In his Presidential campaign Trump
took strong objections to America’s burgeoning trade deficit with China saying,
“We can’t continue to allow China to rape
our country and that’s what they are doing. It is the greatest theft in the
history of the World”. But after taking over as President underscoring the
significance of strong US-China ties, hosts President Xi at Mar-a-Lago, Florida
estate where both leaders agree to set up a 100-Day Action Plan sort out trade
differences. As a conciliatory move, sides reach a trade agreement whereby US
gained more access to China’s agriculture, energy and financial markets and
reciprocally China was allowed to sell cooked poultry to the US. Simultaneously,
USTR start investigations into the trade practices, intellectual rights,
transfer of technology, steel and aluminium imports.
By March 2018, Trump signs a
memorandum on intellectual property rights restricting Chinese investments into
technology sector, imposing tariffs on specific Chinese products to protect the
domestic manufacturing and taking China to task for its discriminatory trade
practices at WTO. Prior to signing memoranda on IPR, Trump unleashes “global safeguard tariffs” on steel and
aluminium imports from different countries ushering America into an era of
protectionism. In April China slaps 25% tariff on 106 US products which include
Soybeans, automobiles and Chemicals. In the next fortnight America announces
seven-year ban on the Chinese Telecom company ZTE for violating US sanctions.
Losing no time, China imposes anti-dumping duties on US Sorghum imports. Amidst
these retaliatory tariffs, countries hold trade talks where America demands
China to reduce the $200 billion trade deficit within two years. After Trump
retracts ban on ZTE and China withdraws duties on Sorghum. After China agrees to
buy more US products countries temporarily agree to put a hold on tariff war.
But within a week both countries
reinstate 25% tariffs, on specific list of products, subsequently US levy 10%
tariffs on $200 billion worth Chinese goods. Showing no signs of bowing down,
US increases the tariffs to 25%. By mid-August China lodges a complaint against
US in WTO. Unmoved by China’s second complaint to WTO, Trump threatens to
impose tariffs on $517 billion worth of goods forcing China to the negotiating
table. With both parties unwilling to reach an agreement, they roll out third
round of tariffs in September. For the first time, in October representatives
from both countries resume telephonic conversations. Finally, at a working
dinner in G-20 Summit meet, countries agree to stop levying fresh tariffs for a
period of 90 days.
From January to March, countries
held trade talks and Trump even extended tariff deadline. As a good will
gesture President Xi met US trade representatives in Beijing and banned export
of few strains of Fentanyl. After talks with Chinese officials on May 1st
Steve Mnuchin announces that talks are “productive”. But by May 5th a diplomatic cable of 150-pages draft with
numerous edits arrives in Washington where China reneges on its commitments
reached in trade deal. The final document resonated Chinese reluctance to
address the core issues that plagued the bilateral trade like transfer of
technology, heavy subsidies to SOEs (State-Owned Enterprises), intellectual
rights, currency manipulation and access to financial services and insurance
sector. Miffed by China’s eleventh hour’s manipulations in the trade agreement,
Trump called for restitution of tariff regime and tariff rise from existing 10%
to 25% on $200 billion Chinese imports.
USTR Robert Lighthizer, who headed
US delegations took serious note of China’s effortless backtracking, mocked its
“empty reform promise”. He called for
enforcement of punitive tariff regime on China to bring about legally binding
changes in its laws to ensure long term implementation of the trade deals. Toughening
his stance Donald Trump tweeted “I say
openly to President Xi and all of my many friends in China that China will be
hurt very badly if you do not make deal because companies will be forced to
leave China for other countries. Too expensive to buy in China. You had a great
deal, almost completed and you backed out.” With much of 30% of trade
treaty edited at the last moment, the intractable differences over Chinese
subsidies, still unaddressed, talks are halted.
On Sunday China announced 25%
tariffs on $60 billion US imports with effect from June 1st and
threatened qualitative measures severely hindering American business operations
in China. So far, US levied tariffs on $250 billion Chinese imports and $110
billion US imports are subjected to Chinese tariffs. With this, China can levy
tariffs on additional $10 billion, while America have a greater leverage over
China as it can threaten tariffs on additional $300 billion. With China failing
the limit state subsidies, US is mulling revision of its laws related to
foreign investment and export of high-tech goods.
During the trade talks, government
restrained hawkish Chinese media. After Trump’s tweet, “buyers of the product can make it themselves in the USA (ideal) or buy
from non-tariffed countries”. Chinese officials hit back at the US saying,
“China has not only the determination and
capability but willingness to fight a prolonged war”. Invoking
nationalistic spirit and to chide away Chinese critics who resented an extended
trade war China upped the trade war rhetoric. On Tuesday Xinhua News Agency and
People’s Daily accused US of “greed and
arrogance” and termed mounting trade tensions as “People’s War”- the war cry of Mao Zedong against Japan. The editorial
without naming Trump added, “the trade
war in the United States is strongly advocated by one person and one team”.
Amplifying this message, the state broadcasting service termed this as “fight for a new world” and that “there is nothing new we haven’t seen before”.
