Even if All Tariffs Came Down, The America-ChinaTrade War Would Not be Over

On the eve of Xi Jinping’s visit to the DPRK, Donald Trump revealed to the world that he held a phone call with the Chinese President. Trump stated that he looks forward to meeting his Chinese counterpart at next week’s G20 summit in Japan to discuss improving trading relations and thus offered the first indication in months that there is a potential for a thaw in the otherwise escalating trade war.

But even if (and it remains a big if) tariff hikes are paused or some tariffs come down, this only tells half the story.

There remains little doubt that under Donald Trump, the US plans to use ever more non-tariff barriers against Chinese hi-tech industries in order to stifle free market competition between American and Chinese firms. This is the fundamental reason why the US instructed Canada to kidnap Meng Wanzhou as an attempt to intimidate the leadership of the company Huawei. It is furthermore the reason why the US is making it difficult for Chinese scientists to get American visas. It is also the reason why the US is pressuring its closest allies to ban Huawei technology and it is why Donald Trump signed an executive order which attempts to turn China and the US into rivals in the field of artificial intelligence (AI), as opposed to potentially close partners. Finally, the embargo that Trump has imposed on Huawei technology in the US makes it completely clear that Trump’s idea of a trade war goes far beyond import tariffs.

None of this fits in with China’s desire to see the world as a whole embrace win-win cooperative endeavours in the fields that will power the future, but nevertheless, China accepts that this is America’s long term plan. However, while Donald Trump has declared his country to be a rival of China across futuristic hi-tech sectors, when it comes to the products of today, American businesses need both Chinese products as well as assured access to Chinese markets. All the while, American farmers have been hit especially hard by Trump’s trade war. Hence, the all important rural demographic in middle America needs a speedy resolution to the trade war, whilst Donald Trump needs the votes of rural America in order to win in 2020.

Because of this, it would appear that by allowing something resembling normal trading conditions between the US and China to resume when it comes to the goods of the present, Donald Trump can claim “victory” in the trade war whilst simultaneously waging a war against the Chinese technologies of the future through a series of non-tariff  barriers to trade, which amount to something of a holistic embargo against Chinese hi-tech.

In many ways, such a reality demonstrates the very different mentality of Donald Trump when contrasted with China’s leadership. China is busily engaged in pivot away from an economic model predicated on mass production to one that prioritises hi-tech innovation, scientific research, medical innovation, high-quality production of consumer goods, automation and artificial intelligence. As part of this drive towards quality, innovation and futuristic technologies, China is opening its markets to more imported goods than at any time in its modern history, whilst China is also allowing for supreme flexibility in flow of investment capital which continues to see China stand as the global leader in FDI (foreign direct investment).

By contrast, in Trump’s America, a pro-tariff zero-sum mentality appears to want to turn back the clock to an age of old fashioned industry that the US itself formerly killed off through over regulation and which China is now voluntarily shifting away from in order to focus on more future driven sectors. In this sense, Trump wants to take America’s economic model on a nostalgia trip whilst China is firmly set on welcoming, promoting and cultivating the industries that will lead tomorrow’s global innovation.

Thus, one might see China-US trade slowly normalise in terms of tariffs by the beginning of 2020. But when it comes to Chinese technology companies, non-tariff barriers to trade will if anything become intensified in the run up to the next US election.

In a more rational world, the two largest economies would cooperate in both new and old economic sectors, but as things stand, this might yet be an evasive hope.

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