By: Alexander Begej, Columnist
Photo Credit: Getty Images
The US-China trade war is fundamentally irresolvable as the terms of a potential agreement directly threaten each party’s own strategic interests. However, President Trump is slowly rebuilding alliances, and quite possibly a coalition, by reconciling trade disputes with other nations.
President Donald Trump’s trade war with China has shaken the roots of the global economic system as the world’s two largest economies continue to exchange blows. By the end of the year, the United States will have in place a 25% tax on approximately $250 billion of Chinese imports. [i] Meanwhile, China has imposed just 5-10% tariffs on $50 billion of American imports, but is prepared to include an extra $60 billion. [ii] Similarly, President Trump has threatened to tax all $500 billion of our imports from China thus marginalizing China from the US economy unless a major agreement can be made. [ii]. Based on the latest round of trade talks, Washington’s primary objective is achieving structural reforms in the Chinese economy rather than simply reducing the imbalances between the two states. [iii]
Washington’s Beef with Beijing
China’s illiberal economic policies are detrimental to American economic competitiveness as illustrated through the findings of the March 2018 Section 301 investigation conducted by the Office of the United States Trade Representative. [iv] The report essentially accused China of cheating its way into prosperity through unscrupulous economic policies including intellectual property theft, state owned enterprises, discrimination against US companies, and forced technology transfers. Other reports have found that thefts of American intellectual property cost companies between $180 billion and $540 billion annually, most of which comes from China. [v] That is between 1-3% of US GDP every year. Correcting these practices is a non-negotiable term for the Trump administration, and unless China stops these practices the trade war will endure.
Yet, China is unwilling to impose liberal economic reform. Transforming into a free market economy would likely threaten the survival of the Chinese Communist Party (CCP) as it inevitably reduces the Party’s control over society. In addition, preferential treatment of Chinese enterprises and theft of intellectual property are in fact issues of national security as sluggish GDP growth could threaten China’s social contract with its constituents. Some have even argued that economic downturn is the greatest threat to Chinese domestic security. [vi] Tariffs alone will not coerce the CCP into relinquishing control of its economy. Doing so may require an international coalition.
Are Tariffs Alienating American Allies?
Many are concerned that President Trump is alienating traditional allies by implementing protectionist policies under the Section 232 national security provision of the Trade Expansion Act. [vii] One could argue that the tariffs upset our traditional allies and discourage cooperation to curb Chinese behavior. [viii] However since Trump took office, the administration has rectified several trade disputes and followed-up with further collaboration.
Despite the tariffs, the Trump administration has shown it can maintain relationships with key allies. For example, Donald Trump has not held his tongue when discussing Mexico in the past. He has called Mexican migrants drug dealers, rapists, and criminals, tore up the North American Free Trade Agreement, NAFTA, and insisted on having Mexico pay for a border wall. Despite the rhetoric, the trade dispute actually forced a much needed update to an out of date regional trade agreement that had not properly addressed modern issues such as intellectual property rights and e-commerce laws. In addition to renegotiating a modern regional trade deal, Secretary of State Mike Pompeo has also worked closely with the Mexican government to address the flow of the U.S.-bound caravan of Honduran migrants traveling. [ix] Trump’s tough talk on trade has seemingly evolved into a mutually beneficial political partnership.
Similarly, Australia was exempted from US steel and aluminum tariffs after quickly renegotiating a new agreement. [x] Following the placement of caps on Australian aluminum production and capacity, the Australian government took a clear anti-China stance in response to the lifting of tariffs. For example, on August 29, 2018 Australian announced it would ban the Chinese state-owned telecommunications giant, Huawei, from Australia’s 5g networks, restricting Chinese influence in the region much to America’s approval. [xi] Trump has also said he “would love” to see Australia participate in joint freedom of navigation exercises in the South China Sea and establish a security agreement between the pacific partners. [xii] Resolving the trade dispute has ensured a strong U.S.-Australian relationship that continues to promote mutually beneficial regional interests.
