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US-China trade war: past, present and future
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Content
US-China Trade War: Past, Present and Future
By
Kejia Song
A Thesis Presented to the
FACULTY OF USC DORNSIFE COLLEGE OF LETTERS,ARTS AND SCIENCES
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
MASTER OF ARTS
EAST ASIAN AREA STUDIES
December 2020
Copyright 2020 Kejia Song
ii
Acknowledgements
I would like to express my sincere gratitude to all of my advisors, Professor Carol Wise,
Professor Stanley Rosen and Professor Eric Heikkila, who have guided and helped me during me
two-year studies at USC and provided me informative suggestions and comments on my thesis.
Your academic insight and encouragement motivated me to further focus on me research
interests.
Also, I would like to appreciate Grace Ryu, Alexandria Eloriaga and Jasmine Yu from East
Asian Studies Center, who gave me the constructive suggestions and warmest support for my
academic and everyday life in USC during these two years. I could not have a such happy and
fulfilling life at USC without you.
Last but not least, I would like to give my special thanks to my parents, who have been
accompanying and supporting me for the past 24 years and endowing me with opportunities to
explore my interests and pursue my dreams. Also, I want to thank my dear friends who are
always encouraging me when I feel depressed and providing me valuable advices to help me step
out of dilemmas.
iii
Table of Contents
Ackniowledgements ....................................................................................................................................................... ii
List of Tables and Figures ............................................................................................................................................. iv
Abstract .......................................................................................................................................................................... v
Chapter 1: An Overview of the US-China Trade War ................................................................................................... 1
1. The Definition of the US-China Trade War .......................................................................................................... 1
2. The History of the US-China Trade Relations ...................................................................................................... 2
3.The Process of the US-China Trade War ............................................................................................................... 8
4. The Psychological Game of the US-China Trade War ........................................................................................ 16
Chapter 2 The Influence of the US-China Trade War .................................................................................................. 27
1.The Impact of the US-China Trade War on China and the US ............................................................................ 27
1.1 The US-China bilateral trade declines greatly .............................................................................................. 27
1.2The US-China trade war delays China’s economic development ................................................................. 30
1.3 The US-China Trade War negatively impacts the US economy .................................................................. 33
1.4 The US-China Trade War worsens the bilateral relations between the two countries ................................. 37
2. The US-China Trade War drags the world economy to certain extent, triggering changes of global industrial
structure ................................................................................................................................................................... 40
Chapter 3 The Reasons for the US-China Trade War .................................................................................................. 43
1.Inherent Problems of Sino-U.S. relations ............................................................................................................. 43
2.Economic Impetus ................................................................................................................................................ 55
3. Political Calculation ............................................................................................................................................. 61
4. Strategic Motivation ............................................................................................................................................ 65
5. Historical Implications: Industrial Revolution in relation to Trade War ............................................................. 67
Conclusion .................................................................................................................................................................... 71
Bibliography: ................................................................................................................................................................ 74
iv
List of Tables and Figures
Figure 1: China-US Bilateral Trade Statistics (US Billion) ............................................................ 4
Figure 2: China’s Exports and Imports to the US in 2019 ............................................................ 27
Figure 3: The US imports from China, year-to-year change ......................................................... 28
Figure 4: The US exports to China, year-to-year change .............................................................. 29
Figure 5: China-US Trade Balance, Unit: US dollar billion ......................................................... 29
Figure 6: China’s Annual GDP Growth from 2015 to 2019 ......................................................... 30
Figure 7: Real GDP Impact on the US and selected trading partners ........................................... 34
Figure 8: Changes in Sectoral Value Added in the US ................................................................. 35
Figure 9: Trade Deficit between the US and China from 2009 to 2018 ........................................ 56
Table 1: Chronicle of Policy Actions in the US-China Trade War……………………………...10
Table 2: Chicken Game Theory………………………………………………………………….23
Table 3: The main composition of the "Trump Voters", diplomatic appeals and its policy
implications ……………………………………………………………………………………...62
v
Abstract
This thesis examines the US-China trade war from March 2018 to January 2020. Starting with a
clear definition of a trade war, the thesis traces its evolution of the US-China trade war and
analyzes the “psychological game” between the United States and China. Next, the thesis
examines the influence of the trade war on both the US and China, followed by an examination
of its influence on the rest of the world. The thesis argues that the US-China trade war not only
damages the economic development of both countries, but also slows global GDP growth.
Despite these negative effects, it does bring new development opportunities to some regions of
the world which we might consider. In the final part, the thesis seeks to understand why
President Donald Trump launched the trade war since it does not seem to be a sound economic
policy. This is done by the inherent problems of Sino-US relations, economic and political
considerations, strategic motivation and the historic implications which factor into the US-China
trade war.
1
Chapter 1: An Overview of the US-China Trade War
1. The Definition of the US-China Trade War
The US-China trade is the “ballast stone,” which functions to stabilize the bilateral
relationship between the US and China when it becomes tense. Despite occasional tensions and
frictions, the US-China trade has grown steadily and rapidly since the two countries resumed
regular trade. However, President Donald Trump launched “301 Investigation” on China as early
as August 2017 and signed a memorandum on March 23,2018, symbolizing the beginning of the
US-China trade war.
Before taking a close look at the US-China trade war, we must define what the trade war is.
Generally, the definition of a trade war is multiple and diverse. For example, in A Dictionary of
Economics published by Oxford Press, the trade war is referred to as a situation when countries
try to damage each other's trade. The tools of a trade war can include tariffs, quota restrictions,
outright bans on imports from the other country, subsidies or subsidized credit for exports to the
other country, or exports to a third country where the opponent is a rival.
1
At the same time, the
Cambridge English Dictionary defines it as a situation in which two or more countries raise
import taxes and quotas(limits on numbers of goods) to try to protect their economies.
2
In
addition , Investopedia names it as one country retaliating against another by raising
import tariffs or by placing other restrictions on the opposing country's imports and
1
John Black, Nigar Hashimzade, and Gareth Myles, A Dictionary of Economics(4ed.), Oxford University Press, 2013
2 “
Trade War”, Cambridge Dictionary, Cambridge University,
https://dictionary.cambridge.org/us/dictionary/english/trade-war
2
implementing protectionist policies via placing a cap on import quotas, setting clear product
standards, or implementing government subsidies for processes that deter outsourcing.
3
Some
Chinese scholars regard "trade war" as a general term for vast scale contradictions, frequent
frictions, and fierce conflicts between trade countries. These more specific terms are regarded in
terms of trade base, trade patterns, trade benefits, distribution, and so on."
All of these concepts show us that the most typical characteristic of a trade war is two
countries striking each other on trade by implementing protectionist policies, specifically
imposing by additional tariffs on imported products. The US-China trade war has this typical
characteristic: the US and China retaliate each other via imposing additional high tariffs on
products that export to each other from March 2018 to January 2020.
2. The History of the US-China Trade Relations
Year
China's Exports to
the US
China's Imports
from the US Trade Volume Trade Deficit
1978 3.241 8.236 11.477 -4.995
1979 0.595 1.86 2.455 -1.265
1980 0.962 3.824 4.787 -2.862
1981 1.505 4.328 5.833 -2.823
1982 1.62 3.716 5.337 -2.096
1983 1.706 2.312 4.027 -0.615
3
James Chen, What is Trade War, Investopedia,
https://www.investopedia.com/terms/t/trade-war.asp
3
1984 2.301 3.663 5.963 -1.362
1985 2.652 4.373 7.024 -1.721
1986 2.466 3.523 5.993 -1.061
1987 2.962 3.809 6.772 -0.847
1988 3.38 6.631 10.011 -3.251
1989 4.39 7.86 12.25 -3.47
1990 5.18 6.59 11.77 -1.41
1991 6.19 8.01 14.2 -1.82
1992 8.59 8.9 17.49 -0.31
1993 16.96 10.69 27.65 6.27
1994 21.46 13.97 35.43 7.49
1995 24.71 16.12 40.83 8.59
1996 26.68 16.12 42.8 10.56
1997 32.7 16.3 48.99 16.4
1998 37.98 16.96 54.94 21.02
1999 41.95 19.48 61.43 22.47
2000 52.1 22.36 74.47 29.74
2001 54.28 26.2 80.48 28.08
2002 69.69 27.2 96.89 42.49
2003 92.47 33.86 126.33 58.61
2004 124.94 44.67 169.62 80.27
2005 162.9 48.73 211.63 114.17
4
2006 203.45 59.21 262.66 144.24
2007 232.68 69.39 302.07 163.29
2008 252.38 81.36 333.74 171.02
2009 220.8 77.46 298.26 143.34
2010 283.29 102.1 385.39 181.19
2011 324.45 122.13 446.58 302.32
2012 351.78 132.9 484.68 218.88
2013 368.41 152.34 520.75 216.07
2014 196.06 159.06 555.12 237
2015 409.21 147.81 557.02 261.4
2016 385.2 134.41 519.61 250.79
2017 429.75 153.94 583.69 275.81
2018 478.42 155.1 633.52 323.33
Figure 1: China-US Bilateral Trade Statistics (US Billion)
Starting in 1949, when the People’s Republic of China was founded, the US-China trade
relations experienced the periods of freezing isolation (1949-1970), rapid development (1971-
2016) and confrontation (2017-2020). From 1949 to 1970, the US and China was in a period of
freezing isolation due to the fact that China was in the socialist camp led by the Soviet Union
guided by the three major foreign policy decisions in the 1950s of "starting the stove", "cleaning
the house, treating guests" and "leaning on one side". In the meantime, the US introduced a
series of sanctions on the US-China trade prohibiting the import of any commodities from China
and strictly inspecting U.S. exports to Hong Kong and Macau to prevent re-exports to mainland
China. However, Sino-US bilateral relations were eased beginning in the late 1960s resulting
5
from the breakdown of Sino-Soviet relations and the US domestic crisis caused by the Vietnam
War. Then the US and China issued “Sino-US Joint Communique" in Shanghai on February 28
in 1972, marking the beginning of normalization of Sino-US relations. During this time, Sino-US
trade exchanges also began to increase. The data reveals that the trade volume between China
and the United States jumped from 4.9 million US dollars in 1971 to 1.147 billion US dollars in
1978, an increase of 234 times; among this data, the export value increased from 4.9 million US
dollars in 1971 to 324.1 million US dollars in 1978, an increase of 66 times. The United States
thus became China's third importer and third exporter and became one of China's largest trading
partners.
Followed by the establishment of a formal diplomatic relation, the US and China signed
“Sino-US Trade Relations Agreement” in 1979, emphasizing to grant MFN to each other and
take all measures to promote the sustainable and long-term development of the trade between the
two countries. The focus of the US-China relations shifted to the development of economic and
trade relations as a result, thus making trade and investment become the main topic of the
bilateral relations as Sino-US trade soared. The trade statistics above shows that Sino-US trade
volume increased from 2.45 billion U.S. dollars in 1979 to 10 billion U.S. dollars in 1988, an
increase of 4 times, with an average annual growth rate of 16.9%. In consequence, the US-China
trade gradually became the “ballast stone” of the US-China relations. Even, the Sino-US trade
volume continued to increase from 1989 to 2000 although the US-China bilateral relationship
was faced with multiple challenges such as the “China-Pakistan missile crisis” and the “Taiwan
Strait crisis”. Notably, China's trade deficit with the United States has turned into a surplus since
1993, and the trend is constantly expanding. The scale of Sino-US trade has increased
substantially since China joined the World Trade Organization (WTO) in 2001. From 2001 to
6
2016, the total bilateral trade volume between the two countries increased from US$80.48 billion
to US$519.61 billion, an increase of 6.4 times, with an average annual growth rate of 13.2%.
Among them, exports increased from US$52.48 billion to US$385.02 billion in 2016 with an
average annual growth rate of 14%, and imports increased from 26.2 billion US dollars to 13.34
billion US dollars.
Nevertheless, the US-China trade is easily affected by other political issues within Sino-US
relations. Starting in 1979, when China and the United States officially established their formal
diplomatic relations, the U.S.-China relationship has lasted forty years until now, emerging as
the most important bilateral relationship in the twenty-first century. Notably, during the latter
years of the administration of George W. Bush and the first year of the administration of
President Black Obama, officials in China and the United States emphasized positive aspects of
the relationship, including even closer trade and investment ties deepening the economic
interdependence of the United States and China. However, the inherent problem-- mutual
strategic distrust, still impedes the development of Sino-U.S. relations and sometimes even
triggers serious frictions and conflicts. For example, after President Clinton came into power in
1993, the White House issued the "President's Statement on China's MFN Status", deciding to
extend China's most-favored-nation status for one year, and at the same time demanding that
China must make major improvements in human rights issues. In the same year on May 28,
President Clinton signed the "Executive Order on the Conditions for Extending China's MFN
7
Treatment in 1994", which clearly proposed two major conditions for the United States to extend
China's MFN status in 1994: human rights improvements and arms control issues.
4
The review of the US-China trade history indicates a rapid development of trade between two
countries with increasing trade frictions. During their history, the US-China trade structure
changed, with China becoming the world’s factory occupying the downstream of the industrial
chain while the US was turned into a head economy, occupying the top of value chains.
Consequently, the US continually transfers out industries with less comparative advantages such
as manufacturing, and focuses on high added value such as branding, R&D and marketing Link.
