Recently I came across two opinion articles in the Organic Media (Quora), one entitled, Can the U.S. “Win” a trade war with China? (May 22, 2019), by Alfonso Liances, who has a Master Degree in International Development. He has quoted generously from Nicholas Lardy, a China expert at the Peterson Institute for International economics, on pitfalls of US-China trade conflicts. Another opinion, entitled, what will happen if China and the United States do not reach a trade agreement? (May 7, 2019), by Robin Daverman, who self-claims as a world traveler. Daverman has criticized Trump’s behavior in creating a Mugger’s Alley where no one can do business. These opinions are different from the U.S. mainstream media which by and large have taken on an “official” “America First” view on the trade war. As of today, the U.S. is complicating the U.S.-China trade negotiation with national security issue making the trade agreement unreachable and at the same time the U.S. is pressuring Mexico and others to yield in trade negotiations. We citizens, particularly during travel, cannot help but hear righteous criticisms about our government and leader making us wondering whether the U.S. is doing the right things for her citizens.
Lardy laid out a set of arguments of why a US trade with China would be a losing enterprise. Raising a high tariff on hundreds of billions of Chinese goods will hurt China and cause a capital flight from China, but China is not unprepared and will react with several effective punches. First, a batch of Boeing orders may be replaced by Airbus hurting a strong American industry. Second, the U.S. sales in China, particularly autos and smart phones, will suffer. Third, the U.S. agriculture product export to China especially soybean and corn will be drastically reduced. Fourth, there will be an hurricane effect on many American corporations as seen by their nervous reactions to the ‘Huawei’ sanction the U.S. government has applied to it. Finally, the Chinese government may retaliate with a number of concerted efforts such as ordering her state owned enterprises to stop doing business with the U.S. hurting the U.S. supply chain, to restrict access to commodities such as rare earth material affecting U.S. electronic and military industries and to stop her on-going efforts of protecting the U.S. intellectual properties such as American music and movies causing more US trade deficit.
With extended trade war, the U.S. corporations will experience an anxiety of uncertainty. Trying to reform or recreate some of these corporations will be very difficult if not impossible. Moving U.S. owned corporations in China to other countries will produce massive outflow of capital or invite Chinese investment capital to participate. The Peterson Institute has made an analysis concluding that a full blown trade war with China and Mexico will push the unemployment rate in the U.S. from 4-5% to 9 % in 2020 hurting millions of Americans Trump proposed to protect from ‘unfair trade’. Disrupting relation with Mexico, trade or border issues, will help China in many ways. Today on the world stage, China has been viewed as a victim no matter how the U.S. denounces China’s bad trade behavior in the past; the developing countries and many major trade partners of China have the perception that China is the only major country proclaiming globalization and win-win cooperation; whereas the U.S. has pulled out of the Trans Pacific Trade ((PPT) agreement behaving like a protectionist.
President Xi of China does face challenges in moving China into a service-dominated economy emphasizing across the board innovation effort; challenges include solving high State Owned Enterprises (SOE) debt, over capacity of manufacturing, technology independence, and government learning of managing and growing her financial industry. President Trump of the U.S. faces problems of meeting his campaign promises and maintaining popularity when reality of market and economy becoming apparent. According to economists, the balanced trade does not bring back jobs. Spending less (raising saving rate will cumulate capital) and produce more (having more investment capital will create jobs and production) are the solution to trade and economic problems. Trump seems to be ill advised by his current staff.
Daverman is more critical to Trump’s behavior and ignorance on world economy. He jokingly talked about people need to buy ‘Trump insurance’ since product quotes are only good for one day (no one knows what prices may be as they can be tweeted up and down any day) and Trump has created the “Mugger’s Alley” where no one can do business. In contrast to Trump’s tweets (no warning, no explanation and no debate), Daverman made an observation on Chinese media’s reporting. Since the U.S. -China trade talk broke down in May 2019, the Chinese delegate had been quiet and the U.S. had been making contradictory noises, thus the trade talk is in a suspension state. Things that both sides agree have been done and the not agreeable items are difficult to reach an agreement. In this trade war, the U.S. has been the attacking side and China the defending side; thus whether a deal can be concluded or not is up to the U.S. Daverman made a worse-scenario analogy equating China’s economy like a body on life support. If the U.S. would unplug the life support, you would get two dead bodies, meaning China and the U.S. What would you do with the dead bodies? He also cited a scenario that even China might stop her ‘made in China 2025 plan’, her trade with Asia, Europe, Africa and BRI would move the center of world trade currently in New York to Shanghai. In other words, the U.S. will not emerge as a winner in the US-China Trade War.
Despite of the new developments in the U.S., seemingly extending the trade war to national security issue, China appears to be calm. The U.S. has declared an all-out war against a private Chinese company, Huawei, banning its products and sanctioning U.S. component sales to it. Yet, Huawei’s corporate logo is brightly lit up in European cities such as Barcelona. In addition, the U.S. is playing the ‘Taiwan’ card by having Congress passing the ‘Taiwan Travel Act’ on 2/21/2018 (signed into law by President Trump on 3/16/2018) and the ‘Taiwan Assurance Act’ on 4/1/2019 (pending in the Senate). China seems to have been prepared to deal with the trade war in much longer term. Regarding the ‘Taiwan Play’, however, it may offer China an opportunity to reunite with Taiwan on a short time table following the Crimea example. It is doubtful, the U.S. is willing to risk lives to engage a real war with China on behalf of the pro-independence party in Taiwan. China stands to win.
Historically, China has been the world largest economy a couple of times without adopting colonialism. In fact, no one economy in the world like China's has become a dominate economy without resorting to military power or bullying. China was quite adaptable to being an isolated power. On the other hand, the U.S. achieved her global power status through large immigration of people coming into the country and by colonial and military expansion outward. Therefore, I personally agree with the above Organic media opinions that the U.S. can not win the trade war with China and if the trade war persists, the outcome for the U.S. is not rosy. Therefore, the U.S. ought to exercise caution seeking a reasonable trade agreement.