The trade war initiated by the U.S. targeting China has lingered a whole year. On January 22nd, 2018, President Trump placed a 30% tariff on foreign solar panels (China, world leading manufacturer) scaling down to 15% after four years. On the same day, 20% tariffs was applied to wash machines for the first 1.2 million units per year. On March 1, 2018, President Trump further imposed tariffs of 25% on steel and 10% on aluminum on a number of countries; some allies selectively waived. On March 22, President Trump directed the US Trade Representative to investigate applying tariffs on $50-60 billion Chinese goods over 1300 categories of imports invoking Section 301 of the 1974 Trade Act, claiming unfair trade practices by China, including theft of U.S. intellectual property. On April 2, 2018. China retaliated by imposing tariffs on 128 products imported from the U.S. Then on April 5, 2018, Trump responded with another round of tariffs on an additional $100 billion of Chinese imports escalating the trade war. On the next day, the World Trade Organization received request from China for consultations on the new U.S. tariffs.
The US-China Trade Talks started in May, 2018, the Vice Premier of the People's Republic of China, Liu He, the top economic adviser to President Xi, visited Washington for further trade talks on May 15th. On May 20, 2018, Chinese officials agreed to "substantially reduce" America's trade deficit with China committing to "significantly increase" its purchases of American goods (Treasury Secretary Steven Mnuchin announced: "We are putting the trade war on hold"). But on May 29, 2018, the White House announced that it would impose a 25% tariff on $50 billion of Chinese goods with "industrially significant technology", to be announced by June 15 (list 1, $34B) with 25% tariff starting on July 6th and remaining $16B (list 2) to start later. Three days later, the White House declared that the U.S. would impose additional 10% tariffs on another $200 billion worth of Chinese imports (list 3) if China retaliated against these U.S. tariffs. List 3 was released on July 11 to be implemented within 60 days. Thus, the U.S. imposed a total of $250B (all three lists). The 10% tariff on $200 billion worth of Chinese goods would begin on September 24, 2018, increasing to 25% by the end of the year. Tariffs on an additional $267 billion worth of imports would be added, if China retaliated. China promptly did retaliate on September 18 with 10% tariffs on $60 billion of US imports. (list 3) Thus, China has promised to impose tariffs on a total $110 billion of U.S. goods, almost its entire imports of American products (list 1, $16B, list 2, $34B and list 3, $60B). However, a recent article in the Wall Street Journal (1-14-2019) reported, despite US-imposed tariffs, China’s 2018 trade surplus over the U.S. was $323.32 billion, a record high, which signified that the U.S. economy depended strongly on Chinese imports and US traders increased their orders to beat the tariff increase.
While the trade dispute is in negotiation, other events occurred having influence on the trade talks. First, on April 16, the U.S. concluded the penalty for ZTE, a Chinese corporation, for violating US sanction against Iran. On June 7th, ZTE accepted a deal with the U.S. court to resume business. Second, the CFO (Ms Meng Wanzhou) of Huawei Corporation, a private unlisted Chinese company, was arrested by the Canadian authority upon the request from the U.S. district court in New York based on an extradition agreement between the two countries. These two cases have connection to the US-China dispute is revealed by the trade negotiation. The U.S. is obviously not satisfied by China’s pledge to purchase more American goods to reduce trade imbalance but demands China to scrap her “China Manufacture 2025 Plan” a Chinese national strategy to encourage technology innovation and upgrade. ZTE is a Chinese multinational telecommunication equipment and systems company headquartered in Shenzhen, Guangdong, China. It is one of China's leading telecom equipment manufacturers with core products of wireless, exchange, access, optical transmission, data telecommunications gears, mobile phones, and telecommunications software. Huawei Technologies is a Chinese multinational conglomerate specializing in telecommunication equipment, consumer electronics and technology-based services and products, also headquartered in Shenzhen. Huawei has deployed its products and services in more than 170 countries, and served 45 of the 50 largest telecom operators since 2011. Huawei overtook Ericsson in 2012 as the largest telecommunication-equipment manufacturer in the world, now the leader in the next generation (5G) mobile and telecommunication technology. The U.S. government has been boycotting Huawei equipment citing national security concern without evidence. Lately, the U.S. has been lobbying her allies to join the boycott.
