Trade War: US and China go with the Tit-For-Tat Strategy

24/12/2018

One year has passed since the US started a trade war against China. Since then, the two world’s largest economies engaged in a tit-for-tat dispute. But while Trump tweets about his winning, the balance seems to sway to the East

 

The commercial arm wrestling between China and the United States will be one of the events we will remember most of this 2018.

Early this year, in fact, the two countries engaged in the biggest commercial war in history, whose escalation experienced many focal points during the 12 months.

After several investigations launched by Trump whether Chinese imports or technological activities pose a threat to national security, in January, the President imposed first tariffs on solar panels and washing machines, the majority of which were imported from the PRC. Then, 25% tariff on steel and a 10% tariff on aluminum were placed to directly affect the Chinese market. Beijing responded by imposing taxes on US imports including 15% duty on 120 American products.

The trade war went on through mutual threats of adding taxes on both Chinese and American imports until summer.

 

trade war - shanghai - cifnews

© Unsplash. Shanghai. Washington and Beijing agreed to suspend new trade tariffs for 90 days but is not the end of US-PRC trade-war.

 

The final chapter of the tariffs threat’s offense occurred on the 6th of July, when, on the stroke of midnight, the US government launched duties of 25% on Chinese products to enter into force the 1st of January 2019. Beijing, which was already waiting for this move, responded with the same attack. The trade war affected imported items in both countries, reaching $ 250 billion of US tariffs applied to China goods and $ 110 billion Chinese tariffs to American products.

Washington accused the Dragon of theft of American know-how in preparation for its Made in China 2025 plan for technological supremacy, so its goal was to affect the Eastern giant’s hi-tech. As a result, Beijing’s duties aimed at American Republican voters by taxing agricultural goods, food, and oil.

One one hand, the US President was denouncing unfair Chinese practices on the trade, in particular, intellectual property abuse while justifying his decisions by the “America first” slogan. On the other hand, Xi Jinping asked the WTO to sanction the illegitimate US anti-dumping policies.

Even if Beijing responded to Donal Trump’s continuous announcements of new duties by canceling the negotiating table proposed by the counterpart, President Xi never showed the intention to attack first but he demonstrated only to be ready for a tit-for-tat war.

 

According to Washington, the Chinese government deliberately designed 8% of the yuan’s depreciation.

 

The trade war has, without a doubt, created many frictions. Among the latest accusations of the US government, there is that of Donald Trump who accuses China of having devalued its currency to favor American importers.

Prime Minister Li Keqiang responded to the accusation ensuring that the only measures China took to cope with commercial tensions were export assistance and training to help businesses affected by the ongoing war. Finance Minister Liu Kun added that “China has the capacity to minimize the impact”.

The first of December, the two leaders finally managed to meet in Buenos Aires during the G20 summit meeting in Argentina. According to Chinese and American media, the meeting “was a success” and both sides have agreed to call a truce and take a break from new trade tariffs for 90 days to allow further talks.

However, the White House urged to point out that “if at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%.” For its part, China agreed to purchase a substantial amount of agriculture, energy and other products from the US in order to reduce the trade imbalance between the two economies.

The meeting really seemed like it prevented “further expansion of the economic friction, building new space for win-win cooperation,” as said by Chinese Foreign Minister Wang Yi. What Chinese President was not aware of is that while he was signing the truce with the White House, a US police operation against China’s most important technology company was occurring in Canada.

On the meeting day, while Donald Trump and Xi Jinping were dining together, Huawei CFO and deputy chairwoman, Meng Wanzhou, was arrested in Vancouver at the request of the US authorities.

 

trade war - moscow - russia - cifnews

© Unsplash. Moscow, Russia. While Russian Foreign Minister Sergey Lavrov lashes out against Washington in defense of China, Russia is benefiting from the trade war as the PRC’s alternative suppliers.

