Over the past 2 years, trade tensions between the US and China have been at an all time high. Both sides have fought a trade war with damaging consequences for the global economy, and despite recent hopes that a new deal would be reached between the 2 economic superpowers, that confidence was detonated on the 5th of May, by a renewed threat by President Donald Trump to impose more tariffs on Chinese imports.
Even in the scenario of a provisional agreement eventually being struck, the deep differences in the two countries’ economic models and the tensions caused by the ongoing trade war, mean their trading relations will be unstable for years to come, while many say their dispute goes well beyond trade representing a power-struggle between two very different world views.
History of US China Trade Relations
After the People’s Republic of China was established by Chinese Communist Party leader Mao Zedong in 1949, the US and China were expected to have limited and mostly hostile relations politically as well as economically. This was realized in the 1950s ,as examples of this were the nation’s opposing stances in the 1950 Korean War, as well as the Taiwan strait crisis in 1954.
The 1970s however spelled the beginning of strengthening Sino-US relations, and the foundation of the trade ties the 2 nations developed. In 1972, President Richard Nixon spent eight days in China, during which he met Chairman Mao Zedong and signed the Shanghai Communiqué with Premier Zhou Enlai. The communiqué set the stage for improved U.S.-Sino relations by allowing China and the United States to discuss difficult issues.
Another step forward was taken in 1979, when U.S. President Jimmy Carter granted China full diplomatic recognition, while acknowledging mainland China’s One China principle and severing normal ties with Taiwan. Chinese Vice Premier Deng Xiaoping, who lead China through major economic reforms, visited the United States shortly thereafter.
The Reagan administration in the 1980s also worked to improve Beijing-Washington relations at the height of U.S. concerns over Soviet expansionism. President Reagan visits China in April 1984 and in June, the U.S. government permits Beijing to make purchases of U.S. military equipment. Reagan’s and previous administrations’ support and stance on Taiwan remained an underlying issue that slowed down this improvement of relations. After the Tiananmen Square Massacre in 1989 however, where Chinese troops killed hundreds of protesters, the U.S. government suspended military sales to Beijing and freezed relations.
This led to a period of uneasy tension between the US and China for much of the 90s. There was a breakthrough at the turn of the century however, as Bill Clinton signed the U.S.-China Relations Act of 2000 , granting Beijing permanent normal trade relations with the United States and paving the way for China to join the World Trade Organization in 2001.
As a result of this, In 2006, China surpassed Mexico as the United States’ second-biggest trade partner, after Canada. In September 2008, China surpassed Japan to become the largest holder of U.S. debt—or treasuries—at around $600 billion. The growing interdependence between the U.S. and Chinese economies became evident as a financial crisis threatened the global economy, fueling concerns over U.S.-China economic imbalances.
These concerns became evident in 2012, with a sign of rising trade tensions when in March, the United States, the EU, and Japan filed a “request for consultations” with China at the World Trade Organisation over its restrictions on exporting rare earth metals. The United States and its allies contended China’s quota violated international trade norms, forcing multinational firms that used the metals to relocate to China. China called the move “rash and unfair,” while vowing to defend its rights in trade disputes.
After China’s change of leadership in 2012, Xi Jinping re-developed trade relations with the US, and strengthened economic ties, even developing positive relations with Donald Trump. This would change in March 2018 however, as the Trump administration announced sweeping tariffs on Chinese imports, worth at least $50 billion, in response to what the White House alleged was Chinese theft of U.S. technology and intellectual property, marking the beginning of the US China Trade war.
Causes of Trade War
The Trump administration of the United States believes that the Chinese government has implemented “mercantilism” and has been encouraging exports and restricting imports, which result in a further expansion of the Sino-US trade deficit. However,China believes that the reason for the Sino-US trade deficit is mainly because the United States restricts high-tech products to export to China, rather than the “reward-and-limit” policy.
China believe the United States is trying to slow down the development of China’s high-tech sector by controlling its exports of high-tech products to China. Since China has proposed the “Made in China 2025 Plan”, it is also constantly improving its level of development in high-tech fields. China has paid more and more attention to the research and development of technology-intensive machinery products, which makes the technical difference between China and the United States decreases gradually.
Moreover, the US government has restricted the export of high-tech products and only allowed the export of middle and high-end products, which has promoted the international competition between China and the United States. Furthermore, this trade war is only an economic issue on the surface. In fact, it is ultimately a political collision between the two countries.
Last year, the US imposed tariffs of up to 25 percent on $250 billion in Chinese goods, from handbags to railway equipment, out of $539 billion in Chinese imports total. China followed suit, imposing tariffs on $110 billion worth of goods (out of $120 billion in US imports, total). Currently, the US is upping the ante to increase its tariffs up to 25 percent on virtually all Chinese imports, hitting an additional $300 billion. Two weeks ago, the United States and China seemed to be gliding toward a trade deal meant to resolve tensions between the world’s two largest economies.
However, there has since been a breakdown in talks, as the United States raised tariffs to 25 percent on $200 billion of Chinese imports, and is threatening to tax an additional $300 billion. The US and China both seem to be standing their ground, refusing to budge in their stances.
A part of the reason for this position is president Trump appearing to view continuing tension with China as good for him politically saying that, contrary to the view of mainstream economists, that tariffs are a reason for the United States’ recent economic good fortune. China’s leaders have also signalled that many of the concessions the United States wants would require China to sacrifice core parts of its economic strategy and national sovereignty, in particular its ambitions to lead in the high-tech industries of the future.
Furthermore, President Donald Trump issued an executive order on Wednesday barring US companies from using information and communication technology made or controlled by firms that pose a national security risk, and declaring a national emergency on the matter.
While the order didn’t mention any countries or companies in particular, it’s clearly aimed at China. More specifically, many are arguing, it’s aimed at Huawei, the Chinese telecoms and smartphone manufacturing giant. The White house released a statement saying “The President has made it clear that this Administration will do what it takes to keep America safe and prosperous, and to protect America from foreign adversaries who are actively and increasingly creating and exploiting vulnerabilities in information and communications technology infrastructure and services,”. Despite this, Huawei has firmly denied these spying accusations, Its CEO even recently stating that the firm was willing to sign “no-spy” agreements with foreign governments such as the UK to ease concerns and open up business.
If the escalation now being signalled by both sides goes into force, Americans will face higher prices for a wide range of goods, and certain American manufacturers will face less demand for their products. Already, American farmers are suffering amid reduced Chinese demand for soybeans and other products. The Chinese manufacturing sector is hurting as well — and is likely to suffer further if tariffs reduce American demand for their products or drive relocation of production to other countries.
The Sino-US trade war has come to the forefront and the impact is growing. America is China’s largest trading partner, so the mutual trade with the United States is of vital importance to China. As the technology race gathers pace, analysts expect the US to continue to use non-tariff measures to push back against China. Restrictions on Chinese investment into the US, limits on the ability of US firms to export technology to China, and further pressure on Chinese companies are all tools that could be used. As it stands, it is difficult to expect a breakthrough anytime soon, but major developments could change the landscape.