US-CHINA TRADE WAR

The world’s two largest economies recently called a truce in their ongoing trade war but unresolved issues between the two remain as hot as ever. What does each side want? And what’s the endgame for President Donald J. Trump?

The U.S. and China declared a truce in their ongoing trade war following the June 2019 G-20 summit in Osaka. It remains unclear, however, whether the delay provides breathing room to hammer out unresolved differences between the world’s two largest economies, or if this is merely a lull before escalations resume.

The United States, earlier this year, imposed 25 percent import taxes on $250 billion in Chinese goods. China countered the original wave of tariffs with $110 billion of their own, mostly aimed at U.S. agricultural products. Trade tensions between the two economic superpowers increased as the Trump administration mulled saddling China with $300 billion in additional tariffs, which would have extended the fees to almost everything the Middle Kingdom ships to America. It appeared the two nations were on a collision course, and financial markets remained tense.

After the G-20 summit, however, a tentative pause in tensions seemed to begin. Trump, after meeting with Chinese President Xi Jinping, announced that no additional tariffs would be levied. The tariffs already implemented would remain, however, Trump said, adding that he believed an agreement on both nations’ sticking points was possible in the near-future. For Trump, it was another example of his focus on one-onone diplomacy— while the

American

president routinely bashes “China” or previous U.S. administrations for allowing Chinese trade predations to go unchecked, he at the same time describes his relationship with Xi as a “great friendship.”

“One thing President Trump believes, and he believes this totally, is that one-on-one relationships can be important between big powers,” said former Trump administration chief strategist Steve Bannon, speaking to PBS “Frontline” for its recent story “Trump’s Trade War,” which exhaustively covered the ongoing trade dispute.

But where do the two countries go from here? The resolution to the ongoing trade dispute seems unclear, even to experts, and some are predicting a long technological cold war as each side refuses to give an inch to the other.

Corporate warriors

American companies for years, maybe decades, have been alarmed by China’s practice of “forced technology transfer,” although almost no one from the business community will go on the record about it for fear of retaliation. In short, China often burdens foreign companies with onerous requirements around securing a domestic partner firm, and sharing technology often is a prerequisite to do business in the country. Often, these Chinese firms act on orders from the government to acquire foreign-developed technology that China cannot yet produce on its own, experts claim.

“... the Chinese government uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to force or pressure technology transfers from American companies,” said a May 2019 report from the U.S.-China Economic and Security Review Commission. “Taken together, these technology transfer methods have led to the loss of billions of dollars in U.S. research and development, [intellectual property], and technology products.”

Beyond forcing technology transfer as a requirement for market entry, China also has waged a long campaign of corporate espionage against technology firms.

“China continues to obtain American IP from U.S. companies operating inside China, from entities elsewhere in the world, and of course from

the United States directly through conventional as well as cyber means,” wrote the Commission on the Theft of American Intellectual Property in a recent report. “These include coercive activities by the state designed to force outright IP transfer or give Chinese entities a better position from which to acquire or steal American IP.”

American officials insist that changes to China’s technology transfer framework and a halt to cyber espionage will be required before a comprehensive trade accord can be reached. The Chinese, meanwhile, deny any involvement in cyber espionage (several cyber attacks on corporations have been traced not just to China but to major universities with state ties and military bases) and likely will be hesitant to ease technology transfer requirements as they understand the irresistible attraction U.S. firms have to the country’s 1.3 billion person market. And as China’s middle class is now larger than the total U.S. population, it gives officials in that country more leverage over American firms desperate to maintain market access and profitability.

An evolving relationship

Academics, economists, and China experts have reliably advocated dialog with China for decades, often downplaying the country’s predatory trade practices even as they acknowledge how widespread these practices are. Western China experts, seemingly since the colonial era, have often treated China as only reactionary to how it is treated by outsiders, and never as a proactive shaper of its own future. The conciliatory tone, however, appears to be changing recently.

“The [Chinese Community

Party] is far more responsible for what happens in China – and for the current crisis with the United States – than any American,” wrote former “Washington

Post” Beijing bureau chief John Pomfret on July 9. “Since the financial crisis of 2008 and the rise of President Xi Jinping, China has stopped market-oriented economic reforms … ramped up efforts to steal Western technology, broken a promise made to a U.S. president not to militarize the South China Sea and tried to export its system abroad. The main fruit of a generally cooperative policy from Washington, at least during the Obama years, has been an emboldened China eager to reach for more.”

The “Financial Times” also ran a piece proclaiming that Western economists, who for decades insisted that free markets would liberalize China, share the blame for the country’s “monstrous” attitude change from rising economic power to increasingly aggressive military empire. A shift in thought towards China, and an acknowledgement from diplomatic, business, and intellectual circles that the country is more than a blank slate, could set the stage for a more confrontational tone in U.S.-China relations.

President Trump, meanwhile, continues to insist that a deal is possible if only China plays fair.

In a recent tweet the president noted that Mexico – which Trump threatened with tariffs earlier this year – has been very helpful in stabilizing the U.S. southern border, but that China still had not made good on promises to buy more American products.

How the president navigates sealing a deal that saves face on both sides while keeping his promise, made by Vice President Mike Pence in a speech last year, to “not back down” on China remains to be seen. But it is safe to say that a resolution to the ongoing trade dispute is awaited by industry leaders, investors, and officials on both sides of the Pacific.