Why China Isn’t Ready for a Trade War with the United States
When Donald Trump was still running for president, he promised to renegotiate the trade arrangements the United States has with various other countries.
He considered those arrangements to be unfair, placing the United States at a disadvantage.
As president, Trump has followed through on his promise, particularly regarding China.
As a negotiation strategy, the president has imposed tariffs on various products and has promised to raise them unless China become more forthcoming in hammering out a new deal.
The change in strategy caused alarm among people who favor free trade.
China’s economy is powerful, having grown at a tremendous rate for the past decade or so. No one wins a trade war, as history dating back to the Smoot Hawley Tariff Act demonstrates.
However, what has followed the president’s imposition of tariffs has led to something completely different from the economic calamity that many predicted.
Indeed, as China has discovered to its horror, it has become the sole loser in the trade war unleashed on it by the United States.
One reason is that China, far more than the United States, is dependent on exports to fuel its economic growth.
If export income starts to dry up, its economy will subsequently suffer, Chinese companies have not raised prices on export goods to cover the cost of the tariffs, but rather have eaten those costs, cutting into their profits.
The last thing China wants is to start losing market share in the American market. However, this state of affairs is not sustainable.
Yi-Zeng Lan, a professor of economics at Yamanashi Gakuin University, in Kofu, Japan, writing in the New York Times, also places the blame for China’s predicament squarely on the shoulders on its country’s leader Xi Jinping.
While previous Chinese leaders have been friendly or at the very least subtle in the way they have exploited American weakness, Xi had been aggressive in his desire to supplant the United States as the world’s sole super power.
The Chinese have conducted military moves in the South China Sea, stolen intellectual property, conducted cyber war operations against American businesses and its defense establishment, and has recruited the Chinese diaspora to politically infiltrate American society.
Even Beijing’s space program is aimed at taking control of the resources of the moon and impressing on the world that China rather than the United States is where the future resides.
As a result:
“These efforts have set off alarms among some Americans. In 2017 and 2018, two groups of blue-ribbon scholars and ex-officials from previous United States administrations advocated a fundamental change in America’s view of China. Their members were moderates and mostly well-disposed toward China. Yet some of their recommendations dovetailed with the views of the Trump administration hawks who consider China to be America’s number-one enemy and security threat. Mr. Xi, apparently oblivious to this sea change, was caught unprepared when Mr. Trump hit China with a tariff war.”
Moreover, Xi has failed to address some of the internal problems that China is faced with, including the demographic train wreck left over by the one child policy that left the country with an excess of males vs females and a graying work force.
China is also weighed down by debt, about three times the amount of its GDP.
Yi has also suggested that because of China’s aggressive actions abroad, it has lost face in the world community.
“Traditionally, the ideal Chinese state is a Confucian state that adheres to strict moral and behavioral norms. Yet for all his cracking down on corruption at home, Mr. Xi has encouraged moral turpitude abroad; his vision of China is a nation of patriotic thieves. All Chinese arguably have lost face as a result, and now innocent people overseas may be dismissed out of hand as guilty by association.”
The upshot is that President Trump has entered into a conflict with China with huge advantages.
According to the Next Big Future, Chinese elites are slightly afraid of Trump and harbor great respect for his skills as a strategist, rare praise for the country that spawned Sun Tzu.
“China’s elite feel that Mr Xi has over-reached and worry that it was a mistake simultaneously to antagonize the US economically and militarily in the South China Sea. They advocate economic concessions and a pullback from the aggressive tactics that have characterized China’s recent foreign policy.”
If that happens, President Trump will have proven himself to be as great a foreign policy president as he is an economic one.