An important event for international policy in 2019 has been held; two rounds of talks (between 7 and 9 January in Beijing, and between 30 and 31 January in Washington) dealt with the major challenge currently affecting relations between the two leading world powers, which is due to the present situation with bilateral trade. Since this issue is being raised by the American side, we will try to explore it from the American perspective.
There is a belief that a long time ago in Washington, that is to say a long time before the current administration came to power, the Chinese leadership had already begun manipulating the exchange rate for the yuan, erecting unreasonably high tariff barriers to American goods, claiming advanced American technological achievements as their own and introducing them in Chinese exported products, in order to secure a competitive advantage in trade with the United States.
The consequence of this, again, according to believe in Washington, is that there is currently a massive, $375 billion, trade deficit for the US in trade with China. Where the total volume of bilateral trade is in the region of $600 billion, with Chinese exports accounting for about $500 billion, the former figure is (not always accurately) quoted by President Donald Trump when he is talking about the major challenge affecting relations with his main geopolitical opponent.
It should be noted from the very outset that China is not the only major partner with whom the United States has a trade imbalance with a steep deficit. The same point can be made in relation to America’s closest allies in the EU and Japan. Although in comparison with China, the size of the imbalance in US foreign trade created by the EU and Japan is several times smaller. Therefore, US allies also periodically come under fire in Donald Trump’s rants—causing outrage among his domestic opponents, that is essentially the entire American elite.
The American President has a point. Is there any justification left today for putting up with an inevitable price that must be paid by the leader of a “free world opposing the Communist threat”? Is it just to dispel the (imaginary) fears of European liberal intellectuals, who have become completely ludicrous, with their fears scribbled on collective poison-pen letters? Or is it to dispel the fears of the no less preposterous and untrustworthy neighbors of the Russian Federation?
Paying this price in relations with today’s top geopolitical opponent is to add insult to injury.
Here, however, it is important to note that this (truly massive) deficit in US-Chinese trade has grown steeper over the decades. It is essentially the consequence of the strategy to outsource production to countries with cheap labor, the production of American companies who are now feeling the effects.
The slogan “America first”, which appeared just two years ago, is in direct defiance to this strategy, though by its very nature, the situation cannot be remedied much faster than the time it took to create. As far as we can understand, China’s point of departure in negotiations with the US comes down to this assertion, and the country does not deny the fact that there is a problem.
But the Trump administration demands results right here, right now. In this regard, one might wonder whether the United States really wants to find a solution to this (serious) problem or whether it serves as an important card in the global game with their top geopolitical opponent.
Whatever the answer to that question may be, since the beginning of last summer and following several serious American warnings, Washington has moved from rhetoric to action by introducing tariffs on imports from China. By autumn, the tariff war had already affected half of the total volume of bilateral trade, and Washington began talking about a high probability of bringing in tariffs on the other half of Chinese imports to the United States (worth $250 billion) from the beginning of 2019. China’s response is asymmetric for obvious reasons.
By this stage, the negative consequences of the trade war are felt not only in China, but also in the United States and the overall world economy. An attempt was made to find a solution to this major challenge affecting US-China relations when the leaders of both countries met on the sidelines at the previous G20 Summit, held on November 30 and December 1 in Buenos Aires.
Subject to certain conditions, which have already been discussed by NEO, Donald Trump agreed to postpone the introduction of duties on the other half of Chinese imports for three months (that is, until the end of February 2019). Both parties agreed they would resume negotiations drawing on a high level of expertise in order to find a compromise. As we have mentioned here, two rounds of these kinds of negotiations have already been held, and so this raises the overall question: what have they delivered and what will happen next?
The first round concluded with varying comments from both parties. The Chinese delegation’s assessment of the results of the meeting had a more optimistic tone than that of the American delegation. Comments from the US side mainly consisted of a long list of what else needs to be done. A claim was also made (although without giving any specific details) that China had agreed to purchase American goods and services (“for a significant amount”).
The official assessments and comments from observers on the results of the second round of talks, held in Washington three weeks later, were of a similar nature. Perhaps the only figure that they produced was related to a statement that two of China’s state-owned companies would each buy one million tons of American soybeans (”in April-July”).
Not much can be said of any substantial hard numbers that have come out of the latest talks. And it would seem that this is related to what Donald Trump has said, that first the United States Secretary of the Treasury Steven Mnuchin and United States Trade Representative Robert Lighthizer will go to Beijing in mid-February (“in order to continue the negotiation process”). Apart from this, the US President has confirmed that his deadline (which is March 1 of this year) will be observed, when tariffs for the other part of Chinese imports can be introduced (amounting to 10-25%).
The opinion we would have here is that the prospect of the trade war between America and China developing any further seems unlikely. This is despite the fact that Trump’s deadline has been set.
This is the implication in the words used by the very same Donald Trump that “in the near future” he intends to meet with the Chinese leader twice, in order to resolve the major challenge affecting their bilateral relations. Today, we can already make a fairly accurate estimate of the date when one of these meetings will take place. It is linked to the upcoming G20 summit at the end of June (three months after Trump’s deadline), which will be held in Osaka in Japan.
The final slamming of the door in relations between the two leading world powers poses too great a threat, with serious consequences for the United States, China and the entire world. It would directly contradict the desire of the majority of the leading world powers to continue the globalization of the world’s economic relations.
This stance has been confirmed by the United States’ top competitors, most notably at the last World Economic Forum in Davos. These competitors would include, again, not only China, but also key allies to this day, i.e. the EU and Japan. But it’s hard to go against the grain.
Vladimir Terekhov, expert on the Asia-Pacific Region, exclusively for the online magazine “New Eastern Outlook”.