 

The Chinese telecommunication company’s CFO, who risks the US extradition and 30-years detention, is officially accused of “conspiracy to defraud multiple financial institutions” including breaking American sanctions on Iran by selling US technology – contained in Huawei’s products – to the Middle Eastern country.

When informed of the arrest, Beijing reacted immediately calling the act “an obvious violation of human rights.”

This diplomatic incident is clearly one of the chapters of the escalating tension between the two superpowers. The case, in fact, seemed to arise from further investigations started by the Justice Department that have recently intensified for the suspicion that Huawei’s products could be used for industrial espionage against the United States. Therefore, Trump had already invited all the allied nations to ban their products.

The fact that Meng’s arrest occurred the same day the truce was reached took the relationship between the two countries to a dramatic turn to the worse. The White House said the President did not know about the operation before dinner. However, even if he was not aware of it, Trump surely knew about the arrest warrant issued on August and it is likely he signed for the extradition request.

The Chinese newspaper Global Times believed it was a “despicable rogue’s approach” in order to suppress China’s hi-tech enterprises and in support of that, there was the fact that not only Huawei is the Dragon’s most promising hi-tech company but it also sells more smartphones than the American Apple.

Technology is, in fact, at the heart of the trade war as the huge duties have been imposed in response to Trump’s fear that China could steal American technology or force companies to hand over trade secrets.

 

Many see this as an attempt to limit the rise of the Middle Kingdom, containing Chinese companies’ access to international markets.

 

The signal is clear: Washington wants commercial peace without being stolen from technological supremacy. However, Beijing’s response arrived quickly.

 

trade war - apple - china - cifnews

© Unsplash. Apple has a lot to lose in this trade war. In 2015, Chinese consumers had bought 131 million iPhones compared to US customers who stood at only 110 million.

 

As reported by the Wall Street Journal, the Intermediate People’s Court of Fuzhou ordered Apple to suspend the sale of old iPhone models in China for having violated two patents of Qualcomm Inc., a Chinese chip manufacturer. iPhones – the majority of which are made by assembly partner Hon Hai Precision Industry Co. in China and shipped around the world – have always been spared from this tit-for-tat trade war until now.

Thus, the truce is at stake while the commercial war seems to open up again assuming the tone of a cold war now. Nevertheless, now it is the turn of American companies to ask the White House for a return to dialogue with the PRC.

 

From “Made in China” to “Made with China”. The idea that the US is winning against China, is a dangerous myth. PRC’s economy is still roaring and China is becoming a high-tech giant.

 

Since its entrance in the WTO, China’s price competitiveness has meant that the export/import ratio was increasingly unfavorable for the US. However, the American response is only bringing the Dragon to move quickly towards technological independence and supremacy, which is exactly what Washington fears.

 

trade war - robots - technology - cifnews

© 123rf. China will not abandon hopes of technological upgrading. Following “Made in China 2025” program, today PRC is the leader in robotics and atomization.

 

What Trump’s administration does not understand is that China is not directly dependent by US market. China exports to the United States are a substantially larger share of its GDP than vice versa, at 4.1% against 0.7%, in 2017. PRC’s bilateral surplus was about 3.1% of its GDP, which is far down from 10.2% in 2006.

Moreover, according to the World Bank, China ranked second in the world most popular country for foreign investment. The old global liberal order designed by the American allies has now turned into a community where Beijing, despite its internal political contradictions, is seen as a more conscious alley than Washington.

It has been a year since the US started the trade war and even if the two leading countries showed signs to want to start a dialogue, the tit-for-tat dispute does not seem to want to stop soon.

More and more global and connected countries seem ready to welcome a real international win-win collaboration environment, however, the historical superpower does not seem ready to lose its role in the international scene yet. While the rise of the East is still so scary, Western economic nationalism is what threats international stability the most.

“There’s no winner in this trade war,” said Alibaba’s founder, Jack Ma. In one way or another, Trump is not going to see the big victory he is looking for.

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