After the Financial Crisis in 2008, significant changes have also occurred in the economic
and trade cooperation between China and the United States: on one hand, the current account
deficit of the United States against China continues to expand; on the other hand, China’s desire
to purchase U.S. Treasury bonds is declining, and there has even been a reduction in U.S.
Treasury bonds.
5
What’s more, the Chinese government carries out industrial restructuring and
reform to encourage innovation through a series of measures, formulating “Made in China
2025”. All of these actions symbolize a reduced complementarity and an increasing
competitiveness of the US-China trade relations. Although President Obama introduced the
Trans-Pacific Partnership to incorporate China into the economic system built by the US due to
pressure because of a rising China, his administration focused on free trade and continued to
4
Song Hong, Development and Prospect of the US-China Economic and Trade Relations, International Economic Review,
2019(6)
5
Song Hong, Development and Prospect of the US-China Economic and Trade Relations, International Economic Review,
2019(6)
8
work to promote the stability and development of Sino-US economic and trade relations despite
deep pragmatism on its trade policy.
6
In other words, Obama's emphasis on Sino-US trade
relations was based on practical considerations. He supported free trade policies that benefit U.S.
workers, expand employment opportunities, and promote U.S. worker income growth. Obama
also emphasized that the trade should reflect the basic values of the United States such as labor
issues, environmental issues, and consumer safety issues, which are conducive to improving the
welfare of the middle class and blue-collar workers.
7
During this time, President Obama pointed
out that China may be eager to replace the United States as the leader of the global economy if
the United States steps back from engagement with the global economy. Furthermore, he
accused China of pursuing state-directed industry policy, coercing intellectual property policies
that allow for theft or require the transfer of technology and working to conclude agreements
untied to higher labor and environmental standards, or the guarantees of Internet freedom,thus
placing American industry at risk of lost exports.
8
3.The Process of the US-China Trade War
After President Trump came into power in 2017, the new administration reviewed the US
policies toward China over the past few decades in the National Security Report, and state that
the assumption that China will gradually become a Western-friendly country, or even a Western-
6
Zhang Jianxin, Obama Administration's China Trade Policy and Sino-US Economic and Trade Relations,International Forum,
2009(4)
7
Zhang Jianxin, Obama Administration's China Trade Policy and Sino-US Economic and Trade Relations,International Forum,
2009(4)
8
USTR, Trade,Growth and Jobs:US Trade Policies in the Obama Administration,
https://obamawhitehouse.archives.gov/sites/whitehouse.gov/files/documents/USTR%20Exit%20Memo.pdf
9
like country via US engagement is wrong. Instead, the Trump administration argues that China
has achieved a new rise, while becoming a more aggressive power with continuous integration
into the international community, requiring an adjustment of policies toward China.
9
Moreover,
President Trump seems to perceive trade as a zero-sum game. For him, a negative bilateral trade
balance seems to indicate that the respective trading partner is not playing by the rules.
10
Because of this outlook, he is highly critical of the trade policies of China and wants to balance
trade relations with bilateral and quid-pro-quo solutions.
As early as August 2017, the US launched a “301 Investigation” (Section 301 of the Trade
Act of 1974) on China to examine whether China ’s policies and practices in the areas of
technology transfer, intellectual property rights, and innovation are unreasonable or
discriminatory, and a burden or restrict US businesses. In this Special 301 Report, USTR
continues to place China on the Priority Watch List, reflecting the urgent need to remediate a
range of IP-related concerns. These concerns include trade secret theft, online piracy and
counterfeiting, the high-volume manufacture and export of counterfeit goods, technology transfer
requirements imposed as a condition to accessing the Chinese market, the mandatory application
of conflicting terms to foreign IP licensors, and IP ownership and research and development
localization requirements. Besides, the fact that structural impediments to administrative, civil,
and criminal IP enforcement are problematic, as are impediments to pharmaceutical innovation
are as well. 11 On March 23,2018 President Donald Trump signed a memorandum to impose
9
White House, National Security Strategy 2017,
http://www.whitehouse.gov/
10
Fotolia, “American First---US Trade Policy Under President Donald Trump”,
https://english.bdi.eu/article/news/america-first-u-s-trade-policy-under-president-donald-trump/
11
“2018 Special 301 Report”, USTR, https://ustr.gov/sites/default/files/files/Press/Reports/2018%20Special%20301.pdf
10
tariffs on goods imported from China worth $60 billion, symbolizing the beginning of the US-
China Trade War. Despite occasional negotiations and agreements, the US has continuously
added tariffs on multiple imported products from China, and China has responded with
additional tariffs on American imported products quickly. Such competition has lasted for 25
months and continues today.
Table 1: Chronicle of Policy Actions in the US-China Trade War
Date US Actions China’s Actions
2017.8.18 President Trump started
“301” Investigation into
China
Round 1
2018.3.23
President Trump planned to
levy 25% and 10% taxes on
Chinese products of about 50
billion US dollars
2018.4.1 China suspended tariff
reduction obligations for 3
billion products originating in
the United States
2018.4.4 China announced a 25% tax
increase on $500 billion of
imported products originating
in the United States, such as
11
soybeans, automobiles, and
chemicals
2018.7.6 The US started the additional
25% tariff on 34 billion
imported products from
China
China started the additional
25% tariff on 34 billion
imported products from the
US
2018.8.8 The US imposed a 25% tariff
on the remaining part of the
first round of Chinese
products (US 16 billion),
effective at 8.23
China announced 25%
additional tariffs on 16 billion
products imported from the
US, effective 8.23
Round 2
2018.9.18
The US announced that it
would impose a 10%
additional tariff on $200
billion of China's products on
9.24 and would increase it to
25% on 2019.1.1
China separately imposed 5%
and 10% on $60 billion US
imported products from the
list released on 8.3
Truce
2018.11.1
Trump expressed that the US
attaches importance to Sino-
US economic and trade
cooperation and is willing to
continue to expand exports to
China
Chinese Premier Li Keqiang
met with the US Senate and
House of Representatives
delegation to China and
expressed the hope of jointly
safeguarding the healthy and
12
stable development of Sino-
US relations; President Xi
Jinping held a phone
conversation with President
Trump, stating that the nature
of Sino-US economic and
trade cooperation is mutually
beneficial and a “win-win”
2018.12.2 Both China and the US have
agreed to stop additional
mutual tariffs, and the US has
agreed to impose tariffs on
China's $200 billion products
at 20%; The US postponed
the taxation period for
China's $ 200 billion products
on December 14, 2018 and
March 5, 2019 respectively
Round 3
2019.5.6
President Trump announced
to increase tariffs on $200
billion Chinese products from
10% to 25%
13
2019.5.13 USTR issued a public
announcement listing a list of
tariffs on China ’s imports of
US $ 300 billion
China announced an
additional 10%-25% tariffs
on part of the $ 60 billion of
U.S. products which are
subject to tariffs and
continued to impose 5%
tariffs on products that had
been imposed upon by 5%
tariffs previously.
Resume Negotiation:
2019.6.29
The US would no longer
impose new tariffs on
Chinese products
President Xi Jinping and
President Trump held a
bilateral talk at 2019 G20
Osaka Summit. Both sides
agreed to restart economic
and trade consultations.
2019.7.30 Representatives of China and
the United States held the
twelfth round of high-level
trade negotiations in
Shanghai
Round 4
2019.8.2
The US announced a plan of
imposing a 10% tariff on 300
14
billion worth of Chinese
products starting from 9.1
2019.8.23 China announced that it
would resume tariffs of 5% -
25% on cars imported from
the US from 12.15, and 10%
tariffs on $ 75 billion in US
products
Agreement
2019.12.13
China and the United States
reached an agreement, and
the text of the agreement
includes the preamble,
intellectual property rights,
technology transfer, food and
agricultural products,
financial services, exchange
rates and transparency, trade
expansion, bilateral
assessment and dispute
settlement, and the final
clauses.
2020.1.15 The US and China signed
“The Economic and Trade
15
Agreement between the
Government of the People ’s
Republic of China and the
United States of America” in
Washington D.C.
In summary, the US-China trade war has lasted for nearly twenty-seven months with four
rounds and two truces, and a situation that was generally changed from increased intensity to a
gradual slowdown. In other words, the entire process of the Sino-US trade war is like a quadratic
function curve, experiencing the escalation of the situation, reaching its peak, gradually slowing
down, then finally subsiding. In the first two rounds, the situation has continued to ferment over
time. To be specific, the competition between the US and China became more and more fierce as
the US continued to impose additional high tariffs on China’s imported products while China
adopted the same countermeasures immediately, resulting in a state of “tit-for-tat”. The 2019
G20 Osaka Summit became the turning point of the trade war, and since then the fire has
obviously eased. What made the Summit especially clear as a turning point was that time for a
tax increase shortened significantly while the negotiation time increased in Round 3 and Round
4.
An overviewing of the whole process indicates two distinctive characteristics of the trade
war, namely, high uncertainty and wide range. On the one hand, the US actions in the trade war
have been relatively unpredictable, resulting in a torturous progress. For instance, the US
promised not to impose new tariffs on Chinese products during negotiation in June 2019;
however, it broke its promise one month later and announced a new tax plan for imported goods
16
from China because President Trump believes that China has not fulfilled its commitment of
purchasing the US agricultural products. On the other hand, unlike US-China trade disputes in
previous years, in which the US generally only targeted a specific product or a particular
industry, products from a wide range of industries are involved in this trade war. Analysis of the
data reveals that the US mainly focused on products from agriculture, defense, and other
industries in its initial stage. Now it also selects any industry that may pose a threat to the United
States, such as the digital economy and innovative technology industries.
According to “Section 301 Report into China’s Acts, Policies and Practices Related to
Technology Transfer, Intellectual Property and Innovation ” issued by USTR, the three major
industries of agriculture, manufacturing, and service are covered in the US report, specifically
including animal husbandry, extractive industry, metal smelting, vehicle manufacturing,
electronic payment services, banking services, insurance services industry, securities and asset
management services, telecommunications services, legal services, cloud computing services,
network filtering and shielding, and data privacy encryption.
12
4. The Psychological Game of the US-China Trade War
The US-China trade war is not solely a “trade war for trade again” but it is also about
psychological and strategic competition. Both the US and China explore each other, exerting
pressure and leaving room to meet their psychological expectations by psychological games
12
USTR, “Section 301 Report into China’s Acts, Policies and Practices Related to Technology Transfer, Intellectual Property and
Innovation”, Accessed on April 23, 2020, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/march/section-
301-report-chinas-acts
17
during the whole process. Nevertheless, the US and China play distinct roles in the trade war, the
US has always been the dominant player, while China is the responder.
The purpose of the trade war for the US is eager to force China to change the unfair practices
identified in Section 301 action concerning technology and innovation, obtaining short-term
trade benefits while achieving its long-term strategic goal of containing China. Therefore, the US
mainly draws support from two psychological tactics: “bluff” and “Chicken Game” to meet such
anticipations. Differing in tactics than the Obama administration, President Trump has
consistently exerted pressure on China by announcing continued tariff increases on Chinese
imports at the first and second stages of the trade war. On June 18,2018, President Trump
warned that further action must be taken to encourage China to change its unfair practices, open
its market to United States goods, and to accept a more balanced trade relationship with the
United States. This warning was in reaction to China’s determination of a tax increase on $50
billion worth of United States exports and because they have no intention of changing its unfair
practices related to the acquisition of American intellectual property and technology.
13
Compared with President Trump, it seems that President Obama was weak in dealing with
China. However, the two presidents value disparate factors in formulating trade policies toward
China. President Obama attached importance to the US leading role in the global economy and
the benefits brought by free trade with China, while President Trump sticks to political appeals
of white-blue collars thus valuing his own re-election more so than the US role in international
community. From a tactical perspective, Trump's extreme pressure can benefit both sides. From
the perspective of many American people or business groups, China has taken advantage of the
13
White House, Statement from the President Regarding Trade with China, https://www.whitehouse.gov/briefings-
statements/statement-president-regarding-trade-china-2/,
18
United States. Therefore, being tough on China expresses President Trump’s determination to the
voters even if he fails to reach the result of a compromise with China. If China compromises, he
can say: “Look, I can let you get what you want”.
What is more, President Trump believes that there truly are many problems with the Chinese
economy today. He takes China ’s economic growth rate in the second quarter of 2019 at 6.2 as
an example, stating that China ’s economic growth has never been so slow for so many years and
that this is due to the trade war. Now that capital outflows have begun, manufacturing has flowed
out of China, creating a situation that China cannot sustain for long and the US economy is now
in order.
14
Other US officials supported President Donald Trump’s strong stand for fair trade
with China: Senate Minority Leader Chuck Schumer (D-NY) told President Trump to hang
tough on China, and to not back down. Schumer believes that strength is the only way to win
with China”, which is consistent with his previous strong attitude during the Obama
Administration when he warned that President Obama could just about kiss his trade agenda
goodbye if he doesn’t allow Congress to pass a measure cracking down on China. And Rep.
Michael Waltz (R-FL) noted that President Donald Trump is right to hold firm on China and he
was glad that senators from across the aisle agree because China has stolen the US technological
edge and is threatening the Us in defense, cybersecurity and space.”
