End of truce in trade war between US and China

3 minute read

Relations between the two powers entered unchartered territory following the election of US President Donald Trump and his ‘’America first’ policy,’ which have led to scrutiny of China’s trade practices. Alleged unfair trade practices were the reason for imposing $250 billion in tariffs on Chinese goods. China responded with countermeasures. 

In January of this year, trade talks started with the goal to resolve disputes and end the trade war. Negotiations were expected to be completed by the beginning of March, but this did not materialize. Nevertheless, both sides said that an agreement is within reach, and talks have continued since. 

According to the ‘’China-briefing’’, discussions have been divided into two key areas – ‘trade issues’, which included trade imbalances in certain sectors, and ‘structural issues’, such as forced technology transfers, intellectual property protection and non-tariff barriers. 

The primary reason for starting the trade war was ‘structural issues’ such as intellectual theft, especially in regard to technology. The US sanctions are intended to punish China for deploying strong-arm tactics in its drive to become a global technology power. American businesses have repeatedly complained about the government-supported theft of trade secrets by Chinese firms. In a 2018 survey conducted by the American Chamber of Commerce in China, more than half of its members reported that leakage of intellectual property was a larger concern when doing business in China than elsewhere. The Chinese government also offers industrial subsidies for domestic companies which role it considers strategic. The aim of such policies is to develop from being a low-end manufacturer to becoming a high-end producer of goods. Companies are also forced to form joint ventures with Chinese firms if they want to do business in China. It violates World Trade Organization rules that Beijing agreed to when it joined in December 2001. However, the US has ignored such practices and violations for a long time. Now it seems that China is winning the tech race and the US does not want to give up easily. Shenzhen in China is becoming the next Silicon Valley. It is home to many of the world’s largest and most innovative hi-tech Fortune 500 companies and is the tech manufacturing capital of the world. It makes America nervous, as they feel as if they are falling behind. 

Trade imbalances have united both American parties, because the deficit with China is persistent and growing fast. China has already committed to import more US agricultural products, which should be followed by energy, industrial products and services. Trump’s administration will also be looking for the Chinese to abolish restrictive regulations that make it difficult for US businesses to operate in China, as well as ownership restrictions. 

The trade war has created problems on both sides. American companies like Walmart, which imports billions of dollars of cheap goods from China, are under the immediate impact, as well as their customers and their living standards. The trade war will not bring jobs back to the US and recent numbers show that the deficit with China has increased in 2018. On the other side of the Pacific, the trade war has hit exports. China’s top trading partner is the US which makes around 20% of its exports. Some companies are already moving from China to other countries in Southeast Asia, as well as in India. The lower export numbers mean fewer jobs. 

China has been labeled by the US as a strategic competitor, not only in economy and finance, but also as security and political threat. Further escalation would deepen the slowdown in economic growth and put pressure on both governments. President Donald Trump has pledged that any deal will contain “strong enforcement language’ that guarantees that China actually takes steps it has committed to in the negotiations. It is still unclear as to how exactly the deal would play out. US partners are not so keen to back up those kinds of politics, having in mind that China is the top trading partner of all Asia countries and the EU. We can assume that China would not easily give up on most of its trade practices that have served her well in the past. The rising power will continue to challenge the superpower even if we see a deal on the table. Both sides should be responsible because world trade suffers and opportunities are shrinking with the rise of protectionism.