Xu hongcai: Interpret the US-China trade war

2018-07-25    By CGTN

US President Donald Trump launched the trade war against China and claimed it would narrow the trade deficit, which is causing unemployment and limiting economic growth, but in fact the tariff policy is largely aimed at China's high-tech industries.

Both the White House report released last month titled "How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World", and the export restrictions on American military and civilian dual–use technology products to China, demonstrates the US' vigilance over Chinese technological development, and it wants to indirectly suppress the development of China's science and technology sector, according to Professor Wang Xiaosong from Renmin University of China. 

Moreover, two significant American strategy reports issued at the end of 2017 clearly showed that the US treats China as its top rival.

Professor Wang pointed out that by suppressing China's emerging technological development via the trade war, the US can maintain its dominance and leading role in the world.

After provoking the trade war, the US has repeatedly declared itself as a victim, and passed the buck of resolving trade issues with its major trading partners such as China. But in fact, the US has been taking advantage of the international status of the dollar to attract foreign capital to develop its economy for a long time and it has enjoyed cheap goods too.

Wang said that since China and the US have different economic structures and are at different development stages, there cannot be complete equality in trade between the two sides.

The US, as a consumer country with a low savings rate, has a macroeconomic structure that has lead to the creation of a trade deficit for the country. China, on the other hand, has been looking internally to fix issues since the start of the trade friction. And it also keeps opening up even further to the world, easing accession for foreign investment for the benefit of the globalization of trade, Wang said.

Now the US should take responsibility, because trade issues cannot be resolved without them improving their own economic structure and strategic objectives, according to Wang.

As China's exports are a strong alternative to US goods and some are very dependent on that market, it is clear that Trump is very confident about his trade war. However, Dr. Xu Hongcai, Deputy Chief Economist of CCIEE, said that China has ample domestic demand and a huge market, plus the rising cost of industrial raw materials will make US companies - including Tesla which recently announced plans to build a factory in Shanghai - increase their investment in China. So China does have the confidence to deal with the trade war on its end.

Besides, Dr. Xu added that the trade war will eventually increase the cost of US industrial production and consumer spending, risking inflation and other negative impacts on US economy.

Now some American business communities are aware of this and some chambers of commerce and local governments are also beginning to voice disagreements with the trade war.

With a look to the past, US President Herbert Hoover's trade safe-guarding act in 1930 led to the collapse of America's multilateral trading system. History has shown that there has never been a winner in a trade war, and only sincere negotiations and communication can avoid losses on both sides.