Over the past couple of months international news has been dominated by the trade dispute between the United States and China. The Asian country, known for its cheap labor, large market, and the ubiquitous label “Made in China” that seems to be found on nearly everything, has been a topic of interest for Donald Trump ever since his election campaign. He was more or less quiet on the matter during the first year of his presidency, but 2018 seems to be the year when we all need to talk about China.
According to Trump’s administration there are two key issues with China. Firstly, Trump is very critical of the large trade deficit that the US has with China, meaning that China exports more to the United States than the States do to China. However, a trade deficit by itself is not necessarily a problem: China has a bigger market and is able to produce goods at much lower prices than the United States, which is why it’s able to export more. To challenge this would mean to try to overturn most economic theory. The second issue the US has with China is intellectual property. American companies have lodged complaints that in order for them to benefit from Chinese investment or to be able to produce their goods in China, they are forced to give up too much of their IP, which then allows China to use that data to manufacture its own competitive products.
China and the United States entered into a series of negotiations this year in order to resolve these problems, but every time a politician claimed that progress has been made, President Trump followed up with a negative statement, undoing all progress. The talks continued even after Trump announced his very first tariffs on steel and aluminum, but as of last month all negotiations have failed and both the United States and China have taken their cases to the World Trade Organization. Currently the United States plan to have several different types of tariffs on Chinese imports – the 25% on steel and aluminum, as well as $50 billion of additional duties which were introduced after China said they would match the first round of tariffs with fees on American goods.
The Chinese government’s behaviour over the past weeks is quite interesting. They don’t seem too preoccupied with the United States. Trump’s rhetoric is clear: we’ll place tariffs on you, and if you don’t like it, we’ll add more tariffs. So while China has found the time to issue statements regarding reciprocal tariffs, it has also done something more important: making friends.
China seems to be already operating in a trade war scenario and has been quick to seek out allies. Just this week the government announced that they will be reducing tariffs on imports from other Asian countries which include India, Bangladesh, Laos, Sri Lanka, and South Korea. Together these countries are able to provide much of what China typically gets from the United States, such as soy, steel, and more. If China is able to ensure sufficient supplies from those countries alone, they might avoid most of the harm done by Trump’s tariffs.
While China is opening up to other countries, the United States is doing the opposite. Trump has failed his allies on multiple major counts already: pulling out from the Paris accord, the Iran nuclear deal, disagreeing with the G7 at their annual summit, imposing tariffs on Canada, Mexico, and the European Union, and more. India, for example, is one of the countries that will suffer from Trump’s tariffs on steel and aluminum. But thanks to China’s quick thinking, India can now export those metals to China instead, and benefit from lower fees. China has also been talking with more warmth about the European Union, who is no longer seen as a close ally of the United States.
It seems that while Trump is trying to one-up everybody, China has been paying attention and carefully planning a strategy in case we end up with an actual trade war. Let us know in the comments below if you think China can outdo the United States, we would love to hear your opinions.