What US and China must do to defuse the trade war
Rolling it back will require both sides to acknowledge that old ways of thinking on commerce are counterproductive
TheescalatingUS-Chinatradewarisa response to three concerns that American leaders have long articulated: job losses, competition over technology, and a perceived Chinese threat to US national security.
The first concern—American job losses to China — is viewed as a byproduct of China’s trade surpluses, which the US has typically sought to remedy by advocating for re nm in bi revaluation. But this approach is mis guided; the exchange rate is just one factor causing the trade imbalance, and any appreciation of the re nm in bi is unlikely to alter the status quo in a multipolar world. The trade imbalance stems from structural flaws.
The second issue pushing the US and China toward a trade war is competition over technology. For decades, and especially since the mid-1990s, China has made knowledge transfer via joint ventures with Chinese partners a condition for access to its large market. Many US business executives are finally opposing these policies, complaining of being“forced” to share their technology. This chorus of grievance is so loud that tech“theft” maybe a bigger concern for Americans than the size of the US trade deficit. And yet, given that the businesses involved are all willing participants, terms like “forced” and “theft” are red herrings. Moreover, the products that foreign- invested joint ventures produce usually enjoy monopoly prices in China, a benefit that weakens the American argument further.
Still, China’s leaders should not be tone deaf. In the absence of antitrust agreements, trade disputes involving a party possessing market dominance are typically settled only by the ability of the “victim” to mobilise retaliation. With the US government now taking action on behalf of US firms, China’ s industrial policies will need to change accordingly, especially if European governments follow America’s lead, as some may. Third, national security. Underpinning the anger over technology transfer is a belief that American ingenuity will one day be used against American interests. As the international order moves from an era of US-led hegemony to one of multi polarity, overlapping spheres of influence will increase the chances of economic and political friction. Global prosperity requires that the multilateral free-trade system be maintained and strengthened, and this can be achieved only if the national security interests of regional powers are assured.
The current US-China trade conflict has been decades in the making; rolling it back will require both sides to acknowledge that old ways of thinking on trade have become counter productive. Unless both sides start distinguishing between economic and strategic competition, the US-China trade war will not be over by Christmas.