See More on Facebook

Economics

China-US trade dispute enters second half

Despite a temporary truce in the trade war, much work still needs to be done.


Written by

Updated: December 11, 2018

China and the United States reached a consensus to suspend tariff hikes and restart trade talks at the meeting between President Xi Jinping and his US counterpart Donald Trump in Argentina on Dec 1. Yet the Canadian police detained Meng Wanzhou, Huawei’s global chief financial officer, and could deport her to the United States where she could face charges for evading US curbs on trade with Iran.

These contrasting signals show the complexity of China-US trade conflict, and since the conflict has reached a critical stage, four major changes can be expected.

From a blitz to protracted standoff

First, the trade conflict between the two largest economies has shifted from being a blitz to a stalemate. The first half of the game, which has stretched from March to November, can be seen as a fight for time and space. Taking advantage of the time window provided by tax cuts at home and China’s reform pains and shrinking room for stimulus, the Trump administration adopted a “maximum pressure” strategy. The first three rounds of trade sanctions were thus carried out one after another in quick succession, each one more aggressive than the last one, with the aim of bringing China to heel.
Yet the landscape of the contest has now changed in two aspects.

To begin with, the Trump administration’s strategy is taking a bite out of the US economy, made clear by volatility in the stock market, the IMF’s downgrading of its US growth forecast by a large margin, as well as the mass layoff plans of leading automobile enterprises.

Also both the Republicans and the Democrats have arrived at the consensus that the US should seek to contain China’s rise and safeguard US supremacy. Threats posed by the Trump administration’s previous strategic arrangements targeted at China, including the Indo-Pacific Strategy, US-Mexico-Canada Agreement and the announcement it will seek trade agreements with Britain, Japan and the European Union, will be around for a long time.

In these circumstances, the two countries have bidden farewell to the illusion of a quick victory after the G20 summit and confronted the reality of a long-term stalemate as the short-term pressure starts to moderate.

From comprehensive to targeted strikes

Second, the tariff strikes on each other in the second half of their contest will be more targeted and accurate compared with the relatively comprehensive attacks before. Historically, the disparity in strength with its opponents and the convergence of interests has determined what kind of approach the US adopts in such contests. When it had a huge economic advantage and weak bonds of shared interests, it used the extreme solution of economic blockade and comprehensive Cold War against the Soviet Union. While in the 1980s, its approach against Japan was less extreme as the US’ economic advantage was significantly less compared with the economic advantage it enjoyed over the Soviet Union and the two countries had more shared interests.

That the US’ economic advantage to China is relatively limited and the two countries are each other’s biggest market with largest potential decides that managing a comprehensive conflict is a cost neither country could afford. This is exactly why the side effects of Trump’s policies were quickly amplified at home, also why the administration has slowed down its attacks.

Looking ahead, although the US will not easily scrap the trade sanctions already in place it will hesitate to upgrade the standoff to a comprehensive confrontation. The third round of sanctions targeted $267 billion worth of Chinese exports in particular is expected to cause much pain on both sides, thus is unlikely to fully materialize.

In the near future the US will probably focus on containing the development of China’s high-tech sector by, for instance, imposing high tariffs on imports from China’s emerging industries, cutting off the transfer of technology, confining the talent flow and freezing the overseas assets of China’s core enterprises and institutions, with the ultimate goal of impeding the upgrading of China’s manufacturing industry. On that account, China’s relevant industries should remain alert and take precautions, and the government should offer necessary protection to key enterprises, technology, assets and talents.

Competition on the global stage

Third, the rivalry between China and the US will become a contest with a global dimension. As one of the core platforms for global policy coordination, the G20 Leaders’ Summit has provided the opportunity for the two countries to break the ice, but it also produced a joint communiqué which has cut off the phrases of opposing protectionism. This mixed signal shows that apart from bilateral relations, multilateral platforms and institutions including G20, World Trade Organization and International Monetary Fund will become the key stages for China-US competition. Hereafter, the China-US trade contention, the progress and retrogression of globalization and reform of the global economic governance system will be bound together.

