The Sino-American Trade War: De-escalation or Cold War Two?

There are people who wish I wouldn’t refer to China as our enemy. But that’s exactly what they are. They have destroyed entire industries by utilizing low-wage workers, cost us tens of thousands of jobs, spied on our businesses, stolen our technology, and have manipulated and devalued their currency, which makes importing our goods more expensive – and sometimes, impossible.”

These words, written in a 2015 book titled “Crippled America” by then-presidential candidate Donald Trump made the China policy of a potential Trump administration abundantly clear. Indeed, much of candidate Trump’s foreign policy rhetoric throughout the 2016 presidential campaign revolved around taking a harder line towards the People’s Republic, in response to what Trump and his supporters believed was an unfair trade relationshipand an increasingly aggressive Chinese quest for hegemony in East Asia. Upon taking office in early 2017, president Trump began preparing to make good on his word. This year, the United States has unleashed three consecutive rounds of punitive trade tariffs against Chinese goods, reported by the BBC to total over $250 billion USD. Not only that, but the president has also pulled the United States out of the Trans-Pacific Partnership agreement in a surprising turn away from America’s characteristic commitment to international free trade policies. However, Beijing held its ground, and was quick to respond in kind by imposing retaliatory tariffs and engaging in increasingly aggressive naval maneuvers in the disputed South China Sea, as well as allegedly committing several high profile cyber attacks against US companies operating in the country. For its part, Xi Jinping’s government has argued that the US is starting “the largest trade war in economic history” for no other reason than to stifle Chinese growth. With both countries’ economies suffering under the effects of a tit-for-tat trade battle and escalating military tensions in the region, many experts and pundits entered the fall unsure of how to predict the future of Sino-American relations.

Sadly, the events of the past few weeks have failed to shed light on what direction the growing conflict will take in subsequent months. Some experts point to the recent Chinese government decisions both to lower the required reserve ratioon Chinese banks (effectively pumping an extra $175 billion into the Chinese economy), and to lower Chinese tariffs on steel and textiles. They take these moves as a sign that the PRC’s economy is beginning to buckle under the pressure of the trade war, and that president Trump may get the economic victory he promised in January. However, others point to the naval incidentin the South China Sea last week which included a near-miss between a Chinese and American vessel in what appears to have been a high-stakes game of tactical chicken. This event, combined with a recent speech made by vice president Mike Pence in which he claimed that the PRC is attempting to “push the United States of America from the Western Pacific and attempt to prevent us from coming to the aid of our allies” has led many to claim that the US and China are preparing for a “New Cold War”. This narrative has only gained more traction in the past few days as the US has stepped up bomber flights over strategic areas in the South China Sea in order to keep a “continuous bomber presence in the region”, and China has reportedly cancelled the normally annual East Asia security policy meetingbetween top-Chinese military officials and secretary of defense James Mattis.

It remains to be seen whether or not these are purely reactionary measures from the recent tensions, or if this is a mark of the disintegrating relationship between China and the United States taking on a decidedly more militant character. Either way, if the trade war fails to end soon both international organizations and private sector firms have warned that the entire global economy will suffer. The IMF recently released projections that claim any increase in tariff activity could lead to a 0.5% decrease in global growth, and an analysis from Morgan Stanley warns that further escalation will knock 81 percentage points from global GDP. Ultimately, analysts agree that the PRC won’t be able to keep up with a tariff battle in the long term thanks to shrinking monetary liquidity at central banks, but China could continue to retaliate by pushing through a new swath of trade and investment restrictions on US companies, making it increasingly hard to do business in the world’s second largest economy.In the immediate future, all eyes are on the US midterm elections, in the hope that a Democratic party resurgence in Congress may put pressure on president Trump to ease up on his aggressive tactics. Either way, there seems to be no end in sight for the twenty first century’s most damaging economic conflict.


Banner Image: Image Courtesy of PAS China via Wikimedia Images © 2017, public domain