Marginalizing China One Ally At a Time
President Trump has demonstrated his fondness for bilateral agreements, as it seems he is re-establishing alliances one relationship at a time. Canada and South Korea have rectified their trade disputes with Washington while Germany continues to advocate for lower tariffs on US goods to the European Union. [xiii] Despite the tariff shocks, these states will likely remain strong U.S. allies that work collaboratively with Washington to address shared strategic issues.
Although other nations continue to reach new trade agreements with the U.S., a settlement with China is likely unattainable. Unless Beijing decides to undergo major structural reforms, the two largest economies could gradually drift apart. Proponents of globalization may see this decoupling as a major disservice the global economy while some realists could argue that the marginalization of China may actually be in Washington’s favor. After all, the U.S. should not be facilitating the rise of a competing superpower.
i: “USTR Finalizes Tariffs”, Office of United States Trade Representative, Press release, September 2018, Accessed November 4, 2018. https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/september/ustr-finalizes-tariffs-200#
ii: “Trump Ready to Tax all Chinese Imports”, BBC News, 20 July 2018. Accessed 5 November 2018. https://www.bbc.com/news/business-44898629
iii: Lawder David, Martina Michael, “US China Trade Talks End With No Breakthrough”, Reuters, 22 August 2018, Accessed 4 November 2018. https://www.cnbc.com/2018/08/24/no-breakthrough-in-us-china-trade-talks-as-new-tariffs-kick-in.html
iv: “Section 301 Investigation”, Office of United States Trade Representative, March 2018, Accessed 5 November 2018. https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/june/section-301-investigation-fact-sheet
v: “The Theft of American Intellectual Property,” Commision on the Theft of American Intellectual Property, February 2017, p. 2 http://www.ipcommission.org/report/IP_Commission_Report_Update_2017.pdf
vi: Stowell Joshua, “An Economic Downturn in China is the Greatest Threat to Chinese Domestic Security”, Global Security Review, 28 May 2018. Accessed 5 November 2018. https://globalsecurityreview.com/degree-chinas-internal-stability-depend-economic-growth/
vii: “National Security Tariffs: Section 232”, The United States Senate Republican Policy Committee, 26 June 2018, Accessed 4 November 2018. https://www.rpc.senate.gov/policy-papers/national-security-tariffs-section-232
viii: “Donald trump is Entering China Trade Talks Unprotected and Alone”, South China Diplomacy, 2 June 2018, Accessed 6 November 2018. https://www.scmp.com/news/china/diplomacy-defence/article/2148931/after-alienating-allies-tariffs-donald-trump-entering
ix:”Migrants Clash With Mexican Police”, Washington News, 20 October 2018, Accessed 5 November 2018. https://wtop.com/latin-america/2018/10/migrant-caravan-clashes-with-mexican-police-waits-on-bridge-at-guatemalan-mexican-border/slide/1/
x: “Australia Exempted From US Tariffs”, Special Broadcasting Network of Australia, 1 June 2018, Accessed 5 November 2018. https://www.sbs.com.au/news/australia-exempted-from-us-tariffs-on-steel-and-aluminium
xi: Uren, Tom; Cave, Danielle, “Why Aysralia Banned Huawei from its 5G Telecoms Networks”, The Financial Times, 29 August 2018, Accessed 5 November 2018.” https://www.ft.com/content/e90c3800-aad3-11e8-94bd-cba20d67390c
xii: Panda Ankita, “Trump Open to Joint Freedom of Navigation Operations With Australia”, The Diplomat, 25 February 2018, Accessed 5 November 2018. https://thediplomat.com/2018/02/trump-open-to-joint-freedom-of-navigation-operations-with-australia/
xiii: De Lea Brittany, “Germany Willing to Cut Tariffs on US Cars”, Fox Business, 5 July 2018, Accessed 6 November 2018. https://www.foxbusiness.com/politics/germany-willing-to-cut-tariffs-on-us-cars-lifting-automakers-shares