US-China trade war: a game changer
More than a hundred years ago, the West including the United States used two Opium Wars and other military actions to force the Qing Dynasty to open up the Chinese market to trade.
Ironically, nowadays while China is becoming a strong advocate of international free trade and globalization, the “America First” Trump administration is steering US geopolitical strategy back toward protectionism, unilateralism and isolationism.
The current US-China trade war will clearly have profound impacts on the future economic and political order of our world.
So far, the US is being perceived as aggressive and offensive in the trade war, while China is seen as reactive, defensive and reciprocal. Many people believe that the trade war is not a zero-sum game, but a lose-lose game for both the US and China, and a tragedy for the whole world.
However, President Donald Trump thinks he has won a lot based on some very positive figures in the US, including 4.1% growth in gross domestic product in the second quarter of this year, the best showing since 2014, and solid voter support for his economic policies. This has given Trump confidence that he will win another term as president in 2020.
On the other side of the Pacific Ocean, China has indeed suffered a lot from the trade war. From March 22 to June 22, the overall market cap of the two Chinese stock exchanges shrank by more than 7 trillion yuan (US$1 trillion), while the total value of the US stock market increased by around $2 trillion. The trade war is thought to be slowing GDP growth and causing job losses in China.
As the “world’s factory,” China is a key trading partner for more than a hundred countries. Notably, more than 60% of modern international trade is in intermediate goods, with China being a major trader inter-linking the global value chains. Some of the key export-led economies in East and Southeast Asia have started feeling the spillover of the trade war, such as South Korea, Japan, Hong Kong, Taiwan and Singapore.
The trade war can affect those export-led economies in at least three aspects. The first is direct impact from increased tariffs, the second an indirect impact arising from disruptions to global supply chains, and the third is through a slowdown in overall global trade and its spillover effect on pessimistic business sentiment.
Because of the US-China trade war, recently South Korea’s exports of cars and electronic goods have fallen, and its GDP growth rate is now forecast to be lower than the earlier estimate of 3%. Taiwan is also revising its GDP growth forecast for 2018 from 2.6% to 2.4%, and Singapore’s GDP growth in 2018 may be dragged down by around 0.3 percentage point to 2.7%. No wonder Singaporean Prime Minister Lee Hsien Loong has said: “Nobody wants a trade war.”
However, some may actually benefit from the US-China trade war, such as the European Union, Russia and North Korea, because the balances among key global powers will inevitably be reshaped.
To counter China, the US has agreed to work with the EU toward a “zero tariffs, zero non-tariff barriers and zero subsidies” deal. Similarly, Trump has improved relations with Russia in a bid to contain rising China. Moreover, it will be more difficult for the US to persuade China to cooperate on the North Korean denuclearization issue.
Of course, China will try to strengthen its alliances too. In June, India and Pakistan joined the Shanghai Cooperation Organization as full members for the first time at the SCO summit in Qingdao, China. This month, China just hosted the Forum on China-Africa Cooperation (FOCAC) Summit in Beijing again. And in November, the first China International Import Expo (CIIE) will be held in Shanghai, a significant attempt to demonstrate China’s commitment to globalization.
Therefore, it is still too early to say that the US has been a winner and China will definitely be a loser in this trade war.
The Chinese government and many Chinese people believe that Trump’s trade war is ultimately aimed at curbing China’s technological development – particularly in light of its “Made in China 2025” strategy – to attempt to contain China’s rise as a great power.
China is re-evaluating its national capability and rethinking its development strategy, and it will likely become more vigilant and cunning when dealing with the US in the future. The short-term pain may be proved necessary for achieving the eventual “Chinese Dream.”
As for the US, it may have gained something economically from the trade war, but Trump is undermining his country’s credibility and giving up its global leadership by embracing nationalism, unilateralism, and neo-isolationism.
George Washington, the first president of the United States, said: “Observe good faith and justice toward all nations. Cultivate peace and harmony with all.” It is to be hoped that the Trump administration will agree with this motto.
But even if the world’s two leading powers cannot solve the trade war nicely, do not worry, as Deng Xiaoping, the chief architect of modern China, wisely predicted that “the China-US relationship can never be too good or too bad.”