In this sense it is urgent for China to take two global challenges into its strategic considerations. One is the wave of populism that is undermining the policy rationality both in developed countries including Italy, Germany and the United Kingdom and emerging markets represented by Brazil and Mexico.

The imitation of Trump’s policies in these countries would weaken the consensus on multilateralism and further smash the trammels on Trump’s protectionism and populism. In addition, the global economic governance system has come to a fork in the road. Under the repeated assaults from populism, protectionism and isolationism, the flaws in the system have been exposed, making reform a matter of urgency.

Looking forward, the reform of international institutions including the WTO, IMF and World Bank may walk on two opposite and absolutist paths. Either yielding to the threat of the US’ pulling out, trade and financial issues are politicized and expanded into conflicts over the rules, system and orientation, which will eventually lead to the discretization of global value chain and the tendency of clique-forming in policy choices. Or, optimization of the dispute resolving mechanism and multilateral cooperation mechanism to allocate more say to developing countries according to their contributions, thus checking certain countries’ unilateralism and propelling the global economy back to the path of openness, inclusiveness and coordinated recovery.

So in the second half of China-US contest, how to make good use of the multilateral platforms, file reasonable appeals and lead reform of the global economic governance system while avoiding the containment of an economic Iron Curtain will be a new problem confronting China.

From provocation to self-improvement

Fourth, the game theory will change from answering challenges to self-improvement. In the second half the firmness, speed and depth of the two countries’ respective strategic reform will decide the winner. China should hence focus on improving its economy based on reform and opening-up.
Domestically the new round of reform needs to be deepened and the government needs to develop policies to underpin growth in 2019. On one hand, market access for private enterprises should be significantly widened, providing more room for the development of private and small and medium-sized enterprises, optimizing China’s economic structure and its market.

This would also help build a market environment of competitive neutrality and weaken the pressure that developed countries exert on China.

On the other hand, China should further strengthen the protection of intellectual property and provide the same protection for foreign companies’ IPR to reduce the external resistance to technology transfers.

Externally, a new round of high-level opening-up should be advanced. The automobile market and service industry should be gradually opened and the use of negative list for foreign investment be promoted to share China’s growth opportunities with other countries and expand the bonds of shared interests with the US.

Bilateral cooperation with major economies apart from the US, for instance, the European Union, Japan and India, should also be strengthened to further integrate to global industrial chain through tools and mechanisms including the Regional Comprehensive Economic Partnership and a trilateral free trade agreement between China, Japan and the Republic of Korea.

The more extensive and firm China’s network of friends is, the better it will be able to prevent the US’ China policies going to the extreme.

Cheng Shi is an academic committee member of Pangoal Institution and chief economist in the Research Department of ICBC International.



Enjoyed this story? Share it.


China Daily
About the Author: China Daily covers domestic and world news through nine print editions and digital media worldwide.

Eastern Briefings

All you need to know about Asia


Our Eastern Briefings Newsletter presents curated stories from 22 Asian newspapers from South, Southeast and Northeast Asia.

Sign up and stay updated with the latest news.



By providing us with your email address, you agree to our Privacy Policy and Terms of Service.

View Today's Newsletter Here

Economics

Pakistan seals financial assistance from UAE

$3 billion financial assistance sealed as Abu Dhabi Crown Prince meets Imran Khan in Islamabad. Pakistani and United Arab Emirates leadership have met thrice now in three months. Prime Minister Imran Khan visited the UAE twice after assuming office in August to seek economic assistance. Both countries last week finalised the terms and conditions of a $6.2 billion support package for Islamabad to help address its balance-of-payments crisis. A joint statement issued after the UAE royal’s visit said Prime Minister Khan thanked the crown prince for the “generous” balance-of-payments support of $3 billion, which appears to have materialised first out of the total financial package. Crown Prince Sheikh Mohammed bin Zayed, who last visited


