The trade war between the United States and China has become a cold war
The trade war between the United States and China has become a cold war

The trade war between the United States and China has become a cold war

What began as a trade war over China’s unjust economic policies has now developed into a so – called Cold War driven by various ideologies. Bilateral relations between the United States and China took a dive into 2018 when then-US President Donald Trump’s occupation of the trade deficit led him to impose punitive duties on China. The tariffs were followed by restrictions on both China’s access to high-tech US products and foreign investment involving security concerns and by claims unreasonable Chinese trade practices.

Despite beans from the American business community To alleviate tensions, US President Joe Biden has so far strengthened his predecessor’s policies by strengthening anti-China alliances and implementing further sanctions. Bid now characterizes The US-China conflict as “a struggle between the usefulness of twenty-first century democracies and autocracies.”

But the logic behind the American trade war was flawed, and the newer, politically driven restrictions are counterproductive given the damaging long-term economic consequences for both sides. Nevertheless, so far there have been few signs that Biden is likely to change course. Meanwhile, Europeans may be in a better position for productive give-and-take discussions with China on economic policy.

Misunderstood US trade policy

The Trump administration’s first mistake in starting a trade war was to assume it US trade deficit– which occurs when a country imports more than it exports – was inherently bad and that China was to blame for it.

Yukon Huang

Huang is a senior fellow in the Carnegie Asia Program, where his research focuses on China’s economy and its regional and global influence.


However, trade deficit is not a good indicator of the state of the economy and U.S. trade balances largely is run by soaring U.S. federal budget deficits that have little to do with China. The irony is that three years after Trump’s tariffs were launched to correct the US trade deficit, bilateral trade between the US and China became has now returned to the heights of all timeChina’s trade surplus has risen, and the US deficit has gotten worse.

Trump also repeated popular but misunderstood feelings that American companies had been overinvestment in China, resulting in a loss of competitiveness. But only over the last two decades 1-2 percent of annual U.S. foreign investment has traveled to China. In contrast, the EU, which is comparable to the United States in its economic size, has invested about twice as much as the United States annually. The concern should be why the US invests so little in China rather than so much.

China’s intellectual property protection

China’s alleged lack of protection of intellectual property rights is also incorrectly characterized. In the extreme, China is accused to steal foreign intellectual property, especially technology. But after explaining size of China’s foreign transactions and research activities, such events may not occur unusually often or may be exaggerated.

Furthermore, China’s patent courts have matured to deal with this problem—foreign plaintiffs are now more likely to win their cases than domestic companies. In addition, theft becomes less worrying payments for royalties and licenses of Chinese companies, according to a think tank researcher, has grown by almost a factor of four in the last ten years, making China the second largest payer of such royalties globally.

The reality is it takes generations to develop a sound intellectual property regime, as was the case for the United States. The foundations of China’s system were laid just two decades ago with reforms that accompanied China’s 2001 accession to the World Trade Organization. Progress has been remarkable in recent years, as shown by the results of “2020 Business Climate Survey”By the US Chamber of Commerce in China; The survey showed that nearly 70 percent of U.S. companies surveyed in China believed that China’s enforcement of intellectual property rights had improved, compared to just 47 percent in 2015.

China’s protectionist policy

But there is also a credible concern that China’s investment policy is treating foreign companies unfairly. One complaint is China’s use of subsidies. All countries provide grants to domestic businesses and households, such as US aid to farmerstax deductions for households to encourage clean energy consumptionand incentives for companies like Amazon to move. But in China, subsidies tend to be more focused on using the country’s banks and stock markets to support high-tech companies and strategic industries.

The US government could choose to pressure China to better align its subsidy policies with Western norms, but instead the Biden administration copies China’s playbook of proposes own grants to promote strategic industries.

China’s protectionist tendencies are also reflected in the requirement for foreign companies to form joint ventures with domestic Chinese companies as a condition of market access in some economic sectors. This provision has been widely cited as a means of promoting so-called forced technology transferwhere foreign companies pass on new technology to their Chinese partners as a condition of being able to invest and produce in China.

However, these Chinese requirements have also seemed to become less stringent in recent years, as exemplified by large foreign investments in chemical manufacturing (BASF), car production (Tesla), and finance (Black stone). These foreign companies have for the first time been allowed to enter key sectors without a Chinese partner.

China’s willingness to drop the joint venture requirement was prominent in EU-China Comprehensive Investment Agreement negotiated in December 2020 (not yet ratified). This experience suggests that political differences can be resolved through consultations if both sides are willing to compromise.

Building better bilateral relations

The key to more harmonious economic relations is to recognize that a more developed China does not have to threaten the welfare of the West. The United States, Europe and China have different comparative advantages, which are reflected in the composition of their exports. Europe specializes in advanced consumer goods and machinery; United States in agricultural products, high-tech components and services; and China in basic manufactured goods and inputs. All sites can continue to thrive by operating under a rules-based international trading system.

However, tensions between the United States and China are now less driven by economic realities and more by great power rivalry and nationalism – factors exacerbated by mutual mistrust of each other’s strategic intentions. The Biden administration describes the United States’ multifaceted relationship with China has emphasized the need to “compete, confront and cooperate” at the same time. But like Chinese President Xi Jinping stressed out at the World Economic Forum in 2021, “competition is to strive for excellence – not to kill a rival.”

Punitive trade measures have had little effect with regard to changes financial resultsand the experience of countries around the world shows that sanctions in general do a little to get governments to change their basic beliefs. Instead, there is more to be gained by exploiting China dependence on a rules-based international trading system as the country seeks to become a more prosperous and modern nation.

Practical steps forward

The challenge now is to move away from a self-defeating Cold War by working within the international economic system to mediate and moderate tensions. The initiative of such a company may be necessary to come from Europegiven that Republicans and Democrats in the United States are united in their harsh approach to China.

Europe and the United States may have similar goals to China, but Europe is more economically integrated with China in terms of investment and trade flows. Because of this, the competitive aspect of their relationship offers more potential for mutual benefit. Moreover, Europe is neither as preoccupied with superpower politics nor as dependent on technological advantages as the United States, making the bloc more open to compromises.

If the United States wants to maintain its technological and moral authority, it must first deal with economic and political weaknesses at home. Regretting China’s unjust policies and its authoritarian regime will not solve this problem. Instead, the United States should focus on strengthening its own economic competitiveness, creating internal political cohesion and working with European and Asian partners to build lasting international institutions.

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