The ongoing US-China trade war may stem from a profound psychological factor: the fear of an established global leader facing a rising challenger. In March, the Trump administration fired the initial shots in a dispute rapidly escalating into a potential full-scale trade conflict. Trade issues have long strained US-China relations, but few anticipated such intensification.
President Trump appears to misunderstand global trade dynamics. He views the $500 billion US trade deficit with China as a direct loss, blaming past administrations for incompetence in allowing China to outmaneuver them. Trump believes the US lost a “trade war” to China years ago.
However, trade balances are far more nuanced. Many Chinese exports incorporate components from other nations, meaning China’s surplus includes surpluses from various countries.
China currently runs significant deficits with Japan and Southeast Asian nations, while maintaining a large surplus with the US. China’s overall trade surplus, as a GDP share, has steadily declined from about 10% in 2007 to just over 1% in 2017, indicating a balanced external account.
The US current account deficit isn’t inherently negative; it attracts substantial foreign capital, benefiting America’s financial system and currency for years. While reducing this deficit might be advisable due to low US savings rates, trade policies alone won’t suffice.
This doesn’t negate legitimate US grievances with China’s trade practices, which should be evaluated against World Trade Organization (WTO) compliance.
Former WTO Director-General Pascal Lamy once noted China’s strong progress on its extensive WTO commitments, though no country is beyond critique. He highlighted that some service sectors may remain insufficiently open, and intellectual property rights protection needs strengthening.
The US Trade Representative has monitored China’s WTO adherence since its 2001 accession. The 2016 report acknowledged complexities but emphasized expanded mutually beneficial trade and investments positively.
Yet, the 2017 report, post-Trump inauguration, omitted positives, claiming the US erred in supporting China’s WTO entry on ineffective terms for market-oriented trade. It focused on China’s industrial policies, outside WTO’s direct purview.
Made in China Initiative
The Trump administration targeted China’s “Made in China 2025” strategy, endorsed by the State Council in 2015 to bolster ten strategic sectors, including advanced IT, automated machinery and robotics, aerospace equipment, and electric vehicles. The report warns this aims to capture larger global market shares in these areas.
In reality, “Made in China 2025” seeks to elevate China’s industrial capabilities to the average level of major industrial powers by 2035, not 2025—a modest goal.
The report criticizes the policy tools as unprecedented among WTO members, involving government interventions, support measures, restrictions on foreign firms, exploitation, discrimination, and barriers to their operations, technologies, products, and services.
However, specific actions aren’t detailed, unsurprising since the State Council hasn’t finalized implementation tools. US concerns over intellectual property are valid and addressable via WTO. But Trump’s approach suggests intent to prevent China from technologically catching up, unacceptable to China.
This interpretation aligns with the Trump administration’s December National Security Strategy, pledging responses to growing political, economic, and military competition worldwide. It labels China as the primary challenger to American power, influence, and interests, seeking to undermine US security and prosperity. Such views heighten risks of the Thucydides Trap: fear of a dominant power toward a rising rival leading to conflict.
A trade war might still be averted. Chinese President Xi Jinping is de-escalating, recently pledging significant reductions in US car import tariffs and greater financial sector openness. Trump responded that talks are progressing “very well.”
Hopefully, war drums will silence through negotiations and concessions. US and China leaders can then address the broader issue—avoiding the Thucydides Trap—to prevent a far graver clash than a trade war.
For insights on US-China trade war impacts in BRICS economies, [Link to related BRICS article]. Explore global trade tensions via IMF economic rivalry reports. Learn about WTO rules from OECD trade compliance studies.
In conclusion, navigating the US-China trade war requires understanding economic competition and WTO rules to mitigate global tensions.