15
Both Trump’s words and his support from other US officials work more as a verbal warning
for a deterrent, urging China to change trade actions, thus balancing the US-China trade
14
Zhao Suisheng: Analysis of the deep-seated reasons behind the Sino-US trade war: Efforts to avoid the "new cold war",
http://www.aisixiang.com/data/117753.html,
15
White House, WTAS: Support for President Donald J. Trump’s Strong Stand for Fair Trade with China,
https://www.whitehouse.gov/briefings-statements/wtas-support-president-donald-j-trumps-strong-stand-fair-trade-china/,
19
relationship and defending US national security. In the meantime, China’s perspective does not
rule out the possibility that Trump administration could be concealing domestic contradictions
through such "bluffs" as the US is in a comprehensive crisis
16
.
Firstly, the disparity between the rich and the poor in the United States is extremely serious,
with slums existing in major urban centers such as downtown LA. According to statistics from
the US Census Bureau, the poverty rate in the United States was 11.8% in 2018, and 38.1 million
people are considered poor, which is only about 1 million less than the population of State of
California.
17
Poverty is notably the most expensive social problem in the United States because it
has a cause-and-effect relationship with unemployment, crime, mental illness, emotional illness,
physical illness, domestic violence, alcoholism and so on. In terms of race and ethnicity, non-
Hispanic whites, African Americans, Asians, and Latinos make up the population of the US. In
2018, the group with the highest poverty rate was black, reaching 20.8% of a population of about
8.9 million, accounting for 23.4% of the total poor. Hispanics, including all races, have a poverty
rate of 17.6%, accounting for 27.6% of the poor in the United States. Blacks and Hispanics
together account for more than half of the poor in the United States.
18
Therefore, the difference
in poverty among distinct groups can also lead to tense ethnic relations within the US.
16
Wang Yong, The Trade War is a Battle of Confidence and China Should not be Overly Pessimistic about Sino-US relations,
http://www.aisixiang.com/data/111719.html,
17
US Census Bureau, Income and Poverty in the United States: 2018, https://www.census.gov/content/dam/Cen-
sus/library/publications/2019/demo/p60- 266. pdf ,
18
US Census Bureau, Income and Poverty in the United States: 2018, https://www.census.gov/content/dam/Cen-
sus/library/publications/2019/demo/p60- 266. pdf ,
20
Secondly, political polarization has become increasingly evident since President Trump came
into power.
19
This political polarization is due to people ’s increased loyalty to political parties,
the proportion of the right in the Democratic Party and the left in the Republican Party has
declined. In parliamentary voting, cross-party voting is becoming increasingly rare, and the
proportion of parliamentarians voting according to party lines is increasing.
20
Long-term
research conducted by American scholars shows that political polarization began in the United
States in the 1980s, becoming a particularly prominent and conspicuous problem in American
political life in the Trump era. The political polarization is reflected by a left-right tear in values,
because the Democratic Party and its supporters have increasingly “left-leaved,” causing an
intense backlash from Republicans and their supporters.
Although the Democrats seem equally concerned about China’s trade practices as
Republicans, the left and the right are increasingly divided on social and cultural issues such as
gun control, abortion, and homosexuality
21
. What is worse, right-wing populism represented by
Trump stands at the center of the American political arena, while the emergence of left-wing
populism that sympathizes with disadvantaged groups represented by Sanders, pays attention to
economic equality. It should be emphasized that although the disparities between distinct groups
and increasing political polarization do not directly lead to Trump’s tariff policies, it is possible,
from the perspective of some Chinese scholars, that President Trump uses a trade war to show a
19
Niu Xiafei, Zheng Yiping, The US Political Crisis in the Trump Administration: Manifestation, Origin and Evolution, Pacific
Journal, 2020(2)
20
Christopher Hare ,Keith T. Poole ,“The Polarization of Contemporary American Politics” Polity, 2014(3)
21
Alan I. Abramowitz , “America Today Is Two Different Countries. They Don’t Get Along ,”
https://www.washingtonpost.com/news/in-theory/wp/2016/03/10/america-today-is-two-different-countries-they-dont-get-along/?
noredirect = on&utm term = .38a058993404.
21
tough-mentality to his base and to divert America’s attention from domestic crisis to trade
actions.
Thirdly, President Trump faces a severe fiscal deficit crisis after taking office. In December
2017, the Trump Administration passed the tax reduction act to stimulate economic growth,
thereby increasing government revenue. However, the “trickle-down effect” brought about by
tax cuts has proved unsatisfactory and is likely to lead to a sharp increase in the fiscal deficit.
Trump ’s tax cuts seem to be no exception to this rule. According to estimates by the United
States Joint Taxation Commission (JCT), tax cuts will bring a fiscal deficit of $1 trillion in one
year, and therefore will significantly increase the fiscal deficit of the United States during 2018-
2027. In addition, on the basis of the US federal government's current debt of more than 20
trillion US dollars, the US Congress Budget Office predicts that there will be 10 trillion US
dollars of debt growth during 2018-2027.
22
Continued intimidation and pressure from the US has placed the US and China in a situation
of “Chicken Game” despite the fact that it is not a perfect model for the US-China imbroglio. In
this game, imagine that two young drivers are driving two fast cars toward each other on a
narrow road. The probability of death for both young drivers is high if neither of them alter their
direction. The priority for both two drivers in this is to end up not playing the timid role. Because
of this, the best payoff is to have the opponent be the chicken and the worst possible payoff is to
crash to each other. So, in the matrix for this game, this situation has the least value, assign it 1.
As mentioned before, the best payoff for each driver is to have his opponent be the chicken, so
we assign it a value 4. The next worst possibility is to be the chicken, so we assign this a value 2.
22
Di Dongsheng, The Real Motives of Trump’s Trade War is about Fiscal Deficit, Modern International Relations, 2019(5)
22
The last possibility is that both drivers swerve at the same time and assign this a value 3. In this
strategy, they can maintain their pride and their life, so this means that it is preferable to be the
chicken. Nonetheless, neither of the players neither will be a loser or a winner in these
circumstances
.23
If we assume that the US is Player 1, and that the US will not swerve under the bluff strategy
in Round 1&2 during the US-China trade war, then China is endowed with two choices in line
with the standard “Chicken Game” model: to lose by swerving, or to reach an undesirable Nash
Equilibrium where both players get 1. Therefore, how China responds determines the direction
of the situation. Mutual swerving seems to be rational, but if you think the other player will
swerve, the temptation would be to go straight.
Although there is no suggestion that the current US-China showdown will devolve into
military conflict, the slide from threat to action has been rapid and both sides are convinced of
their moral rectitude. As experts note, what fuels the US-China trade war is “asymmetrical
information”wherein each side knows its own strengths and weaknesses, yet does not know its
adversary’s and thus sliding into mutually destructive behavior convinced that the other side will
cave with the next threat.
24
Weapons used by President Trump include an intensifying rhetoric
and threats and expanded tariffs. Statistics show that the targeted products that the US imposes
23
Azin Shakiba Barough, Mojtaba Valinejad Shoubi, Moohammad Javad Emami Skardi,Application of Game Theory Approach
in Solving the Construction Project Conflicts ,Procedia - Social and Behavioral Sciences 2012(58)
24
Mark Magnier, The High-stakes US-China Showdown is Hardly a Game, but Strategists See “Game Theory” at work in Trade
War Tactics, Weapons and Risks,
https://www.scmp.com/news/china/diplomacy/article/3011353/high-stakes-us-china-showdown-hardly-game-strategists-see-
game
23
tariffs are mainly toys, clothes, shoes, electronic products, and solar panels, aiming at a cracking
down on China's manufacturing.
Besides, China has become the world leader in the solar power generation, with the world's
largest photovoltaic power generation industry chain cluster, the most extensive application
market, the most invention and application patents, and the broadest product exporter at present.
Table 2: Chicken Game Theory
Therefore, a tax increase for China’s solar panels is intended to attack China’s comparative
advantageous industries. Trump has claimed that trade wars are “easy to win,” suggesting that he
expects China to do the swerving, which shows his desire to be victorious and convinces China
that he is not going to swerve.
25
Interestingly, China neither confesses nor “gives tit for tat” in this circumstance; instead, it
responds with a combined action of hitting back and striving for negotiation. Such disagreement
25
David Barash, Trade War as a Game of Chicken, https://www.psychologytoday.com/us/blog/peace-and-war/201807/trade-war-
game-chicken
Player 2
Strategies which can be used for chicken
game
Don’t swerve Swerve
(2,4) (3,3) Swerve Player 1
(1,1) (4,2) Don’t Swerve
24
between plausible game behavior and game-theoretical reasoning constitutes the “chain store
paradox,” which attempts to discuss the possibility of a “three-level theory of decision making”
as an explanation of discrepancies between game theoretic analysis and human behaviors.
26
To be
specific, if China confesses, it will result in a series of losses, and the United States can obtain
continuous huge profits through repeated threats. On the contrary, even if it may cause greater
damage in the short term if China fights back, it will gain long-term cooperation benefits at the
cost of severe short-term losses.
27
To confront the actions of the US, China firstly has expressed its attitude toward the US-
China trade war by claiming that the Chinese neither want a trade war nor will they be
intimidated by it. China has always claimed to be willing to resolve US concerns about the trade
deficit and other issues through negotiations which appear to be based upon mutual respect,
equality, and mutual benefit. At the same time, China criticizes the actions of the US by
expressing that protectionism has no way out. Also, China retaliates by considering American
political risks associated with angry farmers, factory owners, consumers and a broader economy
damaged by high tariffs, as well as nervous financial markets and the cost to President Trump’s
leadership if he miscalculates.
28
China has shown caution with which American products to
mainly impose a tax upon as a way to hit back by imposing tax on the US soybeans, corn, flour,
whiskey, motorcycles, chemical products and airplanes.
26
Reinhard Selten, The Chain Store Paradox, Theory and Decision, 1978(9)
27
Zhu Fuqiang, What Kind of Basic Outcome will the US-China Trade War Leads to: Analysis of Scale Economies and Market
Protection Effects, http://www.aisixiang.com/data/120392.html,
28
Mark Magnier, The High-stakes US-China Showdown is Hardly a Game, but Strategists See “Game Theory” at work in Trade
War Tactics, Weapons and Risks,
https://www.scmp.com/news/china/diplomacy/article/3011353/high-stakes-us-china-showdown-hardly-game-strategists-see-
game
25
The choice of soybeans for sanctions is not only because soybeans are the most significant
agricultural products exported by the United States but also because the strategic significance of
soybeans to President Trump’s election. In 2017, China imported more than 32 million tons of
US soybeans worth $ 13.95 billion, accounting for 57% of US soybean exports. More
importantly, for Trump, the Central Agricultural State is his core supporter and the Republican
ticket warehouse. China chooses the export industries of these states to precisely counter, and to
apply pressure in the United States against Trump. Similarly, the reasons for sanctions against
the automotive industry are the same as those for soybeans. China has been the world ’s largest
consumer for several years in a row, and in the Trump campaign, Michigan, where the
automobile industry is very developed, played a role in benchmarking. China’s tax increase plan
on automotive products will damage the interests of Michigan affecting the state’s support for
Trump and cause for China to throw away their massive market in vain.
29
While it seems
plausible that China selects the American agricultural and automotive products to fight back
against the US, it is interesting why whiskey is also targeted. The answer lies in the relations
between the origin of whiskey and the election; most whiskey is produced in Kentucky, where
63% of the population vote for President Trump due to their political appeal for more Chinese
market. To conclude, the US increases tariffs on products from China’s comparative
advantageous industries, while China mainly imposes a tax on products related to the Trump
constituency.
So, why China does use a combination of striving for negotiation and hitting back with tariff
policies in response to the US actions? The reasons are as follows: on the one hand, China’s
29
He Yiming, Wang Xinzi, Scenario Analysis of the Protracted Trade War Between China and the U.S., Journal of Ocean
University of China, 2019(1)
26
national mission decides how it responds. Currently, China focuses on developing the strategic
arrangement proposed by the 19th National Congress of the Communist Party of China. The
proclaimed goal of the CCP is to build China into a prosperous, powerful, democratic, civilized,
harmonious, and a beautiful socialist modern power by the middle of this century
30
. This strategy
spares no effort in achieving the goal of national moderation and realizing what they have been
deemed as being the “Chinese Dream.” Additionally, China is striving to build a framework of
relations between great powers with overall stability and balanced development. A trade war
does not align with China’s proposed strategy because it not only delays the process of Chinese
socialist modernization, but it also worsens the US-China bilateral relations. Despite this, the
Chinese Ministry of Commerce said, “Beijing will have no choice but to implement
countermeasures” if Washington imposed the higher tariffs, without saying what these measures
would be.” China’s perspective is that even if it accepts Trump's "three zero policy" --- zero
tariffs, zero barriers, and zero subsidies, the results are nothing more than two: it will fall into a
long-term economic recession like Japan after the 1980s face a more tragic "middle-income trap
or its development will always be subject to global power and hegemony.
To conclude, the US-China trade war is more than a “war” for trade, but also a psychological
competition between both sides. The two dominant players—the United States and China, are
playing a careful game of exerting pressures on each other via tariff policies to hold out for a win
in the war of attrition.
