Whether last week’s punitive tariffs threat by the U.S. on Chinese imports will explode in a full-blown trade war between the two countries is an open question. The answer may depend in part on the Trump administration’s broader aim to counter the ‘Made in China 2025’ strategy, which aims to transform China’s economy from a manufacturing base to a world leader in scientific innovation.
To that end, the United States Trade Representative (USTR), in August, 2017, launched suo motu an investigation into China’s alleged unfair trade practices related to technology transfer, innovation and intellectual property. The Section 301 probe reflected diminishing U.S. support for the World Trade Organisation, in the same manner as the U.S. Commerce Department’s launching of an investigation against dumping and subsidies of Chinese aluminium last November. The USTR findings have singled out strategic Chinese innovation enterprises in the robotics, semiconductors, aerospace and information technology sectors as examples of non-reciprocal investment practices, denial of competitive advantage and intellectual property theft. While many of these concerns resonate across Europe and beyond, coordinated action between these countries and a unilateralist U.S. to counter China’s quest for global dominance seems unlikely. If anything, uncertainty over the 25% and 10% global tariffs imposed in March on U.S. steel and aluminium imports respectively, on grounds of national security, has principally affected Washington’s traditional allies and exposed an indiscriminate America First approach.
In a torrent of tit-for-tat tariffs announced last week, China retaliated with increased duties on 128 U.S. (mostly) farm and food products worth $3 billion. This was followed by the U.S.’s 25% increase in duty on over 1,000 industrial and technology items worth $50 billion, resulting from the USTR investigation, triggering a matching retaliation from Beijing targeting soybeans, cars and chemicals.
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Both sides are now reckoning with the potential costs to their domestic economies from the pain they propose to inflict on each other. After all, manufacturing jobs in America’s Rust Belt states would be hit by the latest U.S. tariffs. Similarly, the soybeans levy will likely hurt Chinese consumer demand for cooking oil and animal feed. Given growing opposition, even among Republicans, against the extreme economic nationalists in their party, the political fallout from the contentious tariffs could be huge for U.S. President Donald Trump in the November mid-term Congressional elections. Equally, China’s largely exports-driven economy may not have enough elbow room to withstand further escalation of ongoing trade battles. The U.S.’s 2017 merchandise exports to China were up 12.8% over a year earlier, in stark contrast with a rise from 2.1% in 2000 to 8.4% in 2017, says a 2018 U.S. Congressional Research Service report. It calls for reflection on the meaning of the U.S. trade deficit.
The writer is with The Hindu in Chennai