyber security, robotics, aerospace, ocean engineering, high-speed railways, new-energy vehicles, power equipment, agricultural machinery, new materials and biomedicine. For Made in China 2025’ to bear fruit, Beijing has already invested in five national manufacturing innovation centres and 48 provincial centres, aiming at 40 national centres by 2025. And by 2030, via a parallel strategy, China should also be established as a leader in artificial intelligence (AI).

President Xi Jinping’s Chinese Dream hymn, also billed as “the great rejuvenation of the Chinese nation”, is strictly linked not only to Made in China 2025, internally, but also, externally, to the Belt and Road Initiative (BRI), the organising concept of Chinese foreign policy for the foreseeable future. And both Made in China 2025 and BRI are absolutely non-negotiable. In sharp contrast, there’s neither an evidence of Made in USA 2025 nor a Marshal Plan 2.0 is in the cards. The White House would rather frame the whole process as a battle against China’s “economic aggression.” The National Security Strategy frames China as the top challenger to US power. The Pentagon’s National Defence Strategy sees China as “a strategic competitor using predatory economics.”

Naturally, the effects of trade wars on this scale are bound to be felt across the globe. Apart from the damage that would cause to trade between the world‘s two biggest economies, the fallout from such a conflict could create other losers. Several countries in Asia sell to China goods that are used to make products exported to the United States. Any further escalation in trade tensions that leads to a significant fall in US imports from China would have a sizable impact, not just on China, but on other countries such as Malaysia and Vietnam which export a lot of intermediate goods to China. South Korea, which counts both China and the United States among its largest trading partners, would be one of the colossal casualties if an all-out trade war breaks out. Asian economies are likely to be significantly impacted in a full-blown trade war. Since these countries are export-oriented and are key suppliers of components to China.

Now, it seems while USA and China are fighting each other for becoming the hegemonic power, the rest of the world are paying the high price, and as always, the ordinary people would be the most affected one.

The author is a Masters of Public Policy for Sustainable Development Candidate at the Tsinghua University, Beijing, China