30
Xi Jinping: Notes on "The Central Committee of the Communist Party of China's Decision on Upholding and Improving the
Socialist System with Chinese Characteristics and Promoting the Modernization of the National Governance System and
Governance Capability”,
http://cpc.people.com.cn/n1/2019/1106/c64094-31439569.html
27
Chapter 2 The Influence of the US-China Trade War
1.The Impact of the US-China Trade War on China and the US
1.1 The US-China bilateral trade declines greatly
Month Exports to the US(US
billion)
Imports from the
US(US billion)
Changes of Exports
MoM
Changes of Imports
MoM
January 365.416 92.423 -2.40% -41.20%
February 226.658 79.437 -28.25% -26.17%
March 318.242 113.206 4.20% -25.72%
April 313.564 103.421 -12.96% -26.17%
May 376.804 107.871 -3.88% -26.54%
June 392.833 93.593 -6.87% -31.42%
July 388.548 108.807 -6.22% -17.75%
August 373.047 103.503 -15.29% -21.40%
September 364.709 105.871 -22.29% -16.82%
October 357.943 93.719 -16.20% -14.21%
November 355.789 109.699 -22.93% 3.63%
December 344.095 112.276 -14.06% 7.43%
Figure 2: China’s Exports and Imports to the US in 2019
28
The data shows that the US-China trade declined significantly in 2019. From January to
December, the US-China imports and exports totaled $ 541.2 billion, down 14.6% from 2018; of
which exports were US $ 418.5 billion, down 12.5%; imports were $ 122.7 billion, down 20.9%.
China’s imports from the US have declined more than 25% from January to June, indicating
China’s strict limitation on US products. However, China has gradually relaxed imports of US
meat due to African swine fever after the second half of the year, and the decline in imports has
eased to below 20%.
31
As for exports, China’s exports to the US have continuously decreased.
China's exports to the United States further declined, more than 10% after the official
implementation of the tax-increase on $ 300 billion China’s products.
The International Monetary Fund (IMF) report shows that US imports from China have fallen
sharply after imposing an additional tax on China’s exports to the US. Then, the US
implemented tariffs on $16 billion Chinese products causing for China’s imports to fall by more
than 20% year-on-year.
Figure 3: The US imports from China, year-to-year change
31
FX 168 Finance Network, Customs publishes trade data for 2019. How big is the impact of the Sino-US trade war? Accessed
on May 2, 2020 https://baijiahao.baidu.com/s?id=1655705207715928287&wfr=spider&for=pc
29
Note: The blue line represents products on the list of $16 billion, while the red one represents products on the list of
$34 billion and the green one represents that on the list of $200 billion.
Correspondingly, after China imposed retaliatory tariffs, US exports to China also decreased
in large scale. The $ 34 billion US goods list levied by China even fell by 80% in October last
year.
Figure 4: The US exports to China, year-to-year change
One important question arises regarding the decline of US-China trade, will the US-China
trade decrease result in a reduction of the US-China trade deficit? We can see that while the
declining bilateral trade indeed contributes to the decrease of trade deficit, the influence is
exactly minimal, and the trade deficit has fallen to a small extent.
Figure 5: China-US Trade Balance, Unit: US dollar billion
30
Note: The Blue line represents China’s exports to the US, the red one represents China’s
imports from the US, and the grey line represents the trade balance between these two countries
According to the data published by the US Census Bureau, the US deficit with China
decreased by $ 60 billion from November 2018 to November 2019 when compared to the same
period last year. However, the total deficit with China is still not small, maintaining at around
$ 360 billion.
32
Since the trade deficit results from the number of imports minus that of exports,
when the imports and exports, namely, the minuend and subtractor shrinks simultaneously, the
difference will not change too much. Consequently, the decline in the amount of the US-China
trade has not led to a significant reduction in the US-China trade deficit.
1.2The US-China trade war delays China’s economic development
There is no doubt that the US-China trade war has a substantial negative impact on China’s
economic development, impeding its process of modernization.
Firstly, China’s GDP (gross domestic product) has slowed down as a result.
Year 2015 2016 2017 2018 2019
Growth Rate 7% 6.8% 6.9% 6.7% 6.1%
Figure 6: China’s Annual GDP Growth from 2015 to 2019
32
Feng Zhaoyin, What changed after the US-China has lasted for nearly two years? https://www.bbc.com/zhongwen/simp/world-
51099039
31
It is apparent in the table above that China’s annual GDP growth has remained between 6.7%
and 7% in years previous to 2019when it declined to 6.1% in 2019. The World Bank estimates
that China's annual GDP growth rate in 2020 will be less than 6%, which will be the lowest level
in nearly 30 years.
33
But the question is that how to prove that the decline in GDP was caused by
the trade war. To put it simply, the ratio of the decline in imports and exports due to the trade
war and the share of imports and exports in GDP shows how the trade war slows down the GDP
growth.
Secondly, the US-China trade war impedes the development of China’s financial industry.
From a perspective of the currency cycle relationship between the US and China, the US has the
upper hand in the cycle, while China is in a more passive position; therefore, China’s domestic
monetary policy is subject to US economic policy.
34
For instance, China’s currency volume
increased from 82.67 trillion yuan in December 2018 to 18.659 billion yuan in January 2019,
attributing to “hot money” of an unknown origin. The “hot money” is US money that enters
China through various speculative methods in order to earn high profits. After the People's Bank
of China acquired these speculative U.S. dollars, China's currency volume increased
exponentially through "creation of deposits". This led the central bank to introduce a tightening
monetary policy to control the money supply by raising interest rates to curb economic
overheating.
35
As China’s monetary policy tightens, the trade war further impacts China’s
financial industry in three ways: an increased difficulty of corporate financing, a continuous
33
Feng Zhaoyin, What changed after the US-China has lasted for nearly two years? https://www.bbc.com/zhongwen/simp/world-
51099039
34
Jiang Chenxian, U.S.-China Trade Conflictions and Sino-US-ASEAN Triangular Interaction,Region and Globalization
Development, 2019(6)
35
Liu Jinshan, Can the Monetary Water Irrigate the Fields of Enterprises——The Microscopic Foundation of China-US Currency
Cycle, https://www.sohu.com/a/297698434_777705,
32
decline of the financial market and a consistently decreasing exchange rate of RMB against the
US dollar.
36
In China, the most important indicator for measuring the number of funds that their real
economy receives in the financial market is the scale of social financing, which is a variable that
changes with fluctuations in the broad political and economic situation. Statistics in May 2018
reveal that China's entrusted loans, trust loans, and undiscounted bank acceptance bills all
registered negative growth, and the increase in social financing scale was lower than that of
RMB loans.
37
It is significant to note that China’s high-tech industry is in its infancy and needs a
lot of financial support.The trade war makes it difficult for these industries to obtain the funds
needed for development, and this hinders the development of the enterprises. What is more, the
trade war has led to continuous fluctuations in China's financial markets. For example, China's
stock market activity has continued to decline since the trade war began. In September 2018, the
monthly trading volume of China's Shanghai Stock Exchange Center was only 215.9 billion
shares, a record low since 2015.
38
Also, the exchange rate of the US dollar against the RMB
continued to rise despite the occasional decrease, exceeding 7.0 in September 2019. The RMB
will continue to trigger a large number of other problems, such as the decreasing country’s
foreign exchange and the increasing life expenditure as it depreciates.
36
Zhang Fengyi, Analysis of the Impact of Trade War on China's Financial Development and Countermeasures, Times Finance,
2020(2)
37
Liu Ling, The Impact of the US-China Trade War on Domestic Enterprises and the Analysis of Countermeasures ,Management
Observation, 2019(9).
38
Zhang Fengyi, Analysis of the Impact of Trade War on China's Financial Development and Countermeasures, Times Finance,
2020(2)
33
Notably, the influence of the trade war on China’s enterprises varies by their size. A field
investigation conducted by two senior officials of the Bank of China concludes that small and
micro companies bankrupted while the large-scale production-oriented enterprises develop
steadily. A dozen of owners of small and micro enterprises noted that the enterprises were
significantly affected by the Sino-US trade war, and that the impact on the import and export
volume and profits of the enterprises were more than 50%, and some enterprises even reached
more than 95%, resulting in bankruptcy.
39
Surprisingly, although the US-China trade war has a
specific impact on China's import and export business, its impact is limited. Judging from the
proportions of trade with the US in China’s total imports and exports, the proportion of the US-
China trade of China’s total trade volume usually does not exceed 15%. In 2016 and 2017, when
the trade war had not yet begun, the US-China trade accounted for 14.1% and 14.22%
respectively, even less than the EU share. In 2018, the share of trade with the U.S. had declined,
to 13.70% in 2018 and 11.74% in May of 2019
40
, indicating that the decline rate does not exceed
3%. The reason accounting for such a seeming contradiction is quite simple. The US is merely
one of China’s major trade partners, and when the US-China trade is impeded, China turns to
other big trade partners like the EU and East Asian countries
1.3 The US-China Trade War negatively impacts the US economy
Like with China, the impact of the US-China trade war on the US GDP is evident. The White
House initially estimated that the US economic growth would exceed 3% in 2019, but the
39
Zhuang Lemei, Wang Yiyu, The Impact of Sino-US Trade Friction on China's Import and Export Business, Macro
Economy&Market, 2019(11)
40
Table of total value of major countries and regions of China's import and export commodities, Ministry of Commerce of the
People’s Republic of China Comprehensive Department, http://images.mofcom.gov.cn/zhs/201905/20190529170506809.pdf,
34
burning of the trade war has overshadowed this growth goal. The Trump administration has
therefore repeatedly applied pressure on the Federal Reserve to cut interest rates. The Federal
Reserve cut interest rates three times thereafter, but experts estimate that the US economic
growth would not reach 3% last year.
41
The IMF staff calculation examines the changes of the
US GDP within different scenarios, as shown in the chart below, and concludes that the US GDP
has fallen under by around 0.2-0.3 %of GDP following the introduction of tariffs. In other words,
it is relatively sure that the US might lose out as a result of higher tariffs under the trade war.
Furthermore, the reduction of Chinese exports in selected manufacturing goods (“electronics”
and “other manufacturing” sectors) to the US does not lead to a significant expansion of the
protected sectors, but rather it causes these sectors to now face higher input costs, as they partly
rely on Chinese inputs to produce.
Figure 7: Real GDP Impact on the US and selected trading partners
41
Feng Zhaoyin, What changed after the US-China has lasted for nearly two years? https://www.bbc.com/zhongwen/simp/world-
51099039
35
Another vital issue that is masked by the effect on the overall GDP to some extent is that the
different responses in the sectoral level would definitely lead to a diverse outcome at the regional
level within the US because different US states have relative geographic specializations if the
trade war continues.
42
According to IMF simulations, when the US introduces additional tariffs
on China’s imports, and China retaliates with the same tariff rate on the US exports to China,
primary good sectors (i.e. agriculture, mining, and hydrocarbon extraction) tend to suffer large
falls in value-added. This in turn translates into more massive GDP falls in states where these
sectors represent a relatively large share of output―such as Arkansas, North Dakota, Oklahoma,
West Virginia, and Wyoming.
43
Figure 8: Changes in Sectoral Value Added in the US
These differences regarding the impact across different geographic areas and under specific
trade scenarios would likely result in varying effects on other socio-economic indicators such as
poverty, inequality,and even emerging race issues. An American bean farmer said in an
42
IMF Working Paper, Trade Wars and Trade Deals: Estimated Effects using a Multi-Sector Model,
https://www.imf.org/en/Search#q=us%20china%20trade%20war&sort=relevancy
43
IMF Working Paper, Trade Wars and Trade Deals: Estimated Effects using a Multi-Sector Model,
https://www.imf.org/en/Search#q=us%20china%20trade%20war&sort=relevancy
36
interview that the impact of the US-China trade war is devastating, and many farmers are on the
verge of bankruptcy. Intending to appease the farmers, the Trump administration allocated a total
of $ 28 billion twice for the loss due to the trade war. However, farmers complain that they need
to wait long to receive the subsidies, and that most of the subsidies are distributed to larger-scale
operators of the farms. The non-profit organization, "Environmental Work Group", " analyzed
the Ministry of Agriculture's subsidies and found that more than half of the subsidies were paid
to 10% of the largest farm operators.1% of farmers at the top of the pyramid receive an average
of 180,000 US dollars in subsidies, while more than 80% of farmers can only receive less than
5000 US dollars. Poe, an African American farmer also points out that he has not only suffered
more than the economic impact of tariffs, but that he has also faced years of racial discrimination
in the agricultural system. Data from the US Department of Agriculture shows that 99.4% of the
Trump administration ’s agricultural allowance went to white farmers, and that many officials
are indifferent to African-American farmers.
44
What is worse, higher tariffs on China’s imports imply higher distortions for the US retail
industry, with the increased prices and likely decreased incomes of consumers. US economists
warn that expanding the scope of tariffs will increase inflation and weaken Americans'
purchasing power, which may harm economic growth. Data supports these warnings showing
that the consumer price index in June 2018 rose 2.9% from the same period last year, reaching
the highest level in the past six years. Mary Lovely, a senior researcher at the Peterson Institute
for International Economics, demonstrates that as tariffs expand to about half of Chinese goods
exported to the United States, consumers will begin to see an increasing price on the store
44
Feng Zhaoyin, The US-China Trade War: The "Sorrowful Song" of American Bean Farmers, Accessed on May 6, 2020,
https://www.bbc.com/zhongwen/simp/world-49197568
37
shelves.
45
David French, senior vice president of government relations of the US National
Association of Retailers, opposed the proposal of imposing additional 10% tariffs on $300 billion
China’s exports to the US, stating that “we are disappointed that the government is doubling
down on a flawed tariff strategy that is already slowing US economic growth, creating
uncertainty and hindering investment”.
