US – Chi​na Trade War

How to cite this journal: Author, Date of the post, WMO Conflict Insight, Title of the post, ISSN: 2628 6998, https://worldmediation.org/journal/

ABSTRACT *

This article examines the trade conflict between the United States and China as it intensified through 2018 and 2019. The author sets out the origins of the dispute in American allegations concerning intellectual property, forced technology transfer through joint ventures and cyber intrusion, and the refusal of the United States, Canada, Mexico and European Union states to recognise China as a market economy. The escalation is traced through successive rounds of tariffs, from the twenty five percent levies on fifty billion dollars of goods to the increase in May 2019 on two hundred billion dollars of Chinese imports and the Chinese response covering sixty one billion dollars of American products, and on to the sanctioning of Huawei on security grounds and the loss of Google services on its devices. The article poses a series of critical questions about the consequences: the effect on the global market and on companies dependent on Huawei components, the timing and evidential basis of the security claim, the likelihood of further Chinese retaliation, and whether tariffs and bans can correct a trade deficit at all, given that China itself runs deficits with other trading partners such as Germany. In a closing section the author argues that the structure of the conflict points less toward trade equilibrium than toward a contest for global supremacy, which makes mediation between two superpowers particularly difficult. Readers should note that the attribution of motives, including the characterisations of the American administration and the reference to Venezuela, reflects the author’s own perspective; the editorial position of this journal is neutral as between the parties.

KEYWORDS *

United States, China, trade war, tariffs, intellectual property, technology transfer, Huawei, sanctions, trade deficit, global economy, superpower rivalry, mediation

INTRODUCTION

The US and China conflict intensified in 2018 that entails the placement of tariffs. The president of the United States sought to mend the abuse of a broken international system and unfair trade activities between the two nations. The US held that Chinese laws undermined the intellectual property rights to engage in joint ventures with their companies. For that matter, the US, Canada, Mexico, and the EU nations allege the Chinese market to be distorted, thus do not recognize it as a market economy. In 2018, Richard Trumka president claimed that China had robbed the US intellectual property and forced its way to acquire critical US advances in technology (BBC News, 2019). Besides, the United States, other countries have claimed that Chinese hackers have invaded their scientific confidentialities. For that matter, the imperialist nations have developed a hostile relationship with China.

MAIN CORPUS

In May 2019 the US President Donald Trump increased the tariffs on China from $ 200 billion on Chinese imports from 10% to 25% after failing to strike a trade deal. Similarly, China revenged by announcing that levies will be imposed on US products amounting to $61 billion (Chipman & Wong, 2019). The two countries have been in a prolonged economic battle where when one imposes a tariff barrier on the other; then the affected nation does the same. The US and Chinese governments earlier in January planned a meeting to talk about their trade relationship and find a consensus. However, the US canceled such a meeting holding that there was no agreement about the IP rules.

Even though the delegation from the US and China, including the two bosses, have been able to meet and talk, there has not been a resolution for the issues of the two countries. The two countries have been playing hardball with no country willing to settle for less. Recently, on May 19th, the Trump administration sanctioned the Chinese tech mobile company Huawei, citing it to be a security threat (McDonald, 2019). The impact of that ban is likely to affect both nations adversely since many US companies depended on microchips from the giant tech. However, the Chinese administration has not reacted and still following up on the issue before they give the next course of action.

Critical Questions

With the current sanction of the Chinese giant tech company Huawei, the main question is the impact it will have on the global market. It is evident that apart from invading the US market that saw it being ahead of the long-time mobile firm, Apple Inc., Huawei had a large market share beyond China and the US. The ban followed the deactivation of its play store Google that cause many worries among the users. The main question that everyone asks him/herself at the moment is; how has the world market taken such action? What about the companies that used Huawei’s microchips and software? Will they stop operating or will the US government compensate them for the losses that are evident in the current financial year?

The central claim of the US government for the ban was that the mobile device was a security threat. However, for how long has it been a security threat to the world, and have they ever warned the public against such threats before? Formerly the Trump government had imposed 25% tariffs on $ 50 billion in products like aerospace, automobile, communication and robotics, food ingredients, construction materials, bike spare parts, and burglar alarms among others (Gillespie & Horowitz, 2018). Similarly, china place a similar tariff, especially on the US agricultural products, luggage, electronics, housewares, and food, among others. With the current sanction, how is China likely to respond? Establish a ban on iPhone from the US too?

