President Trump has claimed that ‘trade wars are good and easy to win’. But, warns Rebecca Harding, there is a real danger that his trade battle with China will harm US economic interests abroad and undermine relations with America’s allies in Asia and across the world

The escalating tit-for-tat tariff war between America and China is having profound global consequences. For a start, it is causing a significant drop in Chinese investment in the United States. It has also created a rift between the US and some of its key Asian allies, such as Japan and South Korea.

At the start of this year, Mr Trump ordered tariffs of 25 percent on imports of steel and 10 percent on imports of aluminum, in an effort to protect US manufacturers and jobs from a worldwide glut of low-priced exports. South Korea, Japan, the EU, Mexico and Canada were all affected, but China was the target.

The US National Security Strategy published last December presented China as a strategic competitor which challenges American interests on a number of fronts, both in terms of economics and security. The US tariffs on China and other steel producers were justified on the basis of national security – to the dismay of some long-standing US allies.

Allied dismay

ANGRY ALLY: Canadian PM Justin Trudeau called the US tariffs ‘totally unacceptable’
ANGRY ALLY: Canadian PM Justin Trudeau called the US tariffs ‘totally unacceptable’

Justin Trudeau, Canada’s prime minister, called the tariffs ‘totally unacceptable’.

‘For 150 years, Canada has been America’s most steadfast ally… From the beaches of Normandy to the mountains of Afghanistan, we have fought and died together,’ he said. ‘That Canada could be considered a national security threat to the United States is inconceivable.’

The decision by Washington to use trade as a weapon in this way clashes with the spirit of the World Trade Organisation’s guidelines. They provide only limited scope to protect certain sectors on the basis of national security when a nation is at war.

There are parallels between a trade war and a real war. In all-out conflict, both sides fight for victory. So long as China and other nations hold back from full retaliation, the US continues to argue with itself. Nevertheless, America’s actions risk undermining an established rules-based international order.

Death by China

President Trump’s top trade adviser in the White House, Peter Navarro, is the author of a book called Death by China. Mr Navarro resents former president Bill Clinton’s decision to lobby to enrol China into the World Trade Organisation. This was, he wrote, ‘the worst political and economic mistake in American history in the last 100 years’.

Perhaps this is the perspective through which to consider Mr Trump’s challenge to China, particularly to its Made in China 2025 programme. This initiative offers state subsidies for semiconductors, robotics, artificial intelligence and other technologies which China deems critical to the continued development of its economy.

President Trump is planning retaliation against China for what he calls decades of theft of American know-how. However, the exchange of intellectual property across borders for the past 30 years is a result of globalisation and there is little that the US can do to reverse this.

One interpretation of the bluster from the White House is that it is a sign of weakness. Size matters to Donald Trump and America’s position is now threatened by China’s growing influence – as a soft power and increasingly as a hard power. President Xi knows this.

Chinese patience

So what will China do next?

The next wave of tariffs on Chinese technology is set to be implemented in July. Until then, China will hold its council. Thus far, its reaction has been strategic, in accordance with its foreign policy mantra since Deng Xiaoping: ‘Hide your light, bide your time’.

A bilateral dispute with the US could draw China into a battle it may not wish to fight

China has stated that it will retaliate and it probably will. But a bilateral dispute with the US could draw it into a battle it may not wish to fight. A multilateral future is much more in China’s interests, as well as those of everyone else. A full-blown trade war is the economic equivalent of mutually assured destruction. It is triggered through zero-sum and nationalistic thinking that ensures a bad outcome for everyone.

If China values its other trade policy areas, such as One Belt One Road, it will need US finance as much as the US needs Chinese computers and iPhones. Before any escalation, policy makers should bear in mind that it takes two sides to make a quarrel.

Dr. Rebecca Harding is an independent economist and the co-author, with Jack Harding, of The Weaponization of Trade: the Great Unbalancing of Politics and Economics (London Publishing Partnership)

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