By Dawn
January 7, 2019

Economics

AIIB approves applications of six more countries

The total of countries with a membership in the China-led bank now stands at 93. The Asian Infrastructure Investment Bank (AIIB) announced on Wednesday that its Board of Governors has approved the membership applications of six more countries, bringing AIIB’s total approved members to 93. The new group of approved members is comprised of Algeria, Ghana, Libya, Morocco, Serbia and Togo. “Within three years, AIIB’s membership has increased from the 57 founders to 93 approved members from almost every continent. This shows our member’s commitment to multilateral cooperation and strengthens AIIB’s role in the international financial community,” said AIIB Vice President and Corporate Secretary Sir Danny Alexander. “The growing membership of the Bank in Europe and Africa also reflects the importance for growth and development of inter-regional connectivity, esp


By China Daily
December 21, 2018

Economics

Malaysia files criminal charges against Goldman Sachs

Two ex-bankers have also been charged in connection to the 1mdb scandal. Malaysia said on Monday it has filed criminal charges at home against Goldman Sachs and two of the U.S. bank’s former employees in connection with a corruption and money laundering probe at state fund 1MDB. Goldman Sachs has been under scrutiny for its role in helping raise $6.5 billion through three bond offerings for 1Malaysia Development Bhd (1MDB), which is the subject of investigations in at least six countries. Malaysia’s Attorney General Tommy Thomas said criminal charges under the country’s securities laws were filed on Monday against Goldman Sachs, its former bankers Tim Leissner and Roger Ng, former 1MDB employee Jasmine Loo and financier Jho Low in connection with the bond offerings. “The charges arise from the commission and abatement of false or misleading statements by all the accused in order to dishon


By The Star
December 17, 2018

Economics

Indonesia plans to make 30 percent bio-diesel blend mandatory

Studies are ongoing on the correct type of petrol. While the government expanded the mandatory use of a 20 percent biodiesel blend ( B20 ) in September, it plans to further boost domestic biodiesel consumption to absorb more crude palm oil (CPO) amid fluctuation in the global market price of the commodity. Apart from improving the distribution of the B20 blend across to the country, the government is also carrying out research to increase the portion of biodiesel in the fuels rom 20 percent to 30 percent ( B30 ) or even to 100 percent ( B100 ). The Energy and Mineral Resources Ministry’s oil and gas director general, Djoko Siswanto, was quoted by kontan.co.id on Monday as saying that B100 fuel was being tested by the ministry. State-owned oil and gas holding


By The Jakarta Post
December 16, 2018

Economics

Chinese court grants Qualcomm an injunction against Apple

The injunction bans the sale of several models of IPhones in China. Qualcomm Inc on Monday said it had won a preliminary order from a Chinese court banning the importation and sale of several Apple Inc iPhone models in China that the court found violated two of Qualcomm’s patents. The preliminary order affects the iPhone 6S through the iPhone X. The ruling is from the Fuzhou Intermediate People’s Court in China, the same court that earlier this year banned the import of some memory chips by Micron Technology Inc into China. Qualcomm initially filed the case in China in late 2017. Apple is already disputing the scope of the ban, saying it only applies to iPhones that run on an older operating system. “Qualcomm’s effort to ban our products is another desperate move by a company whose illegal practices are under investigation by regulators around the world,” Apple said in a sta


By China Daily
December 12, 2018

Economics

Malaysia to charge ex-prime minister and fund chief over audit tampering

Najib and Arul Kanda will be indicted on Wednesday by prosecutors. Graft prosecutors are set to charge Najib Razak and former 1MDB president Arul Kanda Kandasamy on Wednesday over the tampering of the company’s final audit report. Sources said that the former prime minister will be charged with using his position to instruct the then Auditor-General to remove “certain things” from the report. Arul Kanda will be charged with abetting Najib. The two are expected to be charged at the Kuala Lumpur Sessions Court. She revealed that the directive to make the changes came from Tan Sri Shukry Salleh, who was then the principal private secretary to Najib when he was prime minister. The changes were allegedly made on Feb 26, 2016 on grounds that it was a sensitive issue.  


By The Star
December 11, 2018