46
To summarize, the US-China trade war slows down the US GDP growth, increases
production costs, and weakens US consumers' purchasing power, thus negatively impacting the
US economic development.
1.4 The US-China Trade War worsens the bilateral relations
between the two countries
The US-China bilateral trade is a foundational agreement which helps to ease conflicts
between the two countries. However, the existence of a trade war between China and the US
indicates that the US-China trade has lost its ability to stabilize the bilateral relationship; the
destruction of Sino-US trade relations has made US-China relations worse. Analysis of the
statements by the US and senior Chinese officials reveals that oral competition has become more
intense, and that the ideological conflicts are also more apparent. China’s ambassador to France,
Lu Shaye, published a signed article in the French mainstream media "Echo" entitled "Resolving
Sino-U.S. Trade Friction, We Must Keep Our Promise" to accuse the US of violating the
45
Jim Tankersley, How the US-China Trade War Impacts the US Consumers, Accessed on May 6,2020
https://cn.nytimes.com/business/20180713/trade-war-china-consumers/
46
Lucas Jackson, Focus: US retail industry opposed to imposing new tariffs on China, saying the move will push up prices and
damage employment,
https://www.reuters.com/article/us-retailers-trump-tariffs-job-0802-idCNKCS1US042
38
agreement reached at the Osaka meeting by announcing a 10% tariff on approximately $ 300
billion of Chinese goods exported to the US from September 1st,2019 .Ambassador Lu further
complains that the US has once again played the trick of reversing black and white, blaming
China for not fulfilling its commitments to purchase US agricultural products and to prevent the
sale of fentanyl to the US.
47
Meanwhile, President Trump accuses China of stealing US jobs
joining WTO, condemning China for violating every WTO rule that the organization is based
upon, and asserting that the US would no longer tolerate the enormous trade deficit with China.
48
Moreover, as the competition between the US and China intensifies, more and more issues
emerge. First, the ideological conflicts between the two countries are becoming increasingly
apparent. The US Acting Secretary of Defense Shanahan recently referred to Sino-US relations
as a "geopolitical competition," and a senior official of the US Department of Foreign Affairs
called Sino-US relations "civilization conflicts." China ’s leaders more directly criticized
American “bullying” and inequality and the chaos of the American democracy.
49
Secondly, the
recurring Taiwan issue deepens the conflict between the two countries. A recent report by the US
Department of Defense placed Taiwan in the "country" column, deviating from the "one China"
principle. Moreover, the US continues to strengthen its relationship with Taiwan, and is selling
arms to them. In contrast,high-level Chinese officials have used tough rhetoric when talking
about "unifying" the mainland and Taiwan like "reserved option to take all necessary measures".
47
Ministry of Foreign Affair of People’s Republic of China, To resolve Sino-US trade friction, we must first keep our promises--
-Lu Shaye, ambassador to France, published a signed article in "Echo",
https://www.fmprc.gov.cn/web/gjhdq_676201/gj_676203/oz_678770/1206_679134/1206x2_679154/t1691759.shtm
48
Trump's General Assembly speech condemns China, says unbalanced trade is intolerable,
https://www.youtube.com/watch?v=_F3pgQb3Gpw
49
Paul D.Gewirtz, Can the tension in Sino-US relations be eased?, https://www.brookings.edu/blog/order-from-
chaos/2019/06/27/%E4%B8%AD%E7%BE%8E%E5%85%B3%E7%B3%BB%E7%9A%84%E7%B4%A7%E5%BC%A0%E5
%B1%80%E5%8A%BF%E8%83%BD%E8%A2%AB%E7%BC%93%E8%A7%A3%E5%90%97%EF%BC%9F/
39
Finally, the Sino-US trade relationship is gradually militarizing, with the US linking trade
sanctions to China's military development.In one instance, the United States used trade sanctions
to suppress the development of China ’s military industry. For example, on September 20, 2018,
the United States Department of State announced that China had purchased Su-35 fighter jets and
S-400 from Russia because of violating the Law on Sanctions against American Adversaries
Military equipment such as anti-aircraft missiles. In regards to China’s military industry, the US
restricts the flow of its military technology to it and cracks down on the development of
industries related to it military.
50
For instance, On October 12, 2018, the US Department of
Energy issued a ban restricting the export of civilian nuclear technology to China. Fourthly, the
trade war links to the limitation of scientific, technological and cultural exchanges between the
two sides. The US includes Beijing University of Aeronautics and Astronautics, Sun Yat-sen
University, and National University of Defense Technology on the list of entities and rejects visa
application of international students and visiting scholars from those institutions. The US
National Science Research Council states that the number of international graduate students
entering the United States has fallen by 6% in the 2016-2017 school year, most notably in
computer science and engineering.
51
On May 29 2020, the White House issued a “Proclamation
on the suspension of entry as nonimmigrants of Certain Students and Researchers from the
People’s Republic of China” restricting students or researchers from the PRC studying or
researching beyond the undergraduate level and are or have been associated with the PLA from
entering the United States. This is because the US government believed that the PRC authorities
50
Xiao Guangen, The basic characteristics and development trend of Sino-US trade war negotiations, Front Focus, 2019(10)
51
Xiao Guangen, The basic characteristics and development trend of Sino-US trade war negotiations, Front Focus, 2019(10)
40
use some Chinese students to acquire sensitive United States technologies and intellectual
property to modernize its military, threatening the US long-term economic vitality and the safety
and security of the American people.
52
2. The US-China Trade War drags the world economy to certain
extent, triggering changes of global industrial structure
Organizations which predict how the US-China trade war influences the world economy
share a common view that it will definitely have a negative impact on economic development
worldwide.Barclays Capital predicts that the global economic growth will decline by 0.6
percentage points due to the trade war, and global inflation will rise by 0.7 percentage points.The
International Monetary Fund estimates that measures to increase tariffs will cause global
economic growth to decline by approximately 0.5 percentage points, and S & P predicts that
global economic growth may decline by 1%.
53
Interestingly, the trade war brought high economic benefits to ASEAN, as the supply chain in
East Asia began to shift to Southeast Asia with the escalation of the trade war. For example,
Vietnam's inbound manufacturing investment increased by 18% in 2018, and net foreign direct
investment in Thailand and the Philippines also increased significantly. Malaysia ’s Kerry
Logistics Network is one of the beneficiaries of the Sino-US trade war. Many international
52
White House, “Proclamation on the suspension of entry as nonimmigrants of Certain Students and Researchers from the
People’s Republic of China”, , https://www.whitehouse.gov/presidential-actions/proclamation-suspension-entry-nonimmigrants-
certain-students-researchers-peoples-republic-china/
53
Deng Yujun, The essence,influence and response of U.S.-China trade frictions, Journal of Guangdong Institution of Public
Administration, 2019(6)
41
customers have shifted part of the production chain from mainland China to Penang in Malaysia
to avoid US tariffs Thus greatly increasing the company's business.
54
However, the Sino-US trade causes related problems as well: the trade war leads to the
decline of free trade and the prevalence of protectionism, damaging the multilateral trading
system and the normal international trade order, it will not only undermine the economic growth
of China and the United States, but also the global economic development, including Southeast
Asia. The director of the Trade Policy and Strategy Office of the Thai Ministry of Commerce
emphasizes that the increase in oil prices and of other prices in Thailand have reduced the
purchasing power of the people, causing the stock market index to fluctuate greatly.
55
India’s
media also reports that the ongoing trade war between the US and China will be beneficial for
Bangladesh's garment sector as American brands place more work orders there to branch out
their sourcing, according to a new survey. The "Made in Bangladesh" label enjoys a prominent
price advantage over many other Asian suppliers.
56
Similarly, the US-China trade war
accelerates African sourcing. Egypt and Ethiopia have been particularly proactive in attracting
manufacturing,offering tax holidays and trade zones, and Ethiopia has provided land for free at
Hawassa. Indeed, Chinese companies, along with Western buyers and retailers, are increasing
requirements for more sustainable production as African nations gear up to become the next
manufacturing hubs.
57
54
Jiang Chenxian, U.S.-China Trade Conflictions and Sino-US-ASEAN Triangular Interaction,Region and Globalization
Development, 2019(6)
55
Seminar on the Impact of Sino-US Trade War on Thailand and Southeast Asia was held in Bangkok,
http://www.cankaoxiaoxi.com/society/20181017/2340355.shtml,
56
US-China trade war, a boon to Bangla, Indian Textile Journal,2018(7)
57
Paul Cochrane, US-China trade war could accelerate Africa sourcing, 2018(11)
42
All of these actions symbol that the world is experiencing a new round of industry transfer, as
the global manufacturing flows from China to Southeast Asia and some African countries. China
will also upgrade its own industrial structure, sparing no effort to promote the development of
high-tech industries, and to transform from "Made in China" to "Created in China", thereby
enhancing its position in the global industrial chain. From a US perspective, global companies
beginning to shift their supply chains away from China is Trump’s big victory since companies
are reducing their reliance on China just as some of Trump administration officials wanted. As
Beijing builds up its military and extends its geopolitical influence, some officials fear that
America’s dependence on Chinese factories makes American strategically vulnerable, therefore,
such decoupling is a main goal of those who believe the world has been too dependent on China
as a manufacturing center.
58
58
Keith Bradsher, One Trump Victory: Companies Rethink China, Accessed on June 11, 2020,
https://www.nytimes.com/2019/04/05/business/china-trade-trump-jobs-
decoupling.html?_ga=2.161537013.839466305.1591862135-1135825371.1591862135
43
Chapter 3 The Reasons for the US-China Trade War
The analysis of the influence of the US-China trade war indicates that it not only delays the
economic development of both countries as well as the whole world, but that it also challenges
the WTO’s multilateralism and the rules of free trade. The spillover effect of this war even
expands to other broad spheres such as domestic social problems and deteriorating diplomatic
relations between the US and China. Why does Donald Trump launch the trade war while if it is
not beneficial? The reasons are diverse and complex, and all these reasons can be carved into
five parts: inherent problems of Sino-US relations, economic impetus, political calculation,
strategic motivation and historical implications of the industrial revolution in relation to a trade
war.
1.Inherent Problems of Sino-U.S. relations
As mentioned before, the issue of mutual distrust of long-term intentions- termed “strategic
distrust” has become a central concern in U.S.-China relationship, rising from three fundamental
resources: enduring differences, diverging interests and values, insufficient comprehension or
appreciation of each other’s’ policy-making processes and relations between the government and
other entities, and a perception of a narrowing gap in power between the United States and
China.
59
The analysis of the main conflicts between the U.S. and China reveals that the firm and
deeply rooted and enduring differences between the two governments and societies are highly
59
Kenneth Lieberthal, Wang Jisi, Addressing U.S.-China Strategic Distrust,
https://www.brookings.edu/wp-content/uploads/2016/06/0330_china_lieberthal.pdf
44
likely to emerge when they start lacking the reasons for pragmatic cooperation. The differences
between these two countries are summarized in the following section.
China usually complains about three aspects of the United States in three aspects: their
challenge to China’s sovereignty, their Asian strategy, and their leading role in the international
community. Broadly speaking, China hints that the US is not respecting China’s “core national
interests.”
China’s sovereignty: As the old saying goes in China: “Whoever offends China will be
punished even though they are far away. Indeed, China is extremely sensitive to any claims or
actions that will potentially or actually challenge its sovereignty. China firmly opposes U.S.
support for Taiwan especially in the forms of arms sales. Also, China opposes U.S. involvement
in Xinjiang and Tibet issues like the instance of Obama’s meeting with Dalai Lama. Moreover,
China condemns the U.S. for intervening in their affairs in the South China Sea and regards this
intervention as the U.S. strategy to contain China.
America’s Asian strategy: Since 2011, the United States has begun to promote “Asia
Rebalance Strategy”, which includes strengthening the alliance between the United States and
Japan, South Korea, Australia, and Thailand; participating in the East Asia Summit and playing a
more active role in the ASEAN core forums such as the ASEAN Regional Forum; signing the
Korea-US Free Trade Agreement (KORUS) FTA)and pushing the Trans-Pacific Partnership
(TPP).
60
The Chinese government responded swiftly to oppose this strategy, regarding it as an
attempt to “contain China”.
61
In reaction to this, China tried to consolidate its administrative
sovereignty in disputed waters by mixing war tactics and deploying paramilitary forces.
60
Zhang Jingquan, American Asia Rebalance Strategy and the function of U.S.-SK Alliance, Teaching and Research, 2013(9)
61
Baudug, China Counters America’s “Asia Rebalancing Strategy”,
https://carnegieendowment.org/2015/11/01/zh-pub-61978
45
The U.S. leading role in the international community: After WWII, the US has
underpinned a mostly liberal order, reflecting their values that not only benefit the US and its
allies,but also emerging powers. For many years, the U.S. has expected China to “take
responsibility for responsible world power” and to contribute to global governance. Since China
first actually stepped into the world in 2008, China has shown greater activism and assertiveness
in its general foreign relations, as well as some increased positive contributions to global public
goods.
