“The entire world is worried:” Trade war with China is cause for broad concern

The U.s.-china trade war has led to an unprecedented outcome. On Nov. 18, leaders of the 21nation Asia-pacific Economic Cooperation (APEC), meeting in Port Moresby, Papua New Guinea, failed to issue a routine communique at their annual economic summit for the first time in 25 years.

With the Americans seeking a denunciation of the World Trade Organization (WTO) and China objecting to the communique’s language of “all unfair trade practices,” Prime Minister Peter O’neill referred to “the two big giants in the room” and said, “The entire world is worried.”

Last June the U.S. imposed the first China-specific tariffs, collecting a 25 percent tariff valued at $34 billion for its alleged unfair trade practices. It has so far slapped $250 billion worth of tariffs on Chinese products, which carry an initial rate of 10 percent, to be increased 25 percent by January, and has threatened $267 billion more.

China has retaliated and filed WTO claims against the United States.

The trade war has resulted in China’s economy slowing down. Bank lending has fallen sharply as businesses are more reluctant to invest, and the Chinese yuan has fallen.

Several American companies are considering switching their manufacturing operations from China to Southeast Asian countries and Bangladesh, but not to the U.S.

Back at home, soya farmers who have relied on China as their export market are storing their crop, hoping that the trade war will end.

Perhaps the biggest harm has been to the multilateral trading system, the WTO, itself. Although most countries believe that trade tensions can only be addressed by the WTO, President Donald Trump has strenuously attacked it, threatening to withdraw from the body unless major reforms are made.

He has accused the WTO of not doing enough to take adequate action against “unfair trade,” mainly intellectual property abuses and government subsidies.

In fact, the WTO was not set up to address the issues raised by state-driven economies such as China’s, which does present a real need for reform, but not dismantling the organization altogether.

The dispute is over more than trade and reaches deep into policy issues reminiscent of the preGorbachev era, when the U.S. and Soviet Union vied for influence and loyalty among the developing countries.

Vice President Mike Pence took aim at China’s “one beltone road” initiative, which is creating a network of land and sea links throughout Asia, the Middle East, Europe, and Africa, secured by billions of dollars in infrastructure loans.

He mocked it as a “one-way road” and a “constricting belt.” Calling China’s infrastructure loans “opaque at best,” Pence said that they often “come with strings attached and lead to staggering debt.”

A prime example is Sri Lanka, which has given up enormous equity in a new port built by loans from China.

Pence called upon all nations to refuse “foreign debt that could compromise your sovereignty . ... Preserve your independence.” And he laid out the American alternative — a vision of a free and open Indo-pacific with freedom of navigation and overflight. He announced new joint projects with Australia, New Zealand, and Japan to bring electricity to 70 percent of Papua New Guinea’s population by 2030, as well as an agreement with Australia to construct a naval base on Manaus Island.

China’s President Xi Jinping defended the initiative, saying that there was “no hidden agenda,” and that it was not “a trap.” He, in turn, called the “America first” policy “protectionism” and a “shortsighted approach,” and contended that it was “doomed to failure.”

The U.s.-china row has caused uncertainty and tension. Preceding the APEC summit, Trump indicated that China had responded to the U.S. demands and is willing to compromise on a long list of specifics, but that still there are unresolved issues. Later this month, Xi and Trump will meet in Buenos Aires at the G- 20 meeting.

While the U.s.-china political rivalry is likely to continue, the world will breathe a sigh of relief.

Ved Nanda is Distinguished University Professor and Director of the Nanda Center for International Law at the University of Denver Sturm College of Law. His column appears on the last Sunday of each month. He welcomes your comments at vnanda@law.du.edu.