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FINANCIAL TIMES
America, China and the route to all-out trade war
For political reasons, Trump and Xi will find it hard to back
away from this fight
Gideon Rachman
“Trade wars are good, and easy to win.” Donald Trump’s breezy tweet of
last March may go down in history as the economic equivalent of a
prediction in Britain, in August 1914, that the first world war would
“all be over by Christmas”. The
US president’s initial tariffs, imposed on $50bn worth of Chinese
exports in June, did not bring swift victory. Instead, they were met
with Chinese retaliation. Now Mr Trump is preparing to impose tariffs on
a further $200bn worth of imports from China, which will probably be
met, once again, by a tit-for-tat response from Beijing.
The world is on the very brink of a major
trade war between the US and China, and it is unlikely to end quickly. To
date, markets have been oddly relaxed about all this. Perhaps they have
assumed that a last-minute deal would be reached between the US and
China? But that is far too complacent. Instead,
there are political, economic and strategic reasons that are pushing the
two sides towards prolonged confrontation. If
both sides proceed as threatened, they will soon have covered more than
half of their bilateral trade — with Mr Trump threatening even further
tariffs after that, which would essentially cover all Chinese exports to
the US.
America’s biggest companies and products are already in the line of
fire. Apple warned last week that the cost of its products will rise if
the next round of proposed tariffs are imposed. It was met with a
presidential suggestion that they relocate production to the US.
American farmers, hit by Chinese tariffs on soyabeans, have been offered
government subsidies and appeals to their patriotism.
For political reasons, both Mr Trump and
President Xi Jinping of China will find it very hard to back away from
this fight. It is possible that Mr Trump would accept a symbolic
victory. But Mr Xi cannot afford a symbolic
defeat. The Chinese people have been taught that their “century
of humiliation” began when Britain forced the Qing dynasty to make
concessions on trade in the 19th century. Mr Xi has promised a “great
resurgence of the Chinese people” that will ensure that such
humiliations never occur again.
There is also reason for doubt that, when it comes to China, the Trump
administration would settle for minor concessions — such as Chinese
promises to buy more American goods or to change rules on joint
ventures. The protectionists at the heart of the administration — in
particular Robert Lighthizer, the US trade representative, and Peter
Navarro, policy adviser on trade and manufacturing in the White House —
have long regarded China as the core of America’s trade problems.
Optimists will take heart from the fact that Mr Trump has backed off,
possibly temporarily, from the dire trade threats he was aiming at
Mexico and the EU. The Mexicans have promised to restructure automobile
supply chains, and the EU has pledged to buy more American soyabeans and
gas, and to open discussions about a free-trade pact.
But the US’s complaints about China are much
more far-reaching than its concerns about the EU or Mexico.
They relate not just to specific protected
industries, but to the entire structure of the Chinese economy. In
particular, the US objects to the way China plans to use industrial
policy to create national champions in the industries of the future,
such as self-driving vehicles or artificial intelligence. But the kinds
of changes that the US wants to see in Beijing’s “Made in China 2025”
programme would require profound changes in the relationship between the
Chinese state and industry that have political, as well as economic,
implications. Seen
from Beijing, it looks as though the US is trying to prevent China
moving into the industries of the future so as to ensure continued
American dominance of the most profitable sectors of the global economy,
and the most strategically-significant technologies. No Chinese
government is likely to accept limiting the country’s ambitions in that
way. The
contest over future technologies also underlines the fact that
there is a strategic aspect to this trade rivalry — something that is
completely lacking in the Trump administration’s confrontations with
Mexico, Canada or even the EU.
China is the only plausible rival to the US as the dominant power of the
21st century. So while Mr Trump’s trade tariffs reflect his own personal
quirks — in particular, his longstanding protectionism — they are also
part of a broader mood-shift within the US.
Large parts of the US establishment, well beyond the Trump
administration, have soured on the idea that economic engagement is the
best way to deal with a rising China. Instead,
the appetite for confrontation is growing. Prominent Democrats
are now as vocal in their calls for tariffs and trade sanctions on China
as Mr Trump. The
dangers of US-Chinese confrontation over trade are amplified by the fact
that both sides seem to believe that they will ultimately prevail. The
Americans think that because China enjoys a massive trade surplus with
the US, it is bound to suffer most and blink first. The Chinese are
conscious of the political turmoil in Washington and the sensitivity of
American voters to price rises. Both
sides are preparing for a trial of strength. It is unlikely to be over
by Christmas. |