62
President Xi has vowed to provide “China solutions” to global issues,taking advantage
of President Trump’s retreat from global leadership, addressing the global challenges in the ways
that benefit the broader global community. At the same time, China is pursuing some objectives
that the United States does not share with China,and directly undermine the U.S. leading role in
international affairs. Concerning China, the United States faces two conflicting tasks:one is to
prevent China from challenging the hegemony of the United States, and the other is to ask China
to assume international responsibility. These two conflicting requirements are evident in US
policies, by the US forming alliances with China ’s neighboring countries to establish “Little
NATO”; but then also it sparing no effort to consolidate existing alliances (such as Japan and
South Korea) which forces China to take on more international responsibilities.
63
Consequently,
the ultimate goal of the US is to incorporate China into the current world system led by the US,
encouraging China to do more in some areas on the premise of obeying the existing international
order. However, China is not dissatisfied with the fundamental rules of the order but it is
dissatisfying with its status in the hierarchy of the order when embracing globalization's liberal
norms. In other words, China has decided to alter some of the power relations that have defined
62
Orville Schell, Susan L. Shirk, Course Correction: Toward an Effective and Sustainable China Policy,
http://china.ucsd.edu/_files/2019-CourseCorrection.pdf
63
Zheng Yongnian, The International Power Structure and the Underlying Reasons for Sino-US Trade War,
http://www.aisixiang.com/data/112936.html
46
the post-World War II order rather than rewriting which rules.
64
Therefore, the difference
between China and the United States is that the US wants China to be a “responsible
stakeholder” in the international system
65
, while China seeks a status which could satisfy their
preferences within the existing global system.
The United States differs from China in four spheres: economic, national security, political
and foreign policies.In the case of economics, the US and China debate about issues centered
around the huge trade deficit between them: China's failure to fulfill its commitments in the
WTO, China's manipulation of the exchange rate, China's incomplete opening of its domestic
market (especially its financial market), China's theft of U.S. intellectual property rights (IPR)
through importing high-tech products and China’s overprotection of some domestic industries.
China’s market economy. From the U.S. perspective, the momentum toward market reforms
has stalled, as China has begun laying claim to a distinctive state-driven approach “with Chinese
characteristics.” In his November 2017 report to the Nineteenth Party Congress, Xi Jinping
emphasized that the Chinese system now “offers a completely new option for countries and
peoples who want to speed up their development while preserving their independence”
66
. The
U.S. regards this speech as a symbol of strengthening the Communist Party guidance of China’s
economic development. That is to say, the United States’ underlying assumption is that
strengthening the Communist Party guidance contradicts with China’s economic reform.
64
Zhao Suisheng, A Revisionist Stakeholder: China and the Post World War II World Order, Journal of Contemporary China,
2018 Vol.27(113)
65
Robert Zoellick, Can America and China be Stakeholders? https://carnegieendowment.org/2019/12/04/can-america-and-china-
be-stakeholders-pub-80510
66
Orville Schell, Susan L. Shirk, Course correction: Toward an Effective and Sustainable China Policy,
http://china.ucsd.edu/_files/2019-CourseCorrection.pdf
47
However, the government-market relations are relatively complicated in China. Since the
establishment of the People’s Republic of China (PRC), the core issue of China’s economic
reform is the relationship between the government and the market. At the very beginning, China
adopted a planned economic system, when there was no market. In 1978, the Third Plenary
Session of the Eleventh Central Committee of the Communist Party of China began to actively
explore the method of combining socialism with the commodity economy,proposing a planned
theory of commodity economy. After the 14th National Congress of the Communist Party of
China, the socialist market economy system was confirmed, and the market played a
fundamental role in resource allocation.
67
The CCP issued the “ CPC Central Committee's
Decision on Several Major Issues Concerning Comprehensively Deepening Reform in the Third
Plenary Session of the 18th CPC Central Committee in 2013, stating that "economic system
reform is the focus of comprehensive deepening reform, and the core issue is to handle the
relationship between government and the market, making the market play a decisive role in the
allocation of resources
68
.”
From the perspective of China, the U.S. has a misunderstanding of their market economy
because the U.S. fails to recognize the difference between China’s market economy and other
countries’ market economies. The current major market economic systems in the world can be
roughly divided into three forms: free-market economic system, social market economic system
and socialist market economic system
69
. China demonstrates that the commonality lies mainly in
67
Ren Baoping, Lv Chunhui, Socialist Market Economic System Reform with Chinese Characteristics, Journal of Dongbei
University of Finance and Economics, 2018(6)
68
The Third Plenary Session of the 18th CPC Central Committee in 2013, CPC Central Committee's Decision on Several Major
Issues Concerning Comprehensively Deepening Reform,
http://www.gov.cn/jrzg/2013-11/15/content_2528179.htm
69
Han Dayuan, The Normative Structure of "Socialist Market Economy" in Chinese Constitution, Chinese Law,2019(2)
48
the general pattern of the market economy in terms of resource allocation, which means that the
basic essence of their socialist market economy is that the market plays a decisive role in
resource allocation and reflects fairness, justice and transparency. Based on this general pattern,
China has developed a socialist market economy in line with their national situation: the socialist
market economy has Chinese characteristics and expresses the combination of effective
government and efficient market. But the US denies that, claiming that China’s state-owned
enterprises are expanding under Xi and all banks are state-controlled.
If we take a closer look,we find three characteristics of the efficient market :the essential
functions of the market are sound (including the market element system and the market
organization system), the market's urgent order is sound (including the market legal system and
market supervision system) and the sound of the market environment (including the social credit
system and market infrastructure).
70
In China, effective government functions with the full
respect of the market’s role, respecting, and following market rules. The Chinese government
works to supplement the lack of market regulation and to guide economic development policies.
And there is no denying that the educated class will enjoy rising salaries. while the non-educated
class has difficulty in finding a job these days under market regulation. Because of this, the
income gap is proliferating, and social inequality is becoming increasingly prominent. As a
result, many social problems, such as rising crime numbers are gradually emerging and
exacerbated, threatening social stability and national development both in the short and long
term. Fortunately, the government can curb the widening income gap by adopting measures such
as setting a minimum wage standard, promoting social harmony, and optimizing the economic
70
Chen Yunxian, Socialist Market Economy with Chinese Characteristics: Combination of effective government and efficient
market, Economic Research, 2019(1)
49
development environment.To summarize, China is undergoing a market-economyreform , where
the position of the market will be emphasized and increased.
It appears that both the US and China have their limitations on explaining China’s socialist
market economy with Chinese characteristics. In terms of China, they should admit that there is
excessive government intervention. In the Fraser Institute's Index of Economic Freedom, an
indicator called "Size of Government" measures the relationship between government and
economy through government consumption, transfer payments and subsidies, government
enterprises and investment, and taxation
71
. China's degree of intervention core has been the
lowest of all sub-categories in the past 20 years, reflecting that government intervention has
hindered China's market-oriented reform.
72
For example, the Chinese government has the
capability to influence even decide industry development through policies, and the government-
led market-oriented reforms have spawned much rent-seeking behavior.
73
Nevertheless, it is
suggested that the U.S. should pay more attention to the achievements China has made in its
economic reform and have a better understanding of the particularity of socialist market
economy with Chinese characteristics instead of focusing on its shortcomings.
Fundamentally, the political systems of these two countries are undeniably different: the U.S.
has a multiparty system while China is under the CCP dictatorship. Therefore, how to ensure the
CCP’s leadership is the primary consideration when China is advancing the reform of the market
economy. What is more, China's market economy has established less than thirty years since
71
Fraser Institute, Economic Freedom Annual Report, https://www.fraserinstitute.org/economic-
freedom/map?geozone=world&page=map&year=2017
72
Shan Shuang, The Development, Problems and Measures of China's Market Economy Reform, Modern Management Science,
2019(7)
73
Shan Shuang, The Development, Problems and Measures of China's Market Economy Reform, Modern Management Science,
2019(7)
50
1992 and is experiencing rapid reform. In 2014, President Xi first proposed the concept of the
"new normal" of the economy in the report of the 19th Party Congress in 2017 clearly stating
that China is in a critical period of transforming the economic development model, optimizing
the economic structure, and transforming the driving force for growth. The Chinese scholar Liu
Wei emphasizes that new characteristics of economic imbalances emerge manifested in the dual
risks of potential inflationary pressures and economic downturn under the “new normal”.
Therefore, it was reasonable that the Chinese government strengthened its control over economic
development to guarantee the smooth progress of their market economy reform for a short term.
In other words, the goal of the short-term intense government intervention will eventually reach
a more satisfying market economy.
China’s Intellectual Property Rights (IPR) Protection. From the perspective of the US,
China is stealing U.S. intellectual property (IP) through importing high-tech products and is
overprotecting some domestic industries. The United States contends that despite its repeated
promises to the US and other countries, China has failed to combat widespread IP piracy in the
country, Although China has introduced a series of regulations and laws designed to combat IPR
violations, it has not enforced them to a sufficient degree which would halt the widespread of
piracy of U.S. companies’ intellectual property in China.
74
Moreover, China’s judicial system
lacks the resources and even the power to enforce IPR laws, and besides those convicted of
violating IPR laws generally face minor penalties. In other words, the key complaint is focused
on the implementation stage. Although China has a lot of laws and regulations, they are not
74
Suk Hi Kim, Mario Martin-Hermosillo, Junhua Jia, The U.S- China Trade Friction: Causes and Proposed Solutions, Journal of
Applied Business and Economics 2014 (5)
51
effectively enforced. Such failures put new threats to US national security and eventually lead to
the American trade sanctions against China.
However, China insists that it has made a great effort to improve IPR protection. In the first
case, China realizes the significance of IPR protection and has made it a priority. China admits
that intellectual property is an institutional carrier for innovation-driven development, a driving
mechanism for accelerating the development of high-quality economic development, and a rapid
transformation of China's economy from a production-oriented economy to an innovative
economy. Intellectual property is the link between trade globalization and the institutional carrier
of global cooperation and results in a win-win.
75
Also, the intellectual property system is a
fundamental legal system for protecting the fruits of intellectual labor. It is a vital incentive
mechanism to promote the transfer of scientific and technological achievements and to enhance
economic and technological competitiveness.
76
Additionally, China argues that IPR protection
has made significant progress since the Reform and Open in 1978. In 1982, the "Trademark
Law" was born, in 1984 the "Patent Law" was passed, and in 1990 the "Copyright Law" was
promulgated. Since then, intellectual property laws and regulations have been promulgated and
implemented, and the institutional basis for China's intellectual property governance has been
established.
77
75
Ma Yide, Intellectual Property Governance in China for four decades, Law Review, 2019(6)
76
Zhao Jie, Li Xiyi, Evolution and Adjustment of China's Intellectual Property System and Policies, China Science& Technology
Resources Review, 2014(11)
77
National Intellectual Property, PRC, The History and Achievements of the Intellectual Property since the Founding of the
People's Republic of China, http://www.sipo.gov.cn/zscqgz/1142564.htm
52
At the time, the director of the World Intellectual Property Organization commented, "In the
history of intellectual property, China has done all this at a unique rate.”
78
At present, China has
established a relatively complete intellectual property system, called the Patent Law which was
promulgated and implemented in 1985.Then the Copyright Law, the Regulations on the
Protection of Intellectual Property Rights, the Regulations on the Protection of New Plant
Varieties, the Regulations on the Protection of Computer Software, and the Regulations on the
Protection of Layout Designs of Integrated Circuits was established. Also, regulations
implemented the “Science and Technology Progress Law” which promotes the “Transformation
of Scientific and Technological Achievements” and the “Technical Contract Law” to regulate
and stimulate the use of intellectual property rights.
79
Lastly, China suspects the underlying
purpose of the U.S. complaint. Kong Xiangjun points out that western countries require China to
accept international rules, of course, because of their interests, but some "persecution" of
Chinese behaviors have been detrimental to China in the short term.
80
One could argue that the U.S. should realize that there is no one-size-fits-all development
model in the world, and that the management system's construction is rooted in China's national
conditions, serving as a benchmark and interacting with the world. China’s IPR protection links
to its level of economic and social development, and the technical standard is combined with
multilateral trade rules, the degree of marketization, and principles of negotiation. Because
China’s market is in the process of reforming, IPR protection will also not be immediate. If
78
National Intellectual Property, PRC, China’s Outstanding Achievements in the Development of Intellectual Property – An
Interview with the Director General of WIPO Francis Gurry,
http://www.sipo.gov.cn/zscqgz/1138986.htm
79
Zhao Jie, Li Xiyi, Evolution and Adjustment of China's Intellectual Property System and Policies, China Science& Technology
Resources Review, 2014(11)
80
Kong Xiangjun, Reflections and Prospects on Intellectual Property Protection in China, Intellectual property, 2018(9)
53
rushed, it may be detrimental to real economic reform and thus harming China’s economic
development. China should take American voices into serious consideration. For instance, both
American Democrats and Republicans –argue that China is the second largest economy in the
world, and in some ways the strongest economy, with the largest foreign currency reserves. They
argue that excuses for Chinese protectionism – including the argument that China is still a
developing country –can no longer be supported. To address such complaints, it is suggested that
China should thoroughly reexamine its national situation and provide the whole world with an
authentic assessment. Moreover, it is imperative for Chinese leaders to further clarify the
relationship between CCP dictatorship, the government, and the judicial system on intellectual
property protection. In 2013, the Third Plenary Session of the Eighteenth Central Committee of
the Party explicitly requested to explore the establishment of an intellectual property court,
which means that China's intellectual property governance system must expand from the dual
decentralization of judicial protection and administrative management to an intensive reform of
"judicial protection as the lead and administrative management as the supplement".
