The Chinese Trade War: An American Obsession

Outside the Chinese technological information company, Huawei. (Thomas Peter/Reuters.)

Recently, American and Chinese negotiators sat down in Beijing to hammer out the trade dispute between the two nations. News of the talks has indicated positive developments, but there is little certainty that this de-escalatory direction will hold. The U.S.-China relationship has been turbulent, and its outlook can change seemingly on a dime. Consider a single weekend in early December. When U.S. President Donald Trump and Chinese President Xi Jinping met at the G20 Summit in Argentina, and agreed to a 90-day trade war ‘truce,’ optimism abounded. Yet nearly concurrently, Meng Wanzhou, the CFO of Chinese technology giant Huawei, was arrested in Canada at the behest of American authorities for violating U.S. trade sanctions. As the U.S. and China are the world’s two most powerful nations, it is worthwhile to examine how they have reached this point of tension, to understand if the relationship’s volatility can be settled.

Instability is a consistent paradigm for the U.S.-China relationship. The countries have been at odds since China emerged as a communist nation under Mao Zedong. The two sides fought a war on the Korean peninsula, and China also offered support to North Vietnam in its war against the U.S. This hostility reversed somewhat after President Richard Nixon’s diplomatic overtures, which included the first visit by a U.S. president to China, as the U.S. sought to utilize China as a strategic counterweight to the Soviet Union. China also grew closer to the U.S. after Mao was replaced by Deng Xiaoping, who instituted market-economy reforms which would result in China’s growth into a major player in the global economy. The U.S. initially welcomed China’s shift towards a more open market, especially because Deng’s philosophy on foreign relations was to focus on building China internally rather than draining resources in conflicts with foreign powers. However, Deng’s reforms would eventually become the source of the current consternation between the U.S. and China. China’s rapid growth rates soon put it on course to unseat America as the top global economy, and by some measures, such as purchasing power parity, it already has. China achieved this growth in part by displacing cheap manufacturing labor in other nations. Academics have estimated that millions of American jobs were lost due to trade with China. Economics dictates that free trade is a net positive for all sides, but such massive job displacement created a clear opportunity for American politicians to gain by using China as a scapegoat. China antagonism has become a bipartisan affair. While Trump was well known for his attacks on China during his 2016 presidential campaign, and for expressing his desire to label China as a currency manipulator, former President Barack Obama made the same threats during his 2008 campaign.

While China has always been important to American political considerations, it seems strange that it has been placed so consistently at the forefront of the national conversation since the beginning of Trump’s term. This is partly due to Trump’s unique capacity to use raucous language to direct the conversation wherever he pleases. However, Trump’s bellicose approach to China has largely been made possible by an alignment of public and elite interests on the issue. The public has long been unhappy with job displacement, but the Great Recession and the sluggishness of the recovery that followed only deepened their discontent. Although displacement has been primarily caused by automation rather than foreign outsourcing, China became a much easier target than nameless and faceless robots. Simultaneously, American business leaders, normally staunch proponents of free trade, found themselves increasingly in favor of action against China. They accuse China of engaging in intellectual property theft, while using its extensive role in the Chinese economy to force technology transfers and create unfair conditions for foreign firms. Technology companies have been especially susceptible to having their designs stolen and their Chinese expansion efforts blocked, and their growing share of the American economy magnifies their calls for a change in the status quo.

This confluence of events has created the opportunity for Trump to turn to protectionism. The President campaigned on implementing such policies against a wide variety of countries, beyond just China, creating concern that the American economy could tank if significant tariffs were implemented. Yet so far, Trump’s espoused protectionism has appeared to serve more as a political messaging tool and a negotiating position to rework arrangements with other nations. That was the case with threats to tear up NAFTA completely, which now seems like posturing to coerce Mexico and Canada to enter into the new agreement, the USMCA. However, China is a far different case than the U.S.’ North American neighbors, as China is less dependent on American trade, and has a much larger economy than Canada and Mexico. Trump’s posturing towards China has thus been on a larger scale, but there are other obstacles standing in the way of a resolution besides America simply applying increased pressure. For example, Xi and Chinese Communist Party leaders have spent the last several years talking up China’s role as a global power, backed by projects such as One Belt One Road, Made in China 2025, and supported by increased military spending and significant investment in artificial intelligence. The Party is sure to continue emphasizing Xi’s centrality to China’s recent rise. A downside of one-man rule is that while Xi enjoys great power, he must also shoulder the lion’s share of the blame during hardships. This creates a strong incentive for Xi to maintain his positions in order to save face. An even greater obstacle to a deal is finding a way to verify that agreements are being upheld. This is further complicated when China denies a role in areas such as intellectual property theft, which is a primary tenant of U.S. grievances. The difficulty of verification is a large reason why there has not been a resolution in North Korean nuclear disarmament during Trump’s term, despite great fanfare around the summit with Kim Jong-Un. If the U.S. continues to apply tariffs on Chinese goods, it risks being stuck in such a position indefinitely as it waits for concessions on points China refuses to acknowledge as reality.

The U.S.-China relationship has reached its current position due to each country’s desire to exercise sovereignty and maximize their national interest. Yet if the worst is to be avoided, both sides must consider to what extent their national interest overlaps with the interest of all of humanity. American assertiveness could lead to concessions on trade, but it is also the driving factor in increasing the overall risk of superpower conflict. American strategy should instead be more accommodating of China’s rise. While Americans often deme international organizations such as the UN ineffective, pressure exercised through such structures by the international community is generally able to effect some change over time. China’s rise cannot and should not be prevented, as it has been successful in bringing millions out of poverty; but other nations have a moral obligation to seek changes in China’s attitude towards human rights and other issues.  The international community also has an interest in ensuring the world’s strongest economic force remains a free market democracy, rather than a communist autocracy, as the former promotes stability in economies due to its guarantee of liberties and strong rule of law. The U.S. should therefore be able to enlist the help of much of the world in changing Chinese practices, especially as demand for Chinese manufacturing shifts due to the rise of alternatives such as India and other Asian nations, where companies can find cheaper labor. China also will eventually change to a services-based economy, which could potentially reduce China’s importance to other nations if it fails in becoming the technology leader. The Trump administration’s grievances with China are legitimate, but perhaps America need not apply pressure with tariffs to such a dangerous extent. The key will be getting the American public to accept gradual change, rather than the quick and certain answers promised by the populist Trump. America will do well to remember that patience is a virtue.