Social media reiterated “the Chinese
economy is a sea, not a small pond. A rainstorm can destroy a small pond but it
cannot harm a sea. After numerous storms, the sea is still there”.
Trade war between the two largest
economies is bound to have global impact. After a marginal recovery during the
truce period, industrial activity in both countries tanked in April just before
trade talks. Economists estimate that higher tariffs might cause 0.4 to 0.5%
slide in China’s GDP and while US will experience 0.1% cut in GDP. Global GDP
might register a 0.15% slump. Stock markets in both countries and across the
globe have witnessed steady decline. While Trump is jubilant over accelerated
growth rate of 3.2 in the first quarter, he is betting on the rate cut from the
Federal Bank to ease pressure on the economy. Similarly, Chinese companies are rallying
on anticipation of a fiscal and financial stimulus package. The first round of
tariffs as of now didn’t have much impact on US but economists believe that
American consumers might start feeling heat of next round of tariff because of
difficulties in outsourcing goods from other countries. Nearly all growth
indicators of Chinese economy have fallen and this is bound to have an impact
on the slowing Chinese economy which is expected to grow at 6%.
The real bone of contention in the
ongoing trade deal is Chinese subsidies. Determined to have an edge over
America in high-technology manufacturing Chinese government in 2015 launched
the grand “Made in China 2025” and
identified ten crucial sectors. These include- telecommunications, electric
cars, artificial intelligence, information technology, aerospace engineering,
synthetic materials, bio-medicine, rail infrastructure, high-tech marine
engineering and advanced electronic equipment. To emerge as global leader in
technology, China is planning to pump in $300 billion. China’s aggressive push
towards promoting Huawei as the global leader of 5G technology is test case of
state-sponsored promotion of telecommunication industry. After Chinese
officials informed that they can’t amend their laws which included curbs on
industrial subsidies, US hardened its stance.
At the time of writing, intensifying
trade war, President Trump signed an executive order banning Chinese
telecommunication giant Huawei and other foreign companies from doing business
in America citing national security reasons. Officials privy to these
developments said that Trump signed the order prepared months ago. Huawei is
placed in entity list blocking its from buying IT products from American
companies. This order has created ripples in global telecommunications industry
with EU worried about the plausibility of secondary sanctions in its companies
as well. While the details of the order are not made public, it gives
commerce department 150 days to frame regulations but markets are rattled. Chinese
Foreign Ministry lashed out against Trump’s order as “an industrial sabotage”. Though China hasn’t announced retaliatory
measures immediately, it is expected blacklist any American company as a
message to the US.
China’s reluctance to cede ground
to America in terms of ending industrial subsidies, low interest loans and tax
holiday to exporting companies fearing domestic backlash has paved way for
intensification of trade war. Though Trump sounded optimistic and expressed his
keenness to meet President Xi along the side-lines of G-20 summit by the end of
June at Osaka, blacklisting of Huawei is an attempt to arm twist Beijing.
Besides, the economic and
technological war, by wading through the strategic waters of Taiwan Strait,
America is taking China head on. Since 2018 America’s policy towards China transitioned
from “strategic cooperation to strategic competition”. Strategists even signalled arrival of an era
of “great power rivalry”. Indeed, the Sino-US relations till date symbolise coming
together of nations whose ideologies diametrically divergent. Baring the
critical and sparing congruence in economic policies, both countries are poles
apart. The engagement which is now more than four decades old is devoid of
trust and characteristically replete of suspicion and animosity. The common
binding force of the Sino-US relations has been a threat from Russia. After
Russia ceased to be a potent force, China refused to give way to America’s
ambitions of being the lone super power. America’s refusal to cede world
hegemony and acceptance of emergence of multipolar world heightened China’s
fears. Soon both countries began to consider each as a “regime security”
dilemma. Indeed, China’s deep-rooted suspicions of America’s intentions has
been the guiding force behind PLA’s accelerated development of “New-Type
Technology Weapons Plan” or the “995 Plan”. Development of the anti-ship ballistic
missiles and unmanned aerial vehicles have integral to the plan. 995 signifies
American bombing of China’s Belgrade Embassy over reports of Beijing assisting
the Yugoslavia government in May 1999. Middle Kingdom which is unforgiving
of its historical sufferings have renamed its advanced weapons development
program as reminder of American attack. Ever since President Xi’s take over
China made no secret about its ambitions of becoming a global superpower after
its phenomenal success on economic front.
Notwithstanding the totalitarian
policies of China, America maintained strong economic anticipating a
libertarian outlook from Beijing. But the asymmetric trade practices of China
and the mercantilist style of operation of China through the Belt and Road
Initiatives have strengthened fears of Western World. Unlike free economies,
China has fashioned and instituted BRI to offload its excess production and
manufacturing. With its eventual rise and attempts to seek economic, trade,
technological and military parity with America, Beijing is contesting the
post-cold war era dominated by US. The eventual metamorphosis of economic
symbionts into potential (implacable) adversaries’ is primed to lead to a
tumultuous phase in geopolitics. This latitude of massive rejig in world order offers
immense strategic opportunities for New Delhi.
The time line of trade tariff war
is sourced from: https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/
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