He Qinglian: In the China–US Trade War, How Much Will China Lose?

By Epoch Newsroom

Recently, the news of the United States–China trade war has dominated the headlines of media all over the world. U.S. President Donald Trump signed a memorandum on March 22, aimed at curbing “China’s economic aggression.” It has caused an uproar of criticism over the internet. The predicted consequences have been seriously exaggerated. However, if one observes the reaction of U.S. industry circles so far, and considers how there is still a 60-day consultation period, one will understand that actually there is room for negotiation between the two sides.

What are the Cards Dealt by the United States and China?

The memorandum mainly takes aim at the key strategies outlined in “Made in China 2025.” That document [released by the Chinese regime in 2015 as a ten-year plan for the country’s economy] lists 10 industries that the regime wants to develop: advanced information technology; robotics and automated machine tools; aviation and aerospace equipment; marine engineering equipment, modern rail transportation equipment; electric and other new energy vehicles; electrical generation and transmission equipment; agricultural machinery and equipment; new materials; biopharmaceutics and other advanced medical devices. It is estimated to involve an annual import value of up to $60 billion.

China competes with the U.S. in artificial intelligence, mechanization, quantum computing, and other areas, all of which are related to the United States’ national and military security. Since China is notorious for theft of intellectual property (IP), the United States has made great effort to prevent Chinese companies from gaining entry into the U.S.’s strategic industries and has cracked down on China’s IP theft.

China has few cards in its hands. In response to the United States’ plan to impose tariffs on Chinese imports, Beijing has announced the retaliatory measure of imposing tariffs on 128 U.S. products worth $3 billion, including fruits, dried fruits, wine, and pork. China also imported the same value of these U.S. products in 2017, which equals one-twentieth of the proposed U.S. tariffs.

In addition, China’s Ministry of Foreign Affairs also declared that “it will take seriously any action taken by the U.S.” It mentioned that “China is the largest export market for U.S. aircrafts and soybeans, and the second largest for automobiles and cotton,” making a veiled threat that Boeing aircrafts and U.S. soybeans will be selected as potential retaliatory targets.

Among the commodities exported by the U.S. to China in 2017, soybeans ranked second as a single-item product, worth $14 billion. A Financial Times article noted that soybeans have an added political meaning, as the big soybean-producing states in America are swing states that largely supported Trump in the 2016 presidential election. Chinese officials believe that the American soybean farmers whose market shares have been taken away by Brazil in recent years are particularly worried. Many farmers have suffered as a result of the falling prices of agricultural goods. Even if exports to China drop by 10 percent, it could bring them much suffering.

Opposition From the U.S. Business Community

President Trump asked the United States Trade Representative’s office to compose a list of Chinese products for targeted tariffs within 15 days, after which the office will solicit the public’s opinions, and have the Treasury Department draft specific measures to restrict Chinese investments geared at acquiring American technology within 60 days. To lessen the potential for resistance, U.S officials said that many consumer electronic products will not be included in the tariff list, such as iPhones [assembled in China, and thus would be considered a Chinese imported product].

However, the real resistance comes from where there are interests involved, such as industry associations; giant multinational corporations; companies such as Apple that rely on China’s electronic parts supply chain; and pro-China political circles and think-tanks that are powerful in Washington D.C.  

At present, many U.S. business organizations have expressed in various forms that raising tariff on China’s products will only bring the opposite of the desired result. The U.S. Chamber of Commerce (USCC) is the world’s largest business organization, representing more than three million businesses, local chambers of commerce, and industry associations. The USCC has issued a statement saying: tariffs may lead to destructive trade wars. It will cause serious consequences for U.S. economic growth and the job market. If the U.S. government continues with this plan, the livelihoods of consumers, businesses, farmers, and owners of large farms in the U.S. will be at risk.

The American Chamber of Commerce in South China, with more than 2,300 companies and individuals as its members, is also a member of the USCC. It issued a separate statement opposing the large-scale tariffs on Chinese goods. Others that also expressed opposition include the National Retail Federation, National Association of Manufacturers, and Information Technology Industry Council.  

Brian Kuehl, executive director of Farmers for Free Trade wrote in a statement that “these tariffs will put a target on the backs of American farmers.” It continued, “Given that China is the second-largest export market for American farmers and ranchers, the pain from retaliation could be significant.”

