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WALL
STREET JOURNAL
Battle Stations: U.S. and China Prepare for Trade Clash of the
Titans
A record Chinese annual trade surplus with the U.S. is the
potential catalyst for hostilities
By
Andrew Browne
SHANGHAI—The last time Washington mobilized for a trade war, Ronald
Reagan was president and Japan the adversary.
Today, the White House is readying the same big guns—a mix of tariffs
and quotas—aimed mainly at Chinese imports. It has in its sights
everything from steel to solar panels and washing machines. A record
Chinese annual trade surplus with the U.S., announced last week, is the
potential catalyst for hostilities after a year of bluster from
President Donald Trump.
A trade war isn’t a certainty, but if it comes, it will look nothing
like the battles that raged in the 1980s over Japanese semiconductors,
cars and TV sets.
The forces are more evenly matched this time: America has never faced
off in a trade skirmish with an opponent like China in terms of economic
size, industrial capabilities and global ambitions.
Japan was a U.S. ally, China increasingly a rival. That raises the risk
of tit-for-tat escalation, especially since support for Beijing is
crumbling across the U.S. political spectrum as well as in the U.S.
business community, traditionally a strong advocate for China trade.
In this brewing battle fueled by protectionists in both camps (Mr.
Trump’s “America First“ finds its nationalist counterpoint in President
Xi Jinping’s “China Dream”), each side has an exaggerated sense of its
own advantages.
“A trade war is coming because of ideological zealotry and absolutely
contradictory estimates of who has more leverage,” says Scott Kennedy,
an expert on Chinese industrial policy at the Center for Strategic and
International Studies, a Washington-based think tank.
Global markets seem remarkably unprepared for what could turn into a
clash of the titans. Outside of North Korea’s nuclear threat, a
U.S.-China trade war is the biggest potential economic spoiler of 2018.
Once under way, the effects of a trade war
would be felt well beyond the combatants themselves. U.S. friends and
allies along Asian supply chains would be early collateral damage.
China is still to a large extent the final assembly point for imported
high-tech components from Japan, South Korea and Taiwan.
If it escalated far enough, a trade war could take down the entire
global trading architecture. That may, indeed, be Mr. Trump’s goal. His
longstanding view is that one of the biggest mistakes the U.S. ever made
was to usher China into the World Trade Organization in 2001, enabling a
competitor. Aides say he regularly threatens to pull out of the
rules-setting body.
Mr. Trump has in the past suggested that Chinese help on North Korea
could head off U.S. trade action. In a phone call with the U.S.
president on Tuesday, Mr. Xi suggested that trade issues should be
resolved by “making the cake of cooperation bigger,” Xinhua News Agency
reported.
In private, however, senior Chinese officials point to Beijing’s
tactical strengths. Some are cultural; the Chinese people, one says, are
better able to “eat bitterness”—endure hardship. Perceptions of U.S.
bullying would rally the population around the Communist Party, this
official argues, whereas U.S. opinion would fracture among
constituencies for and against trade hostilities.
Put Boeing , General Motors and Apple in the latter category. Another
major difference between China and Japan is that the Japanese market was
largely closed to U.S. corporations in the 1980s while China’s is
relatively open, and these companies, highly dependent on China sales,
would end up as hostages in any conflict.
While the White House scrambles to assemble a coherent strategy—Mr.
Trump’s hands are still tied by Congress—China has a detailed game plan
for a trade war, and total flexibility to carry it out. A switch to
Airbus purchases is one obvious move. Diversifying soybean supplies
another.
Nicholas Lardy, a senior fellow at the Peterson Institute for
International Economics, thinks China would win. Among his reasons:
China’s ability to concentrate pain, and the outcry from affected
businesses in America’s more open political system. He argues that “the
political costs to the Trump administration of maintaining new
protectionist measures will be much higher than the costs of retaliation
to the Xi regime.”
Derek Scissors, a trade expert at the American Enterprise Institute
argues that the major U.S. advantage is that China is far more dependent
on trade for its financial health.
“A shorter, smaller-scale trade conflict favors China due to its
comparative agility,” he says. “The more serious it gets, the worse
China would fare because it’s badly outmatched monetarily.”
In the 1980s, Japan had to back down, agreeing to voluntary export
restraints and moving large parts of its auto manufacturing base to the
U.S. to create jobs and defuse tensions. China won’t be pushed around in
the same way.
A bruising and protracted war of attrition is looming. |