U.S. announced a fresh round of tariffs on May 10, 2019 targeting imports from China. After consultation with his team, President Trump announced his decision to hike the tariffs to 25 percent from the previous 10 percent; these new tariffs will have implications for USD 200 billion volume of trade. It sent shockwaves across the world and among the business community that was expecting some breakthrough from U.S.-China trade negotiations. U.S. has also threatened to increase tariffs on additional USD 325 billion Chinese imports. China responded to the announcement by warning of a retaliation. On May 14, China retaliated, announcing that it will raise tariffs on import of USD 60 billion of U.S. products from June 1, 2019. The total volume of trade – which has become a victim of trade war – is USD 250 billion and USD 110 billion by U.S. and China respectively, with different slabs.
Trade war between U.S. and China has multiple and multidimensional implications. Although this trade dispute is only taking place between U.S. and China but it is indirectly impacting everyone around the world. Global institutions like World Trade Organization (WTO) are warning of negative impacts on global trade and development. In 2018, the International Monetary Fund (IMF) predicted that due to the trade dispute there is a possibility that there would be a decrease of 0.5 percent in global growth by 2020. In the same year Morgan Stanley, an American multinational investment bank and financial services firm, predicted a decrease of 0.81 percent of global GDP if the U.S. went for full-scale trade war with China and other countries. The impact of these trade dispute scenarios was expected to emerge in 2019.
WTO has also warned that there would be major disruption in global supply which will also impact the consumers. Further, the inclusion of auto sector is aggravating the situation. With U.S.’ plans to impose tariffs on auto industry for allies like Japan, South Korea, Mexico etc., WTO is of the view that the auto sector will have more implications for the global economy as it comprises 8 percent of global trade.
Consumers have already started to face the brunt of tariff hike in China and U.S. American consumers have already started to feel the pressure in buying many domestic use products. The prices of cots, kids’ bicycles, food and beverages, auto industry, veterinary drugs, beef, lamb and pork products, as well as various varieties of vegetables, fruit juice, cooking oil, tea and coffee are the few on the front. The biggest losers in this war are the American farmers who are also the Republicans’ base along the Rust Belt states of U.S. The new tariffs will introduce new impacts on numerous American companies and consumer products in the U.S. (Figure 1).
Source: U.S. International Trade Commission, cited on BBC website. ( Figure 1)
Trade war started with U.S.’ claim that China is not working to improve the conditions for trade, especially the progress on intellectual property rights being unsatisfactory. China denied this and asked for meaningful talks to solve the issues. A new wave of tensions arose again with the accusation by U.S. that China is not fulfilling commitments made during the negotiations.
President Trump also used the term ‘unfair benefits’ for China from the existing arrangements between China and U.S. (Figure 2). There is no doubt that Chinese exports are huge in comparison to U.S. imports but it also involves the export of many U.S. companies based in China. China has also highlighted that U.S. and its companies equally benefited from China. For example, Boeing is selling the largest number of planes in China, more than anywhere else in the world. Many American companies like Apple, etc. established their units in China to benefit from China’s market size. All these companies provided affordable commodities to American consumers and took substantial profit back to the U.S. So it is not a one-sided affair rather both countries benefited and are benefiting from their trade arrangement.
Source: U.S. Census, cited on BBC website (Figure 2)
It has also been observed by many experts that the trade war will continue for a long time. James Sullivan, head of Asia ex-Japan equity research at J.P. Morgan, stated that it will continue for 10-20 years as the economic order will be reordered according to the new normal of global stage. He argued that the world is moving towards a multi-polar world order where repositioning of countries will happen. Global players will try to grab a major chunk and do what is necessary to achieve that. Therefore, countries will need to prepare themselves for a longer period of time.
The process of reordering or realigning has already been started. The launch of China’s Belt and Road Initiative (BRI) gave a strong impetus to the process of reordering and realigning. U.S. has made its dislike for BRI clear and tried to influence countries to stop them from joining the initiative. BRI has been subject to criticism and negative propaganda since the beginning. U.S. and the West are trying to coin different terminologies to malign BRI and build a negative image. The favorite areas of propaganda campaigns are environment, debt trap, equity and sometimes sovereignty. However, the campaign could not get the desired success as the number of participating countries is increasing. The recent BRI summit serves as a proof as it was attended by 37 heads of states and companies, representatives from 150 countries and international organizations like the IMF and United Nations, etc.