In addition, the opposition voices include many economists, such as the famous American economist and 2011 Nobel Prize-winning economist, Thomas Sargent and senior researcher at the Peterson Institute for International Economics, Nicholas Lardy.

The “Panda Huggers” Will Inevitably Show Up

In these 60 days, the Chinese regime will make full use of the “good friends of the Chinese people” that China has cultivated for many years, as known as the “panda huggers,” to lobby the White House by all means. Within the realm of China policy, they are an influential force. Among them, the National Committee on United States-China Relations is the core pillar. Most members in this committee have held important positions in past U.S. administrations. After leaving office, many of them have joined think tanks and “K Street” lobbying firms. Former Secretary of State, Henry Kissinger, is the leader. His consulting firm Kissinger Associates Inc. has gathered many former high-ranking officials, including former United States ambassador to China, J. Stapleton Roy, and former Secretary of State Lawrence Sidney Eagleburger.

Whether during the senior Bush or Obama administrations, “panda huggers” had great influence on U.S.–China relations. At crucial moments in the relationship, they often could change the direction of U.S.–China policy.

What is Trump’s Real Intent?

The punitive tariffs Trump plans to impose is completely reasonable, since the initiator of the trade war is China, not the U.S. After China joined the WTO (World Trade Organization), the international community has gained an economic partner with bad behavior. It often uses sly and rogue means to find loopholes within regulations. China has gradually changed the international economic order. WTO rules—based on the assumption that the classical theory of international trade is more advantageous—cannot effectively punish China’s behavior that violates the existing order.  

Prior to Trump, Bush senior and Obama both declared that they wished to engage in a trade war with China. But after the lobbying from the business community and the “panda huggers,” they didn’t carry it out. Trump said in a speech on the day he signed the tariff memorandum that his actions are to carry out his campaign promise (“make America great again”). From his perspective, the global overcapacity and unfair trade practices have seriously damaged the country’s national security. The United States wishes to build a fair and mutually beneficial trade environment. From the targets of Trump’s proposed tariffs, it seems he did consider the long-term interests of the country.  

Many Chinese experts questioned whether Trump’s memorandum is just a negotiation strategy or if he really wants to start a trade war. I think that Trump has indeed prepared to launch a very strategic trade war with China, targeting the key strategic industries in China’s “Made in China 2025.” His goal is to protect the national security of the United States. But Trump is skilled.

  1.      Trump “declared war” at a time when [Chinese leader] Xi Jinping is weakest. For Xi, he just superficially settled domestic affairs during the Chinese Communist Party’s “Lianghui” [meetings of the Party’s rubber-stamp legislature and top political advisory body]. Then, internally, he has to handle restructuring of the Party and government system, a task filled with obstacles. Outwardly, he has to deal with all kinds of criticism for his “ascension to the throne” [eliminating term limits for the state leader position]. His political opponents would be happiest when the China–U.S trade war truly begins—because they can give him pressure using the bad news for the stock market. Some people have called this trade war a “major political mission.” They predict that the trade war will give Beijing such unbearable pressure that it will finally lead to the collapse of the Chinese Communist regime.
  1.      For North Korea’s denuclearization, Trump is willing to take the risk of meeting with Kim Jong Un and has tentatively scheduled the meeting for sometime before May. He also appointed a new Secretary of State [Mike Pompeo] for it. Kim Jong Un is a man full of uncertainty. U.S. political circles and public opinion are not optimistic about this meeting. Trump chose to launch a trade war with China at the same time, giving 60 days for consultation, the purpose of which is to prevent China from secretly playing tricks. Trump, who is well-versed at negotiation strategies, gave out the consultation period after signing the memorandum, which provides an opportunity for negotiation to avoid escalating the trade war for both the United States and China, and also reduces external variables for the Trump–Kim meeting.

However, China has made a quicker move. Kim Jong Un’s not-so-secret visit to China on March 25 showed his stance to the Chinese regime—that North Korea has no intention of giving up its relations with China. The meeting increased Kim Jong Un’s bargaining chips for the Trump–Kim Summit.

The result of this trade war would be that China bears the pain and reluctantly lets the United States win this round, but the United States is also unlikely to achieve its desired goal completely. The forces that make it difficult for the U.S. to be able to achieve its goal completely is not from China, but from the U.S. business community and the “panda huggers.”

 

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Views expressed in this article are the opinions of the author and do not necessarily reflect the views of NTD.tv

 
 
 

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