Ever since coming into power, the US president Donald Trump has been doing his best to live up to his promises and election pledges. This has already led to the US’ exit from the Paris agreement, the scrapping of the Trans Pacific Partnership (TPP) deal, and review of the US-Iran nuke-deal. One of the most important pledges Donald Trump had made during his campaign was that of re-negotiating terms of trade with China with a view to reducing China’s mammoth trade surplus and increasing the US access to Chinese markets. While the first year of Donald Trump’s presidency has seen no major steps taken against China to force it into a situation whereby it is left with no other option but to give in to the US demands, certain developments in the past few days have shown that the US and China haven’t gotten away from the threat of trade war. On the other hand, with China’s trade surplus reaching record heights in 2017, the likelihood of this war has increased more than ever. Needless to say, if the trade war breaks out, it will engulf not just economics but politics, particularly regional geo-politics, as well. And, we shall see issues like South and East China seas becoming hot again and that the US will be willing to hit China’s Belt & Road Initiative and CPEC through sanction and other means.
General Administration’s recently released official data showed that China’s trade surplus with the US increased to a whopping US$275.81 billion last year, displacing the previous record of $260.8 billion in 2015. That a new record has been set within the very first year of his presidency should have come as nothing short of an embarrassment to Donald Trump. But Donald Trump was able to justify the US’ ‘not-so-hard’ stance towards China only a day before the release of this data, saying that China was “helping us a lot with North Korea.”
But this co-operation on North Korea doesn’t mean that the US is not going to retaliate for the surplus that China continues to accumulate. Within the US, twin inquiries by the US Commerce Department could open the way for punitive measures against Chinese steel and aluminum shipments on national security grounds. In fact, it was only 2 days ago when Donald Trump met his notorious anti-China trade strategist Robert Lighthizer to finalise the new policy and steps to be taken. Lighthizer was reported to have accused China of predatory behviour, saying that “The sheer scale of their coordinated efforts to create national champions, to force technology transfer, and to distort markets in China and throughout the world is a threat to the world trading system that is unprecedented.”
What the US plans to do?
But how does the US plan exactly to do this? While Lighthizer was quick to mention some “action” and concrete steps, he didn’t make it clear whether the US will engage in lengthy re-negotiations or act unilaterally. Some developments in the US indicate—and keeping in mind Donald Trump’s love for unilateral action—that the US might act unilaterally. Already, the White House is reported to have practically dusted off Section 301 of the 1974 Trade Act, giving Trump the ‘licence to kill’ as it will enable him to take all appropriate action. This is nothing short of ‘nuclear option’ in trade policy.
Its context has already been set in the Trump administration’s National Security Strategy document. The document clearly points out China, along with Russia, as a power challenging “American power, influence, and interests, attempting to erode American security and prosperity.” Arguing further, the document says military strength depends on economic strength, and economic strength on “no longer turning a blind eye to violations, cheating or economic aggression” as previous administrations have done; hence, the necessity to take steps that are crucial for “rebuilding economic strength at home and preserving a fair and reciprocal international economic system [that] will enhance our security” and protect American interests which are being constantly challenged.
What the trade war will lead to?
Besides intensifying geo-political tussle, an obvious outcome will be the opening of a bigger front against China to impede its global outreach. The NSS document clearly highlights how China is establishing its dominance from Asia, Europe and Americas to Africa and how it directly is working to the US’ disadvantage, implying implicitly the imperative of stopping it. France’ Macron has already warned against Chinese ‘over-reach’ and some countries in the Eastern Europe reportedly have such sentiments.
However, while the US protectionism might do the US some good by reducing the trade gap, imposition of high tariff can potentially do the US more harm. Regardless of the surplus China has over the US, the fact remains that the US exports more to China than to Germany and Japan combined, making China a necessary evil for the US exports to handle. Discouraging imports from China will directly hurt the US exports to China and thus leave a negative impact on the US as well.
But the Trump administration doesn’t seem to be calculating the risk in this manner. Their thinking seems to be guided by zero-sum game. They can be seen arguing that the US is China’s biggest market and that a trade war with China will necessarily hurt China more than it will hurt the US. This relative thinking is, therefore, clearly a recipe of trade war.
And while China has already hinted how it will retaliate—probably by stop buying the US treasury securities—-Chinese response will largely be determined by how exactly the US acts: whether by invoking trade regimes such as the World Trade Organization and engage in negotiations or by acting unilaterally through invoking sweeping presidential power.
And herein lies Trump’s dilemma: if he decides to act unilaterally and imposes restrictions on China, China will retaliate—something that will not work to better the US economy and bring jogs back to the US. And Donald Trump can, therefore, do this only at the expense of his other promise of bringing jobs to the Americans.
Therefore, while a trade war will hurt China, it will also bring the Trump administration’s political triumph to a screeching halt.