On June 2, 2019, Wang Shouwen, Vice Minister of Commerce and Deputy Trade Negotiator of China declares that his country “will not back down” in a trade war with the United States. Wang’s statement, in response to rising economic tensions between Washington and Beijing, signals continued escalation of the trade war that some say is just the beginning of an extended back-and-forth. The implications of an extended trade war are predicted to be devastating on the global economy, however both Beijing and Washington seem content to exchange economic stability for the political and regional power generated trade war. Washington is able to leverage political unity against a rising Chinese economy, and Beijing utilizes the fractured economy in East Asia to expand aggressive infrastructure investments.
The US-China trade war began in 2017 when the US launched an investigation into Chinese trade policies. This investigation, concerned mostly with issues of intellectual property theft, claimed to uncover evidence of unfair trade practices. So far, China has taken the brunt of the tariffs on about $250 billion worth of goods ranging from seafood to shampoo. Not only this, but the US has begun the process to impose another $325 billion in the coming year. Beijing retaliated to the initial wave of tariffs with $110 billion on products ranging from medical equipment and chemicals, to soybeans.
While the US has more economic leverage in the trade war, with more than double the goods being tariffed, Beijing is forced to be more strategic. The BBC reports that Beijing is specifically targeting goods produced in Republican districts. By targeting Republican districts, Beijing has linked the success of the trade war to the detriment of these districts, likely in the hopes to reduce the popularity of the tariffs.
However, it seems that the attempt to bolster partisan discontent over the tariffs have fallen mostly on deaf Democratic ears. Top Democrat and Senate Minority Leader Chuck Schumer commented on the trade war in May stating that “we have to have tough strong policies against China or they’ll continue to steal millions of American jobs and trillions of American dollars…we ought to all be united and aimed at China.”
While the trade war garnering political ground for conservatives in Washington, economists are not convinced. CNBC questions whether or not China or American importers are paying the bill for the large hike in tariffs stating that “the burden of Washington’s tariffs has mostly fallen on the US, with American importers and consumers having to fork out more money to buy Chinese goods.” This question, from CNBC correspondent Yen Nee Lee, is consistent with many economists who are concerned that the US/China trade war is an absolute loss for the global economy.
The International Monetary Fund (IMF) has predicted that the trade war between the US and China has the potential to make the world a “poorer and more dangerous place.” The trade war is but one factor of many that the IMF uses to assess the global economy and predict the following year of potential growth. The IMF also took into account the crisis in Venezuela, the Argentina-IMF bailout, and the possibility of a “no-deal” Brexit, however the most substantial threat to the global economy was a “full-blown trade war between the US and China” that would “hit households, businesses, and the wider economy.”
Bloomberg’s analysis adds a regional perspective on the trade war. In May, Bloomberg economist Maeva Cousin created a data set that demonstrated “the worst blows from a drop in China’s exports to the US would fall on Taiwan, South Korea and Malaysia – all embedded in Asia’s export supply chain.” As the East Asian/South East Asian export supply chain is disrupted, companies like Samsung and SK Hynix could be forced to work more closely with the Chinese market, rather than exporting through China to the US.
While the US is hindering Chinese exports through tariffs, Beijing is blacklisting US companies like FedEx from operating in China. Companies like Samsung and SK Hynix who are limited within the Chinese market will be pressured by Beijing to work with the telecom giant Huawei. Huawei, one of the pillars of the Belt and Road Initiative, BRI, has been accused by multiple nations of corporate espionage and intellectual property theft. Through this trade war, more of the East Asia region will be folded into the BRI under the supervision of Huawei.
On the other side of the spectrum, Washington is determined to pressure Beijing into trade deals while large sums of capital are invested in the BRI. As a consequence, the trade war is forcing stronger regional economies to form, and while that might be detrimental to the global economy, it secures political support for each side: Washington bolsters America-First doctrine, and Beijing expenses the trade war loss for regional influence.