81
This is a
good example of why the US and other countries are skeptical that China will implement the
kinds of IP reforms as the requirement indicates, which China has not previously implemented
such reforms.
The U.S. is now highly concerned about its national security because China’s military force
has increased largely since President Xi came into power. Also, the People’s Liberation Army
(PLA) actively participates in military exercises and holds joint military exercises with Russia.
For the U.S., all of these military actions threaten or potentially put a threat to the national
81
Wu Handong, Theory and Practice of the Establishment of Chinese Intellectual Property Law Court, Intellectual Property,
2018(3)
54
security America and its alliances. Additionally, the US regularly condemns China on its
political system and human rights issues. Namely, the U.S. argues that China’s regime is
authoritarian instead of democratic, and Americans have expressed their deep concern about
China’s future political development after the limitation on the office term of China’s president
is eliminated in the Constitution. As for human rights issues, the U.S. Secretary of State Mike
Pompeo claims that China is unparalleled in its violation of human rights. Even Michael Kozak,
an official in the US State Department's Human Rights Bureau, expressed his serious
dissatisfaction with the Chinese government's treatment of ethnic minorities such as the Uighurs
by stating that “It is the situation which has never happened since the 1930s.”
82
What is more,
the foreign policy disputes focus on China’s support for states deviating from U.S.-backed norms
including their Chinese trade, investment, and aid involving resource-rich and poorly governed
states in Africa and other parts of the developing world which undermine Western sactions and
other measure designed to pressure these governments to reform.
83
After the 2008 financial crisis, China quickly recovered and even developed at a more rapid
pace. Not only its economy soared, but it also became increasingly more important in the global
community while the United States suffers a severe domestic crisis. This narrowing gap in power
between the U.S. and China while debates on new emerging issues such as cybersecurity and
intelligence agencies exist undoubtedly deepen the distrust between them.
82
David E. Sanger, The U.S. condemns China’s human rights violations: It has never been seen since the 1930s, accessed on
Nov.9,2019
https://cn.nytimes.com/usa/20190314/state-department-human-rights-abuses/
83
Robert G. Sutter, U.S.-Chinese Relations: perilous past, pragmatic present, Lanham Maryland: Rowman&Littlefield
Publishers, Inc, 2013
55
To summarize when taking the long-existing mutual strategic distrust between the U.S. and
China into consideration,it is clear that the U.S.-China trade war does not materialize overnight.
In other words, the mutual strategic distrust had laid the foundation for the trade war already.
2.Economic Impetus
In today's industrialized society, the industry with its scaled economies called “reserved
industry”, make it so that the startup cost is high, and thus difficult to enter on a small scale. This
provides a high degree of protection for existing producers and making them free from
competition. Moreover, the emergence of this kind of industry triggers conflicts between
countries which are economically complementary. These conflicts reflect the industry
competition in trade, making a country unwilling to accept certain equilibriums in a free trade
environment because these equilibriums will benefit their trade counterparts while at the same
time impairing their interests.
84
Obviously, there is an inherent conflict of national economic
interests within the process of Sino-U.S. trade, and such inherent conflict can be regarded as the
economic root of the U.S.-China trade war, seriously increasing the risks.
However, the inherent conflict within trade has always existed, so why does the trade war
exist now? The answer is that there are some contemporary and direct catalysts.
The most direct catalyst of the trade war is the huge trade deficit between these two countries.
According to official U.S. statistics, the total U.S.-China trade deficit was $ 375,422.6
84
Xiedi, Zhang Gong, International Trade and National Conflict of Interest: Multiple Game between Sino-US Trade War and
China's Way Out, China Review of Political Economy, 2019(4)
56
billion in 2017. Since 2009,the trade deficit has continuously increased at an alarming speed,
from a $226,877.2 million 2009 to $419,527.4 million in 2018, despite a slight decrease in 2014
to 2015.
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Figure 9: Trade Deficit between the US and China from 2009 to 2018
Nevertheless, the U.S. and China debate on the actual amount of the trade deficit and whether
China is blamed for how large it is. According to the data from the General Administration of
Customs of China, the U.S. trade deficit with China is $275.8 billion in 2017
86
, which is nearly
$100 billion less than what US data reports. China argues that the trade deficit has been
exaggerated due to the current calculation method and enormous FDI in China.
87
The trade
statistics method based on the current principle of origin actually exaggerates the US trade deficit
with China. That is to say, the benefits China has gained are only the added value of the
processing and assembly links in the value chain because China is responsible for manufacturing
and assembling. But the total commodity value is recorded as China’s export value according to
the principle of origin.Also, FDI has a trade transfer effect. In other words, the export of FDI
home country is regarded as that of the host country. In addition, many American economists do
not see the see the trade gap as money “lost” to other countries, nor do they worry highly about
trade deficits to a large degree. Also, American economists don’t regard high tariffs as an
85
Trade-in goods with China, the United States Census Bureau,
https://www.census.gov/foreign-trade/balance/c5700.html
86
http://www.customs.gov.cn
87
Chen Jiyong, Liu Wei, Research on the Problem of "Foreign Capital Leading Deficit" in US-China Trade, World Economy,
2006(9)
57
effective way to reduce trade deficit. For instance, Joseph E. Gagnon, a senior fellow at the
Peterson Institute for International Economics, and a co-author of a 2017 book of policy
recommendations on how to reduce trade imbalances once pointed out that “If you look across
countries, there’s no evidence that high tariffs reduce your trade deficit”.
88
Many scholars have further explored what indeed causes the trade deficit, and their findings
are diverse. The first answer to this problem is to adjust the American financial logic.
Admittedly, we can see that American financial logic has changed over time: in the last century,
when negotiating the construction of the Bretton Woods system, Keynes proposed that the
surplus countries should have the same obligations as the deficit countries to adjust in the
international trade, which is called “Creditor logic”.
89
The White program based upon this logic
was adopted and implemented even though Keynes’ proposal had not been passed. An essential
part of the Bretton Woods system is the double-hooking principle, which links the dollar to gold
and the country's currency to the dollar, implementing an adjustable fixed exchange rate system.
Through these two measures, the U.S. established its financial hegemony of the U.S. dollar
through the Bretton Woods system. However, the double-hooking principle limits the stimulus to
economic growth through monetary expansion.
In August 1971, the Americans closed the "golden window", which mean that the dollar is no
longer connected to gold. The US dollar has since changed from an "asset currency" to a "debt
currency". Therefore, the American financial logic transformed from “Creditor logic” to “Debtor
logic”. The United States uses US dollars to import products from all over the world, allowing
88
Jim Tankersley, Trump Hates the Trade Deficit. Most Economists don’t.
https://www.nytimes.com/2018/03/05/us/politics/trade-deficit-tariffs-economists-trump.html
89
Li Xiao,The Sino-U.S. trade imbalance and the purpose of Trump’s trade war[J.]Nankai Journal(Philosophy,Literature and
Social Science Edition) 2018(3)
58
for the US dollars return to the United States through its credit cycle system.
90
This “debtor
logic” results in domestic low savings and high consumption. Consequently, the fundamental
source of the balance of the trade deficit lies in the fact that Americans consume more than they
produce
.91
The second answer is to change of the US domestic industrial structure, and China became the
“world factory”. In the 1950s, the United States completed its industrialization and entered the
post-industrial era. From that time, the United States began to adjust its domestic industrial
structure. In the 1980s, the US economic structure underwent tremendous changes: the financial
industry and service industry exceeded manufacturing in the national economy and became the
core sector of the US economy.
92
Following this change, the United States shifted its
manufacturing to overseas, while China clustered more and more manufacturing industries as
foreign investors continuously transferred the labor-intense industries to mainland China to take
advantage of China’s cheap labor. This reduced manufacturing costs and greatly increased the
profits of China since China’s reform and open up in 1978.These foreign enterprises import
equipment, raw materials, intermediate products, or critical elements from their home countries
or other regions, to manufacture, and assemble in China. As a result, China has gradually
become the “world factory, " by mostly exporting multiple industrial products to the developed
countries. Notably, the United States was China’s largest exporting destination in 2018, when
China’s exports to the US reached $478.42 billion.
93
Undoubtedly, the trade deficit between the
United States and China is growing as China manufactures and exports the products to the US.
90
Xiang Weixing,Wang Guannan, “Debtor Logic” in Sino-U.S. Economic Interdependence ,World Economy Studies,2014(9)
91
Eric,Heikkila,China from a U.S. policy perspective, Unpublished
92
Cai Xing,Liu Zilan,The adjustment of American industrial structure and trade deficit, Journal of International Trade 2012(10)
59
In terms of the growing trade deficit, the US should also be held responsible due to its strict
restrictions on exporting high-tech products to China.Trade stems from the international division
based on comparative advantage. China has an advantage in labor costs, while the United States
owns the most advanced technologies and affluent capital; thus, the Sino-U.S. trade structure has
been fixed. However, the US-controlled Paris Coordinating Committee has been implementing
export control policies against China since 1949.
94
Also, the US Department of Commerce
issued the "China-U.S. Export Controls", which stipulated that 20 major categories of US high-
tech products such as aero engines and advanced navigation systems should not be exported to
China. In 2004, the U.S.-China trade deficit on high-tech products was US$36.297 billion,
accounting for 22.37% of the total trade deficit. By 2014, the US high-tech product deficit to
China increased to $123.743 billion.
95
However, trade based on comparative advantages does not necessarily equate into a losing
proposition for an advanced nation. For example, as Prestowitz argued during the trade dispute
with Japan, there is a difference between a silicon chip and a potato chip, and that the US should
not export its high technology and receive light industrial or agricultural goods in return.
96
Therefore, it seems that the United States does not intend to relax the restrictions on high-tech
products exported to China to reduce the trade deficit, accounting for China's weak protection of
Intellectual Property Rights (IPR). The situation is getting even worse because national security
is being defined more broadly, even including culture, making it so one can expect further
93
Sino-US trade and investment profile in 2018, Ministry of Foreign Affairs,
http://www.mofcom.gov.cn/article/i/dxfw/nbgz/201905/20190502859509.shtml
94
Liu Zikui, An Analysis of the US Export Control System after the Cold War. World Economy and Politics, 2009, (7)
95
Wang Xiaosong, Liu Yuanchun. Export Control and Trade Deficit——Taking Export Control of American High-Tech
Products to China as an Example. International Economic and Trade Exploration, 2017, (1)
96
Clyde V. Prestowitz, Beyond Laissez Faire, Foreign Policy, 1992(87)
60
tightening in CFIUS decisions, particularly since it is supported by both political parties. The
issue of reciprocity will also become more important, in terms of opening one’s market in such
areas as media companies. Despite disagreements on the exact amount and reasons for the trade
deficit, the trade deficit nevertheless exist, and this catalyzes the US-China trade war.
Chinese scholar Di Dongsheng explains the US-China trade war from a fiscal perspective and
emphasizes the effectiveness of that perspective in the analysis of US policy formulated by a
president who used to a businessman.Di Dongsheng argues that the trade war is not based on
deliberate international strategic considerations, but rather that it originates from the panic
caused by recklessness and mistakes in internal affairs. To be specific, reducing the huge trade
deficit is merely an excuse that masks Trump’s real purpose of alleviating the fiscal deficit due to
tax cuts.
97
After coming into power, President Trump has strived to promote the implementation
of the tax cut policy promised in his election and believes that the tax cut would indeed reduce
the unemployment rate and increase government tax income via stimulating investments.
However, the Tax Reduction Act brings nothing except a sharp increase in the fiscal deficit.Next,
President Trump aims to solve such severe fiscal problems through imposing border tax. What is
even more troubling is that the Fed’s interest rate hikes weaken the economic effect of the tax
cut, triggering turmoil in the stock market, and causing the Trump administration's interest
expenditure to surge further in 2018. Consequently, the only thing that Trump can do is to revive
the policy of imposing border tax by way of launching a trade war, thus mitigating the adverse
effects brought by tax cuts policy.
98
97
Di Dongsheng, The Real Motive of Trump’s Trade War is about Fiscal Deficit, Modern International Relations,2019(5)
98
Di Dongsheng, The Real Motive of Trump’s Trade War,
https://www.bilibili.com/video/BV1G7411K7Ft?from=search&seid=7873644706525204896
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Nevertheless, the US explains the occurrence of the trade war from a different perspective.
First, a tariff increase policy that is meant to help a particular industry has concentrated benefits
and widely distributed costs.
99
The president’s commerce secretary, Wilbur Ross, once stated
that there’s about 1 ton of steel in a car, and the price of a ton of steel is $700 or so, meaning that
25% on that would be one half of 1% price increase on the typical $35,000 car. Therefore, it is
likely that Trump is eager to use the trade war to save some steel jobs at the cost of consumers.
Secondly, Trump’s idea is that trade represents a kind of contest of pride, even manhood, saying
that “China is laughing at us!
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” Other American scholars also contend that the real intension of
Trump’s trade war is far from clear for because of conflicting attitude towards the WTO: on one
hand, he continues to use the WTO by charging new cases against countries like China while on
the other hand, he has also denounced the WTO decisions which have gone against the United
States and these are examples of judicial overreach.