At the 2018 G20 meeting in Argentina (December 1-2. 2018) President Trump and President Xi met and agreed to a 90 day truce (postponing tariffs to March 1) to "immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property (IP) protection, non-tariff barriers, cyber intrusions and cyber theft." At this point, it has become so clear that the trade war is not about trade imbalance but about China’s rise in technology strength, not only in manufacturing but across the board threatening the U.S. leadership in technology. Trade Representative Robert Lighthizer led the 90 Day negotiation with a condition of raising the 10% tariff on the $200B Chinese goods to 25% on March 2, if negotiation would fail. Although President Xi reiterated China’s previous pledges: protecting foreign investments and eliminating laws requiring global auto makers and shipbuilders to work through state-owned partners, affirming a decision to increase imports, lower foreign-ownership limits on manufacturing and expand IP protection, all central issues in Trump's complaints, China has no reason nor obligation to give up her rights in pursuing technology upgrade.
The arguments that China has instituted an array of non-tariff barriers to protect her critical sectors of the Chinese economy and insulate them from international competition may be valid, but it is no different from the U.S. placing some sectors on sanction list preventing them to be exported to China or preventing China to acquire them through investment. Prof. Lee G. Branstetter, of economics and public policy at Carnegie Mellon University, reported (March 22, 2018) that China has misappropriated foreign technology and forced technology transfer as cited by the U.S. as well as the failure of companies in protecting U.S. IP. This report and the U.S. current tactics were a little too late to be useful. Whether China, like many developed nations in their past, practiced inappropriate technology acquisition or not, China is now the world’s number one annual patent grantee. China is just as concerned as the U.S. in patent infringement. China’s achievement in many technologies supports the above conclusion: I. Space: landing on the far-side of the moon, launch of multi-satellites, the largest radio telescope, quantum satellite, quantum computer, and dark matter probe, II. Transportation: 1st passenger drone, drone crate delivery, trackless virtual rail technology, magnetic floatation transport, solar expressway, 3D printer car, auto-driven car, electric cargo ship, 1st amphibious drone, electric bus fleet (16000) and longest sea bridge, III. Medical: robot doc passing license exam, cloned monkey, 1st lung regeneration therapy, auto dental implant, ultrafast 3D microscope, discovery of revitalization agent from urine, IV. Energy and Environment: largest floating solar power plant, largest waste to energy plant, forest city, 3G AP1000 nuclear reactor, largest air purifier (100 meter tower), intelligent city and V. Commercial and Military: robot bank, battleship mounted rail gun (hypersonic 6720mi/hr), 1st 4K resolution VR headset, deep sea mining vessel (8000 ft), AI Teaching Assistant, satellite big data for agriculture and AI multi-language translator.
China’s fast advances in technology certainly pose serious challenge to the U.S., however, this challenge cannot be dealt with complaint, jealousy or restraining/retaliating tactics. Competition is the fundamental driver for technology advances. As human civilization is advancing in an interactive global world, everyone faces common challenges from the environment, its limited resources and possible challenges from outside of Earth planet. Humans must elect to collaborate rather than to exercise a zero-sum game leading to mutual destruction. So the current US-China trade dispute is handled wrongly. China has no reason to stop her innovation progress to yield to the U.S. demand in dominating all technologies. In reality, the U.S. is still leading in many technologies such as semiconductor, super-precision mechanics, material science, aeronautics and jet-engine technology, medical and biological research and development and AI and big data applications. Therefore, it makes sense to collaborate with China exploiting her large population and huge market for American technology applications rather than exercising technology sanction. Technology without application and market will eventually die and be replaced. Only through market applications, a technology can thrive and stimulate new innovations. Hence, during the trade talk, the U.S. should seek for open markets and technology export opportunities from China to establish open and fair platform for technology collaboration, transfer, joint development and market application to obtain mutual benefits. Working with China’s huge market, balance of trade and sustained technology innovation should be easily obtainable. Any move to isolate China or from each other is unwise; the best it would accomplish is to slow down technology advances and stall world economy.