The main objective of the initial barriers was to ensure fair trade deals between the two countries and other players in the global market. Trump argues that the US has a huge trade deficit with China, thereby needs to equalize such deficit. However, then is the creation of barriers and banning some products from China a solution to such economic imbalance? Does China also have trade deficits with other countries in the world? For instance, China has a trade deficit with Germany, where it imports most of its motor vehicles (Walker, 2019). Should they also do the same to other nations in a bid to correct such abnormalities? Since the two economies are the pacesetters in the global market, what is likely to happen in the global market? Are shortages of the affected products likely to occur and what will it mean to their prices? What about the economic stability of the global world? Could there be another period of economic depression as a sign of a cold war between the two countries?

SUMMARY

The underlying main block towards the settling of these disputes is the rigidity of Trump who believes that to create fairness in the trade between the two countries is to increase barriers like tariffs (Jolly & Partington, 2019). For that matter, he believes that the trade relationship between the US and China will obtain an equilibrium. Now that he has gone past just a tariff to a ban, will that create such balance? Moreover, what impact does it have on the employment and growth of US industries? Until the two countries’ leaders soften their game, the solution to the current conflict will take a long to find.

CONCLUSION

Challenge the Conflict Structure

The structure is this conflict does not seem to substantiate the objectives of enhancing the trade between two countries to reach equilibrium but rather a battle for global supremacy. Currently, China has increased its world involvement, and that has emerged as a threat to the United States. It is undeniable and that why there are instances of war in socialist countries like Venezuela, where the US needs to have control over them. The US president usually is adamant does not fancy talks between countries to create a favorable business environment. As a result, the mediation of this conflict stands a challenging matter not only due to that but also because it is a war between the superpowers who are expected to give direction.

POTENTIAL SOLUTION *

The author’s most useful observation is that this dispute has two layers which are constantly confused with one another, and that the confusion is what makes it intractable. The upper layer is commercial: tariffs, deficits, market access, subsidies, intellectual property protection. The lower layer is strategic: which power will set the standards, own the networks and hold the technological lead of the coming decades. Commercial disputes are negotiable, because every party gains from an agreed rule. Strategic rivalry is not negotiable in the same sense, because what one side gains the other experiences as loss. Presenting a strategic contest as a trade negotiation guarantees that every trade agreement will be broken as soon as the strategic calculation shifts, which is precisely the pattern the article documents.

The practical consequence is that the two layers should be separated rather than bundled. Intellectual property protection, forced technology transfer, subsidy discipline and market access are genuine, definable questions on which reciprocal, verifiable commitments are possible, and they are best resolved where such rules already have machinery: reform of the multilateral trade system so that disputes are decided by an adjudicator both sides accept, rather than by whoever can absorb more pain. That machinery has been allowed to weaken precisely when it was most needed, and restoring it serves both parties, since neither wants a world in which every trading relationship is renegotiated by threat.

The security layer requires a different instrument. Where one state believes another’s telecommunications equipment endangers it, the dispute is not resolved by prohibition but by verification: independently audited security standards, source code review facilities, certification regimes applied equally to vendors of every nationality. Such arrangements already exist in miniature and could be extended. They convert an accusation that cannot be tested, and therefore cannot be answered, into a technical standard that can be met or failed, which is exactly the conversion mediators seek in any dispute where trust has collapsed.

Third parties matter here more than the bilateral framing suggests. The states, companies and consumers affected by this conflict vastly outnumber the two governments conducting it, and they possess an interest neither Washington nor Beijing fully represents: a predictable trading system. Coordinated engagement by the European Union, Japan, the ASEAN economies and others, pressing for rules rather than taking sides, provides both parties with a face saving route away from escalation, since concessions made to a broad coalition are not defeats inflicted by the rival.

Finally, a note of realism. Escalation between powers of this weight is rarely halted by argument; it is halted when the domestic costs become visible, to farmers, manufacturers, workers and consumers on both sides. Mediation’s contribution in such moments is to have prepared the framework in advance, so that when both leaderships need an exit, an agreement is available to be signed rather than still to be invented.

* Added by the WMO Editorial Team

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