FeaturedInternationalVolume 13 Issue # 22

Perils of US protectionism

US President Donald Trump has intensified his trade war after an announcement of slapping billions of dollars’ worth of tariffs on certain Chinese goods. Experts in both countries claim they will not be affected by the move. However, independent observers fear it would hit the global economy besides making lives of the people of the top world economies difficult.

 

Experts, international organizations and think tanks admit China will suffer losses in a trade war, but it can expand trade with its other major trade partners such as the EU to reduce the losses. In fact, the US will be the bigger loser if a full-fledged trade war breaks out between the two countries. The US is also aware of it. That’s why it has imposed penalty tariffs on Chinese high-tech products, while ignoring the products manufactured by labour-intensive industries in China. According to Chinese experts, Trump’s move will only make US citizens’ life more difficult and, to a certain extent, neutralize the effects of his tax cut policy. The US aims to reshape its manufacturing industry and solve its domestic problems in the short term through trade, and diplomatic and military measures, in order to “make America great again”. It also wants to interrupt China’s industrial upgrading and prevent it from realizing the great rejuvenation of the Chinese nation. First, by attempting to ignite a trade war, the US is testing the efficacy of its overall strategy vis-a-vis China. For example, the US has raised tariffs of Chinese products such as new generation information technology products; high-end machine tools and industrial robots; aerospace, ocean engineering, new energy, high-tech shipping and high-speed train equipment; agricultural machinery; new materials; biological medicines and high-performance medical equipment. The products are made by the major development industries listed in Made in China 2025 through which China aims to achieve independent research, development and application in two to three years.

 

According to Western experts, if Trump pushes for systemic changes to China’s basic economic model, the world could face a long period of tensions between the two nations. Past US administrations have urged Beijing to loosen control of industries like steelmaking, with little effect. They claim the offensive may yet prove to be a negotiating tactic that threatens economic pain to force deals, rather than a move to a full-blown trade war. Americans appear to be better insulated than most from the consequences of trade hostilities. As a large economy in relatively strong shape, the United States can find domestic buyers for its goods and services when export opportunities shrink. They estimate a trade war would have a limited direct impact on growth in both countries. But that could change if the conflict hurts business and consumer confidence. With the adjustment of the structure of the global economy and trade, the international competitiveness of the United States has decreased. Promoting unilateralism and trade protectionism has become a leading move for its “America first” strategy. Under this situation, it’s inevitable that China and the United States have frictions in the economic and trade realm and it will be the new normal for the two countries to move back and forth between negotiation and conflict in an ever-changing way. But it doesn’t mean that one side can perfidiously initiate a trade war.

 

According to the US media, the variety of Trump’s targets, starting with US allies whose trade policies resemble those of the United States, and continuing with China, which is almost universally acknowledged to engage in unfair competitive practices, proves there’s something more going on than a simple desire to punish bad actors and negotiate fairer deals. “If that were the goal, China would not be treated similarly to Europe even though the two have vastly different approaches to trade. But Trump really does seem to believe that “trade wars are good, and easy to win. His priority is not negotiating, but fighting,” said the Atlantic. Trade between the US and China, the world’s largest and second-largest economies, respectively, amounted to about $648.5 billion in 2016, according to the US Trade Representative. But the US buys far more from China, mainly in the form of consumer goods like electronics and household goods, than China buys from the US. This means that in 2016, the US had a trade deficit with China of about $385 billion.

 

Only a few months ago, the global economy appeared to be humming, with all major nations growing in unison. Now, the world’s fortunes are imperiled by an unfolding trade war, wrote the New York Times. As the Trump administration imposes tariffs on allies and rivals alike, provoking broad retaliation, global commerce is suffering disruption, flashing signs of strains that could hamper economic growth. As the conflict broadens, shipments are slowing at ports and airfreight terminals around the world. Prices for crucial raw materials are rising. At factories from Germany to Mexico, orders are being cut and investments delayed. American farmers are losing sales as trading partners hit back with duties of their own, it noted.

 

However, the Chinese state media warned that the US could not win the trade war. According to the China Daily, since it would go against the US interests if China becomes a leading global player in some key fields by 2025, the Trump administration is making every effort to prevent China from achieving its goal. “The US supposes it can easily win a trade war because China cannot bear the economic loss. But the reality is different. China’s overall exports of goods and services last year accounted for only 9.1 percent of its GDP, with its exports to the US dropping from 21.55 percent to 18.24 percent of its total export volume. In fact, economists estimate the punitive tariffs on Chinese imports will only reduce China’s GDP growth from 6.9 percent to 6.8 percent. It is therefore clear that China’s economy doesn’t depend on the US trade policy,” it noted. The official news agency Xinhua said the US “protectionist” move would undermine the global trade order and development. The unilateral additional tariffs are a selfish, narrow-minded, irresponsible act which does no more than to destabilize and slow down world economic growth and development, because the China-US trade is the world’s biggest bilateral relationship, it observed. According to the People’s Daily, China does not want the trade war, but facing a capricious Washington, it has no choice but to fight back vigorously in defense of its national interests, the trend of globalization and the world’s multilateral trading system.

 

According to Bloomberg, there’s reason to believe the US and China won’t solve the issue soon and things could escalate quickly. Neither side wants to be seen as weak. With midterm elections for Congress in November, Trump is under pressure to appease his political base. Turning China into a global technology leader is a key part of Chinese President Xi’s long-term strategic plan. If Trump pushes for systemic changes to China’s basic economic model, the world could be in store for a long period of tensions between the two nations.

 

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