The US-China trade war has been on the headlines of world media for more than two years. The 45th US President Donald Trump in keeping his campaign promises first signed two executive orders, one on tightening trade tariffs and the other on reviewing US trade deficits and causes (3-31-2017) then ordered the Section 301 probe into IP theft (8/14/2017). The U.S. started tariffs on Washing machine and solar panels (1/22/2018) and 25% on steel and 10% on aluminum products (3/8/2018) which triggered the US-China tariff war leading to 25% tariff on 128 US products and mutual threat of adding 25% tariff on $50B products to each other (April 2-4/2018). Then the trade war escalated, 10% on $200B Chinese goods (7/10/2018), increasing to 25% (8/1/2018), both sides released lists of $16B goods subject to 25% tariff (8/7/2018) in effect on 8/23/2018.
Since then to present, the trade war and trade talks began to grab headlines, impacting stock markets, and entering into a tug of war phase with 90 day halt to new tariff (12/1/2018). Trump later extended March 1 deadline and Trump-Xi conversed on the phone (6/18/19) agreeing rekindling trade talk before their G-20 Summit in Japan, resulting both sides giving concessions. From August 2018 to today, the trade war is obviously intertwined with many other issues between the U.S. and China. So far, there were tariffs on $550B Chinese goods and $185B US goods, with trade talks showing little real progress albeit concessions, exclusions, rollbacks and agreeable points in principle were raised. The US Commerce put 28 Chinese companies on its ‘entity list’ banning US companies selling to them. China won the WTO case allowing China to sanction $36B US goods. The U.S. releases new regulatory guidelines for its telecommunication networks procedure to protect US networks from national security threats openly targeting Chinese telecommunication companies, Huawei and ZTE. Then the U.S. Congress passed the Hong Kong Human Rights and Democracy Act, which was signed by Trump, all happening in the last two months with unavoidable impact to trade talk, intentional or not.
It is understandable how technology competition is related to trade conflict between the U.S. and China, since technology IP transfer and market access have a direct relationship with trade. However, Hong Kong as a free trade city should not become a pawn in the trade war, if we would recognize that Hong Kong’s role had been so beneficial to the West since the colonial days and equally beneficial to China since the end of WW II. Destroying Hong Kong stability makes no sense to the US-China trade disputes. The dispute between the U.S. and China is really on the definition of ‘market economy’. The U.S. defines market economy as an economic system in which production and prices are determined by unrestricted competition between privately owned businesses, although the U.S. Government would like to set all the regulations and rules of trading and investments including anti-trust laws for the world, benefiting the U.S. enterprises for sure. Whereas, China defines market economy as an economic system in which the government sets economic development plan, five year and long term, for the nation to follow and expects State and private enterprises all to compete in the domestic and world market, of course benefiting all Chinese citizens as a national goal.
The above different views on economic development and market economy should be practiced as a fair play under the World Trade Organization (WTO) guidelines and any multilateral or bilateral trade agreement. However, the U.S. is charging China for unfair practice and China is charging the U.S. for domination of trade and investment rules to monopolize world markets. The U.S. considers the Chinese State Owned Enterprises (SOE) engaging unfair competition with government financial support whereas China views the world-wide enterprises (American owned NGO) engaging predatory practice to monopolize foreign markets if foreign country fails to protect its market. The current US-China trade talks are basically stuck on that the U.S. demands China to reform her domestic trade and investment laws to allow foreign entities to enter China’s market freely while China insists on keeping her reform in steps to protect her market from foreign domination. The IP property dispute especially the patent protection issue is really a mute argument since China has become the world’s highest new patent owner with fast innovations in many design fields. It is to China’s benefit to have stronger IP protection for her own good. However, she would not accept any language like IP theft since all developed countries including the U.S. had engaged in technology transfer in shady ways in their development phase.
The dilemma of trade dispute between the U.S. and China perhaps can be resolved if we use the two free trade cities, Singapore and Hong Kong, as two cases to examine “the market economy” and economic policies. Singapore’s economy has been accepted as market economy by the West. Singapore has had a growing economy in terms of GDP since the 1960’s. In fact, China has diligently studied Singapore’s economy and her economic development model. Although, the West has accepted Singapore as an ally and treated her as a trading partner, Singapore’s economic system and its policies are essentially guided by a one-party dominated government (authoritarian). So is China with two caveats: one, China’s leader selected within the Chinese Communist Party might serve longer than two terms (ten years) if his performance passed mustard (Singapore’s leader Lee Xian Long has been elected as the premier for 15 years so far by the same dominating People’s Action Party) and two, China’s market is huge and fast expanding (population, territory and size of economy are much bigger than Singapore). Singapore’s needs in imports and her market protection are very different from China’s. The West can easily overlook Singapore's small domestic market but not China's. However, it is unreasonable to expect China to adapt the same economic development model (although many policies are similar) as Singapore does.
Hong Kong has always been accepted as a free trade city and market economy by the West as well, in fact being a strong competitor to Singapore. Since the return of Hong Kong to China, China has kept her promise to let Hong Kong people to govern Hong Kong. China has also diligently studied Hong Kong’s economy and its economic development model and policies. China felt confident enough to leave Hong Kong absolutely alone to manage its economy, even currency, and focus on Mainland’s economic development. In the past two decades, in China’s economic development planning, China has deliberately made sure that Hong Kong’s economy will not be impacted negatively by China’s aggressive development. Hong Kong enjoyed several decades of growth, although not as fast as Mainland China in terms of GDP and less evenly distributed across her social strata. (Wealth gap exists in China as well but not as severe.) Thus, it is no surprise that China is continuing searching and modifying a unique economic development model that is suitable for China.
China’s success in sustaining a high economic growth and the weakness in the U.S. economy for the last decade do cause the U.S. to be concerned. However, the two great nations have their own unique economic development problems, very different from each other, small countries and free trade cities. The big nations cannot emulate the success of free trade cities nor demand each other to comply to one definition of market economy or to accept any one economic development model. The rational thing for the U.S. and China to do is stopping their trade war and focusing on their own economic development issues, accepting competition and cooperation as necessary facts of life. Prolonged trade war leads to real war, and real war leads to mutual annihilation!