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CWA # 81, 21 January 2019

Global Politics
US-China Trade War: No Clear Winners

  Harini Madhusudan

The ‘Trade War’ has already done its job: Create havoc in the international markets when it was not required, make China seems like the bad guy, give Trump some amount of legitimacy, more importantly, tested the extents to which Xi would take China, in a ‘power confrontation’ with the US.

Research Associate
International Strategic and Security Studies Programme (ISSSP)
National Institute of Advanced Studies (NIAS)

 

The 1930s Smoot Hawley Tariff was a  trade war that seemed to have worsened the Great Depression. The tariff was designed to protect the US farmers who had been affected by the Dust Bowl, an environmental disaster, the combination of a severe water shortage and harsh farming techniques created it. This raised the food prices for the Americans who were already suffering from the recession. The impact of the great depression had reduced international trade by 65 per cent. Where is the current “trade-war” headed? What to expect from the upcoming negotiations?

US makes about 5 demands from China: end subsidies to tech companies; intellectual property; open Chinese markets to American companies; cut tariffs on US goods and reduce the trade deficit of 200 US dollars by 2020. It is predicted that this ‘Trade war’ would cost the global economy $800 billion dollars in reduced trade, leading to a slowing of the growth of 0.4 per cent. This is simultaneously occurring at the same time as the rising oil prices and the interest rates.

 

One-month Truce on Tariffs

The ‘Trade War’ between China and the US, saw some positive signs with the truce that was announced during the G20 in Argentina. This was followed by junior-level talks in the early weeks of January 2019. Eight countries have filed formal complaints to the WTO, expressing their concerns about the effects that the tariffs are going to have on the global economy. The domestic issues that have cropped up in both the countries seem to be motivating both the sides to negotiate. Now it seems like there will be some sort of deal between the countries in the coming months, with America expected to gain more market access in China.

By now it is clear that the trade war is more about trade practices than that of the gaps in the trade between the countries. China understands this well. It is not just an American problem, even the German and Japanese companies have expressed their concerns over the state-sponsored espionage over company secrets and said that China needs to develop its own technology. This is also precisely Trump administration’s justification of the trade war, higher the impact of tariffs on Chinese goods, the more they would be forced to promise ‘fairer trade practices.’

 

Miscalculations

The Trump administration did not expect that China would move towards strong self-realisation, where the Chinese consumers have moved to more European and Asian product consumption. By imposing tariffs on Chinese exports into the US, some of the American MNCs working in China are affected. The current negotiations pay very little heed to the burden that has fallen on the American MNCs that has had to bear the brunt of the tariffs. Not to forget, the possibility of America losing the competitive edge in its technology upper hand (Apple.Inc is already showing losses that have occurred due to the indirect impact of the trade war on its sales.)

There is one set of high-level talks expected for the end of January. It is crucial that some set of agreements are made by the end of these discussions. February 2019, a new set of tariffs are expected to be imposed and no-deal in the negotiations would worsen the situation. China’s policymakers are already injecting $83 billion from the central banks into the economy. They want to try and avoid a cash crunch in the already weakening economy. Previously, we have seen the US giving out relief funds to the American soy farmers. It is certain that both countries are facing the outcome of this impact. The US is facing a bigger one, because of their dependence on Chinese imports, whereas Russia is pitching in to ease China’s soybeans demands and poultry meat.

Trade wars are good for a short while. The domestic industries that need protection, get the space to develop their buyer base and this is what Donald Trump seems to be doing with the steel and aluminium industries, globally and the technology industries with China. But in the coming months, the protected domestic industries may weaken the economy due to the lack of international competition. There is also the problem of hacking by the Chinese that will come in the way of negotiations.

 

Sponsored Propaganda

What is interesting is the arrest of the Huawei CFO Meng Wanzhou for allegedly breaking US sanctions laws and the removal of Wang Weijing, a Huawei sales executive in Poland. The Poland scenes centre around, spying allegations, where Wang allegedly sought trade secrets from the government. US is also investing on a massive propaganda in the media against China for example news headlines like, “Uyghur refugee tells of death and fear inside China’s Xinjiang Campus,” “In his trade war with China, US has secret allies,”  “China thwarts US efforts to promote American culture on Campuses,” “Why China’s slowdown should worry us all,” one article even read “China’s growth rate at 6.6% but experts see indications of the Chinese economy slowing at a rate lower than the past three decades,” and more such sponsored propaganda for which the US has spent millions of dollars.  And with the arrests, they are trying to assert more pressure on China.

 

Conclusion

The ‘Trade War’ has already done its job: Create havoc in the international markets when it was not required, make China seems like the bad guy, give Trump some amount of legitimacy, more importantly, tested the extents to which Xi would take China, in a ‘power confrontation’ with the US. The ongoing negotiations say that China is willing to make promises to trade $ 1 Trillion every year until the trade deficit is reduced, and also make certain promises on the Intellectual Property theft and hacking, only in the coming weeks will we be certain of where these negotiations are headed. A deal will certainly come out of these negotiations, there was never going to be a winner in this ‘Trade War.’

But will the repercussions of the tariffs from the past months, cause another economic depression? Maybe.

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