BRI has also been portrayed by U.S. and the West as a strategic intervention as opposed to an economic initiative. Last year, U.S. Vice President Mike Pence classified China’s economic initiatives as “economic aggression” and tried to undermine it. Moreover, it is being seen as an opposition to U.S. and its global influence. However, China denies such classifications and has emphasized on the economic side of BRI. President Xi Jinping termed it as an initiative of “shared prosperity” for the future generations.
Although the recent spat on tariffs has been put forward as trade war, but many believe it goes beyond trade. It is being termed by many analysts as U.S.’ struggle for power and dominance at the global stage. The argument can be substantiated by other actions of U.S. and its allies. Last year, The Washington Post quoted intelligence sources which tried to link trade with “American interests and power”. Intelligence agencies are looking at the issues of South China Sea, artificial intelligence (AI) and cyber war together with trade.
U.S. has also started to target tech companies from China on the assumption of security threats. Huawei is at the top of its priority list to malign, with barriers to its growth and investment put up. U.S. is banning it from venturing in 5G infrastructure in the country. It has also pushed its allies to bar it from building next-generation mobile networks (5G) and shun equipment made by it. Many countries responded to the call and imposed some barriers. Australia, New Zealand, the UK and others also tried to introduce some barriers. Although countries have now started to rethink and revise their policies, but the campaign is still ongoing. Huawei’s Chief Financial Officer (CFO) has been detained in Canada while U.S. is pushing Canada to extradite her to the U.S.
The campaign was started on the suspicion that Huawei was spying on behalf of China. Huawei declined the accusations at many levels but U.S. is still insisting on it. However, they have not been completely successful in keeping Huawei out of the markets because it is way ahead in technology than its competitors. Therefore, U.S. is trying to use other means to undermine Huawei.
AI is another area where U.S. and China are in competition. In the recent years China has emerged as one of the biggest investors in the sector. It has started to lead the sector – an irritant for the West and U.S. – and it is also making leaps and bounds in space programs and enhancing its capabilities, programs to which U.S. and the West have objections. Everyone knows that technology is the future and any country with advantage in technology will have a prominent place in the international arena, that is, the area where the future of superpowers will be decided. U.S. and Europe have already started to refine their strategies to compete in this arena.
Therefore, many analysts and experts believe that trade war is just the beginning of a comprehensive cold war at multiple fronts. It has also been observed that economic and technological fields have become a neutral ground for the undeclared new cold war. U.S. is trying to sustain the global order, which is beneficial for U.S. and its allies in all dimensions. Economy and technology are the biggest and most important chapters of the existing global order. U.S. is aware of the fact that losing the economic and technological edge will lead it to lose control at the global level. Economic might and technology are the key to project its strength. These two areas helped U.S. to maintain its status of a global leader and superpower. Therefore, it is trying to weaken China’s economic and technological capacity by using different tactics, and trade war is one of them.
However, U.S. is forgetting one important lesson from history, that is, empires can only be sustained by offering partnerships, not division. U.S. itself has experienced this in the past. During and after World War II, U.S. built the new global order by offering partnerships for development like the Marshall Plan. Unfortunately, now U.S. is trying to take the other route and creating division rather than joining hands for peaceful rebalancing of global order. It is important to note here that China is not dreaming to become a superpower rather it is focusing on building a more balanced global order without hegemonies.
America’s trade war is not only confined to China (Figure 3).
President Trump is also talking to renegotiate U.S.’ other trade agreements as well. It has already left the Transatlantic Trade and Investment Partnership.
Source: BBC website. (Figure 3)
Confrontation will not help anyone, it will only raise new challenges for the U.S. and rest of the world. In such disputes poor countries and people will be at a disadvantage and the hopes for a prosperous global economy will remain but a distant dream.
The writer teaches digital diplomacy, negotiation skills and conflict transformation at Foreign Services Academy. He is also the Chief Operating Officer at Zalmi Foundation.
E-mail: [email protected]
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