The United States has frequently blackmailed China since it launched the trade war a few months ago. The US-China trade friction has not only become the biggest variable of China’s economic development, but also put the world economic recovery under great risk. In order to help us better interpret the US-China trade war, China Fortune Bond (CFBond) interviewed Wei Jianguo, former Vice-Minister of Commerce and Vice-Chairman of the China Center for International Economic Exchanges (CCIEE).
It is counterproductive for the United States to solve the problem in a rude manner.
Wei Jianguo said that the US-China trade frictions have lasted for five months and the US has increased its tariffs on Chinese goods, from $50 billion to $200 billion, and even $500 billion in the future, affecting a wide range of Chinese goods such as plastic products, consumer goods, cars, coal, liquefied gases and electronic products. The US has chosen a brutal way to handle the contradictions between the world’s largest and the second largest economies, showing that it is very ignorant and anxious. In the first half of this year, the US trade deficit with China did not decrease as it hoped but increased by 9% year-on-year, reaching $188.5 billion. It is expected that the trade deficit will further expand by the end of this year.
On the contrary, China has remained very calm during the trade war. On the one hand, it has repeatedly criticized the erratic practices of the US. On the other hand, it has attached great importance to protect Chinese enterprises and minimize their losses. In July, China’s exports and imports increased by 12.2% and 27.3% year-on-year. The import growth narrowed China’s trade surplus to $28.05 billion, indicating that China’s foreign trade has been stabilized.
The United States picked up the wrong opponent and used the wrong weapon.
The trade war provoked by the US has made two serious mistakes. One of the mistakes is that it has picked up the wrong opponent. The $350 billion trade deficit with China is the main excuse used by the US to launch the trade war, but nearly 60% of China’s trade surplus is caused by foreign-funded enterprises and most of these products are produced by US companies in China. In fact, the US trade deficit with China is only about $150 billion if we deduct the goods produced by the US companies in China, according to statistics of the China Center for International Economic Exchanges. In other words, the US trade deficit with China is not only due to the goods trade.
The US chose to raise tariffs against China in the trade war, which is the second mistake. The abuse of the tariffs is criticized by many people and organizations in the US from the very beginning, even the US Chamber of Commerce (USCC). Thomas Donohue, president of the USCC has repeatedly stated that increasing tariffs on Chinese goods is not the right solution to reduce America’s trade deficit.
Wei Jianguo pointed out that the US has misjudged the trade war because they assumed that it is easy to obtain bargaining chips from the trade war. From the erratic practices taken by the US, we can see that the US is lost in the trade war.
More and more Americans oppose the trade wars.
In fact, there are many Americans oppose the trade war between the US and China. For example, the American farmers have become increasingly dissatisfied with the retaliatory tariffs as China is the largest market for the US soybeans. Although the US government has decided to subsidize farmers who are deeply affected by the trade war, these farmers are not willing to accept subsidies. This kind of subsidies is like giving you a golden crutch after cutting off your legs because there are no aid programs can protect the US agriculture from the devastating effects of the trade war.
The retailers in the United States are even more angry with the trade war. The retailers are reluctant to import goods from another country to replace Chinese products for two reasons. One the one hand, it is very difficult to find alternatives for Chinese products. More importantly, the American consumers are already used to many Chinese products. The trade tariffs will force the retailers to pass on the extra burden to consumers, who may switch to other suppliers.
Some American entrepreneurs have already begun to consider withdrawing from the United States. For instance, Tesla has announced that it will build a factory in China, and there will be more American companies to follow tesla’s step. As can be seen, the trade war will bring more loss to the US.
There is no winner in the trade war.
Recently, China announced tariffs of 25%, 20%, 10% and 5% on $60 billion of the US goods. Some people believe that China has no choice but to fight back with gradual tariffs. Wei Jianguo does not agree with this view, saying that there is no winner in the trade war because it will hurt both the US and China. The most important thing is to minimize our losses. The graded tariffs used by China is a great strategy to protect its economy and industry, and ensure continued operation of the global production chain, supply chain and service chain.
China did not respond with a tit-for-tat tariff as it did in the previous rounds, instead, it has adopted a more precise strategy to reduce the losses of Chinese enterprises. There is no winner in the trade war and the only thing we can do is to minimize our loss.
China may have to deal with trade war in the next 5 to 10 years.
Wei Jianguo suggested that the trade wars may last for 5 to 10 years and China needs to well prepare itself for the long battle in the following three aspects. Firstly, China must diversify its market development and not put all the eggs in one basket. Secondly, it should pay attention to the research and development and innovation of certain core technologies, especially the high-end semiconductors, chips and so forth. Last but not least, China needs to develop more markets, strengthen cooperation with the BRICS countries, and increase trade and investment with countries along the Belt and Road.
Wei Jianguo said that China has no intention to challenge the US, but it will certainly reduce its dependence on the United States to a minimum level.