US-CHINA TRADE WAR

By: Qurat ul Ain Aman

Let Sanity Prevail!

The world has become a global village today. Owing to globalization, especially its economic version, we are getting a number of dividends in the form of free trade, economic agreements and bilateral treaties. It is a well-known reality that the last five decades of the twentieth century were consumed by the tussle between communism and capitalism. However capitalism triumphed, leading our world to a new phase of liberal institutionalism.

Till the end of the first decade of the twenty-first century, the United States remained the world’s sole superpower. But, a fast-rising China has become a colossal threat to American hegemony. Resurgence of Russia and Germany, too, rings an alarm, loud and clear, to the overwhelming influence of the United States on world affairs. It, thus, omens that our world has now become multipolar, particularly in terms of economics.

Considering the fact that there are no permanent friends and enemies in international arena, countries make their economic policies keeping in view their own national interests. China, with its huge Belt and Road Initiative (BRI), is all set to become world’s largest economy within a few years from now. The country is also increasing its influence in different financial institutions of the world so as to challenge the hegemony of America in the financial sector – China has veto power in the Asian Infrastructure and Investment Bank (AIIB), it is increasing its investments and shares in the European Bank for Reconstruction and Development (EBRD), and the New Development Bank. It is also funding many projects of the Inter-American Development Bank (IADB). If we closely analyze Beijing Consensus, we will conclude that China is focusing more on economic reforms than on political ones. Owing to all these factors, China has become the biggest challenge to America.

Amidst such conditions, the notion of Thucydides Trap seems to be the most appropriate theory to understand the full-blown US-China tussle in various realms. Since China is an emerging power and has challenged the hegemony of the United States, the latter is trying to stop it from becoming the world’s largest economy. Being the largest importer of its goods, the United States owes huge amounts in debts to China.

If we dig deep into the current US policies towards China, we will find that all these policies are aimed at hurting China economically. Owing to the US presence in the South China Sea and South Korea, China’s defence spending has increased manifold. Had there been no military threats from the United States, China could have spent more money on economic development that has spurred economic development in the country.

Read More: THE US-CHINA TRADE WAR

Since China, militarily, is a strong country and a nuclear power, the United States has only one option to contain it: the trade war.

A trade war is one potential result of protectionism. It can also invite a tit-for-tat response. Usually, it is started by putting tariffs on one or more products, but it can escalate and could lead countries to a full-fledged war. The United States has imposed tariffs of 25 percent and 10 percent, respectively, on the import of steel and aluminum products from China. The US also imposed an extra tax on import of these products because people prefer to import over using American steel and aluminum products.

But, it needs to be understood that with this policy, other American products using steel, e.g. cars, planes, etc., will become expensive, and as a result people will stop buying US-made cars and other products. So, it must be very clear that protectionism is never a good option. The countries wishing to export these materials to the United States will have to pay more than they did in the past.

The trade volume between the United States and China is more than $600 billion, with the former having a trade deficit of around US$ 370 billion. Since the Trump administration wants to reduce this deficit level, it has imposed tariffs of 250 billion dollars on different Chinese products. In addition, the United States is calling back many American companies working in China. It is important to note here that the US adopted a protectionist policy called Smoot–Hawley Tariff ACT, but it completely failed during the Great Depression. In fact, this protectionist policy worsened the situation during those turbulent times for the world economy.

On the other hand, China has also imposed US$ 50 billion tariffs on imports from the United States. It has threatened the US to further increase import tariffs and impose stringent curbs and restrictions. Since China exports just 2 percent of its steel to the US; therefore, this tariff policy will not affect China much. Instead China can impose more tariffs on American products. At the end of the day, the US will be on the losing side. The EU, too, has decided to impose tariffs on American products in response to protectionist policies being followed by Trump administration.

Owing to the dividends of globalization, our world has become a global village where all countries are interlinked and interconnected. In this global community, cooperation as well as collaboration among its members, i.e. states, is important to pursue even their national interests. Also, adoption of an isolationist policy is not a good option anymore because in today’s world liberalism has become the most dominating theory. Both China and the United States should cooperate with each other to reap maximum benefits from the opportunity we call globalization.

Important Quotes on Trade War

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”

—Donald Trump, President of the United States

“As globalisation deepens, the practices of law of jungle and winner-take-all are a dead end. The Chinese economy is a sea, not a pond. Storms can overturn a pond, but never a sea.”

— Xi Jinping, President of China

“The rules-based multilateral trading system is the bedrock of economic globalization and free trade, and provides important safeguards for win-win outcomes. The authority and efficacy of the system should be respected and protected. Some WTO rules do need to be improved. The right approach is for all to sit down as equals to find solutions.”

— Li Keqiang, Prime Minister of China

“As Treasury Secretary, I presided over the US response to the 2008 financial crisis, so I know a little something about systemic risk. And I simply cannot see how the international system can endure when the two countries that comprise some 40 percent of global GDP and over 50 percent of global growth are working at cross-purposes, attempting to de-integrate their two economies, and contesting the foundations of a rules-based order at every turn.”

— Hank Paulson, Former US Treasury Secretary