101
3. Political Calculation
One direct consequence of transferring manufacturing to overseas is the loss of jobs in the
United States which in effect expands the income gap expands. By 2016, the top 40% of wealthy
households had an average of $1.5 million in assets, while 60% of low- and medium-income
households had an average asset of only $140,000, a difference of 10 times.
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What makes this
situation even worse is that the US unemployment is increasing due to higher job requirements
99
Paul Waldman, The Real Reason Trump Wants to Start a Trade War,
https://www.washingtonpost.com/blogs/plum-line/wp/2018/03/02/the-real-reason-trump-wants-to-start-a-trade-war/
100
Paul Waldman, Trump’s pathological obsession with being laughed at,
https://theweek.com/articles/702268/trumps-pathological-obsession-being-laughed
101
Douglas Irwin, Understanding Trump’s Trade War, Accessed on June 12, 2020,
https://foreignpolicy.com/gt-essay/understanding-trumps-trade-war-china-trans-pacific-nato/
102
The White House, National Security Strategy of the United States,
https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905.pdf
62
and a shrinking number of jobs. As a result, the polarization of American society has become
increasingly evident, and leads to the restructuring of political parties, thus reshaping American
politics.
Through observations of presidential and congressional elections in recent years, two looming
political party restructuring trends since 2008 are reshaping American politics having an
increasingly important influence on the direction of foreign policy. One trend is that the Rocky
Mountains in the southwestern United States—including Arizona, Nevada, and New Mexico—
have shown a clear liberalization driven by factors such as demographic and industrial
restructuring, urbanization, and more. the second trend is that the “Red Rust Belt” of the Great
Lakes region turned from “blue” to “red” in 2016 election.
103
Table 3: The main composition of the "Trump Voters", diplomatic appeals and its policy
implications
Composition of “Trump
Voters”
Diplomatic Appeals Policy Implications
White Blue Collar in “Rust
Zone”
Anti-globalization and
reindustrialization
Economic nationalism, US
priority, strategic contraction,
reduction of overseas
intervention
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Wang Hao, Defining Strategic Competition: Political Reorganization and the Domestic Political Logic of American Strategic
Evolution to China (2009-2019), Unpublished
63
Large enterprises and
Midwest Agricultural Group
Globalism, conservatism
Southern Conservatives and
Military Industry
Conservatism, unilateralism Getting rid of the constraints
of the international system
and increase military
spending
Angus Deaton, the winner of the Nobel Prize in Economics in 2015, and his wife, Anne
Catherine Case, studied a subject: the prevalence and mortality of middle-aged whites among
non-Latino whites in the United States. The finding is that middle-aged whites of non-Latino
ethnicity with and without high school education experienced an income decline over the past 50
64
years, with an increasing prevalence of deteriorating health and mortality.
104
Deaton’s research
shows to a large extent that the interests of this group of people in the United States have not
been well protected in the process of globalization in the past few decades. This explains why
they voted for Trump since he is able to protect their interests.
A series of actions after Trump took office symbolized his steadfast adherence to the white-
blue collars. The interests of this unique political alliance have become the primary consideration
and even a decisive variable in the foreign policy formulation his Administration. Specifically,
Trump appeals to the white-blue collars politically by working to eliminate growing trade deficit,
the decreasing of manufacturing-related jobs, and the income growth lagging behind inflation.
Therefore, the U.S. economic interest demands have become the primary consideration for
Trump’s foreign policymaking. In the meantime, Trump seeks to win the enduring support of
these voters via reducing the US foreign trade deficit and by promoting the return of
manufacturing to America as a way to win the mid-term election so that he can be re-elected.
It is important to point out that a critical factor for Trump’s election is the support from the
American steel interest group. During the 2016 election, Trump declared that he opposed "unfair
trade" and promised to protect the US steel industry and steelworkers. Iron and steelworkers in
the southern states and in Pennsylvania, Michigan, Ohio all voted for Trump, thus driving the
entire "rust zone" region to "turn red" and pushing Trump to the presidency. After President
Trump took office, American steel workers constantly urged him to honor his campaign
promises by limiting foreign steel imports.
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Scott Paul, chairman of the American
104
Anne Case, Angus Deaton, Rising Morbidity and Mortality in Midlife Among White Non-Hispanic Americans in the 21st
Century, https://www.pnas.org/content/pnas/112/49/15078.full.pdf
105
He Yiming, Wang Xinzi, Scenario Analysis of the Protracted Trade War Between China and the U.S., Journal of Ocean
University of China, 2019(1)
65
Manufacturing Alliance (AAM) notes that the American Steel Group has called hundreds of
thousands of people to the White House, asking the president to honor his repeated commitments
of protecting the US steel industry and iron workers. From a perspective of stakeholder analysis,
the US-China trade war is a performance of President Trump succumbing to the strong demands
of a specific American interest group.
4. Strategic Motivation
Many Chinese scholars have attributed the occurrence of the US-China trade war to a theory
named “Seventy Percent Theory”, or “Two Thirds Theory”. This theory states that the US will
contain a country whose GDP reaches seventy percent or two thirds of that of the US. For
example, The Soviet Union’s total industrial output value in 1978 was close to 70% of that of the
US. Then the US became involved in the armed conflict in Afghanistan, which led to a sharp
drop in oil prices and a decline in the total value of Soviet industrial output. In consequence,
before the collapse of the Soviet Union in 1991, its GDP was less than 30% of the United States.
Also, Japan replaced the Soviet Union as the second largest economic power in 1984, with GDP
reaching 60% of the United States, and its GNP including overseas investment close to 70% of
the United States. After the United States and Japan signed the Plaza Accord in 1987, the
Japanese economy fell into a long-term stagnation, and its total economic weight dropped to
30% of the United States.
106
Whether the theory can be applied to explain the US-China relations
also remains to be seen. It could however accounts for the US’s panic about a rising China and
could explain the US’s intention to compete with China.
106
Shen Wei, Japan-U.S. Trade Friction from historical perspective: background, trend and enlightment—On the Characteristics
of the dilemma of U.S.-China Trade War, Journal of Guangxi University of Finance and Economics, 2019(5)
66
At the end of 2017 and early 2018, the Trump Administration issued the “National Security
Strategic Report” and the “National Defense Strategy Report”. In the “National Security Report”,
China is labeled as a revisionist power for the first time, by challenging American power,
influence, and interests, thus attempting to erode American security and prosperity. Also, the
report emphasizes that China seeks to displace the United States in the Indo-Pacific region,
expand the reaches of its state-driven economic model, and reorder the region in its favor. For
decades, the policy of the United States on China was rooted in the belief that support for
China’s rise, and its integration into the post-war international order would liberalize China, but
China counters their hopes.Instead, China has expanded its power at the expense of the
sovereignty of others, and has gathered and exploited data on an unrivaled scale, broadening
features of its authoritarian system, including corruption and the use of surveillance.
107
Moreover, the “National Security Strategy Report” proposed the strategic vision of the United
States in the Indo-Pacific region: through political, economic and security measures, the U.S.
will balance the impact of China's expansion in the Indo-Taiwan region and safeguard the
“balance of regional interests in the United States”.
108
Additionally, the Trump Administration clearly defines China as a strategic competitor which
uses predatory economics to intimidate its neighbors.
109
The introduction of the two reports
reveals that the United States has decided to abandon the cooperation-based approach toward
China maintained in the Obama period aiming at tackling climate change, pandemics and other
107
The White House, National Security Strategy of the United States of America, December 2017,
https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905.pdf
108
The White House, National Security Strategy of the United States of America, December 2017,
https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905.pdf
109
The White House, Summary of the 2018 National Defense Strategy of the United States of America,
https://dod.defense.gov/Portals/1/Documents/pubs/2018-National-Defense-Strategy-Summary.pdf
67
global issues and instead completes the re-strategic positioning of China. These two reports also
express the deep concern of the US about the decline of their leadership worldwide, revealing
that a more intensified strategic competition between the U.S. and China should be expected in
the future. Initiated by the “301 investigations”, the U.S.-China trade war is not inherently a
market competition for fair trade; instead, it is a strategic competition between the two countries
in the new industrial revolution.
110
On the one hand, the items that the U.S. imposes additional
tariffs on are nearly all about industries in “Made in China 2025” while on the other hand, the
various accusations of the “301 Survey” focused on intellectual property right issues. Differing
from past behavior, the United States accuses China of compulsory technology transfer.
111
This
shows that the United States strives to maintain its dominant position in China’s strategic
emerging industries. Therefore, the U.S.-China trade war is also motivated by strategic
competition between the two countries in some emerging industries during the new round of
technology revolution.
5. Historical Implications: Industrial Revolution in relation to Trade
War
The analysis of the causes of the trade war should not only be based on the US-China trade
war per se, but should focus on the entire international environment and historical laws. A study
on the reasons of trade wars reveals that the occurrence of trade wars can be linked to the
industrial revolution worldwide. The Anglo-French trade war ensued after the first Industrial
110
Zhang Youwen, The U.S.-China Trade War is not market competition but strategic competition, Nankai Journals,2018(3)
111
Zhang Youwen, The U.S.-China Trade War is not market competition but strategic competition, Nankai Journals,2018(3)
68
Revolution in 18C, with the Second Industrial Revolution following in 20C, after which the US
passed the Smoot-Hawley Act to impose a tax on exports from Canada and other European
countries. The latest large-scale trade war was between the US and Japan, lasting from the 1960s
to 1990s for nearly 30 years, a period after the third industrial revolution. Reviewing the US-
Japan trade war, it worth noting that the stages of this trade war beginning in the 1960s,
intensifying in the 1970s, and reaching the climax in the 1980s, are in line with the rebirth, rise,
and heyday of Japanese manufacturing. According to IMF's Bilateral Trade Database (DOTS)
statistics, Japan's exports to the United States accounted for 24.7% of Japan's total exports in
1980, at the same time accounting for 12.8% of total US imports. These two figures have
continued to rise, peaking in 1986 with Japan exporting products of $ 81.9 billion to the US and
accounting for 39.0% of Japan ’s total exports, However, Japan’s exports to the US eventually
began to decline. In 1994, Japan ’s exports to the United States accounted for about 30% of
Japan ’s total exports, and this "one rise and one fall" also corresponds to the escalation and
easing of trade friction between the United States and Japan.
112
So, why are there so many “coincidences” between the industrial revolution and trade wars?
We can find the answer if we examine competition between countries that a country which is
rising because of its own industrial revolution and existing developed powers. To be specific, a
rising country via industrial revolution eagers to expand its market share as well as search for
more resources. Such action offends the benefits of existing developed powers, thus leading to a
trade war between newly developing countries and existing developed powers. As a result, it is
112
Yao Yang, Zou Jingxian, China-U.S. Trade Disputes: From a long-term economic growth Perspective, International
Economics Review, 2019(1)
69
highly likely for the existing developed power to impose high tariffs on imported products from
newly developing countries to defend their interests.
Undeniably, the fourth industrial revolution, which is building on the third one, is a digital
revolution characterized by a fusion of technologies blurring the lines between the physical,
digital, and biological spheres and evolving at an exponential rather than linear
pace.
113
Moreover, the breadth and depth of the changes brought by the revolution extends to the
spheres of business, politics and international relations. It is clear that the fourth industrial
revolution presents new developing opportunities. Technological innovation will also lead to a
supply-side miracle, with long-term gains in efficiency and productivity. Transportation and
communication costs will drop, logistics and global supply chains will become more effective,
and the cost of trade will diminish, all of which will open new markets and drive economic
growth.
114
China seizes such precious opportunities to develop a domestic high-tech industry and
realize the optimization and upgrading of its industrial structure. In the meantime, China
challenges US in many spheres, particularly in high-tech technology and international status.
Therefore, the US-China trade war is also a product of the ongoing industrial revolution and
reflects the panic and lack of confidence in China’s rise.
In summary, the U.S.-China trade war is not purely a simple measure that Trump has taken to
reduce the massive trade deficit between the U.S. and China, but a consequence of combined
113
Klaus Schwab, The Fourth Industrial Revolution: What it means, how to respond,
https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/
114
Klaus Schwab, The Fourth Industrial Revolution: What it means, how to respond,
https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/
70
consideration of benefits, values, and desires. Such a trade war brings challenges for both China
and the US as well as the whole world.
71
Conclusion
It is clear that since the United States and China resumed formal trade, there has been long-
standing distrust between the two countries in the areas of economics and trade.The US claims
that their firms which are doing business in China are at risk of losing their intellectual property
because of the lax enforcement of intellectual property rights and business contracts there."Also,
they complain that American technology firms are increasingly vulnerable to Chinese intellectual
property theft as a result of “sharing technology for market share”. The U.S. depicts China as a
manipulator of the RMB so that it can advance its trade interests and also accuses the Chinese
government of having unfair industrial policies which aim at protecting state-owned
enterprises.Meanwhile, Beijing complains that the U.S. restricts its export of certain specific
technologies to China and periodically prohibits or limits American and other foreign investment
in certain sectors."The long-existing underlying distrust between the two countries combined
with economic impetus,political calculation, strategic motivation, and historic implications
finally have resulted in a trade war with a tortuous process between the United States and China.
Consequently, the U.S. and China had trade talk and reached an argument (did you mean
agreement?) on January 15, 2020."
In light of the Phase One deal and future US-China trade relations especially with the
outbreak of COVID-19, there are some further thoughts. First, the Phase One deal between the
United States and China does not solve the underlying economic concerns that the trade war was
intended to resolve, and it should be noted that while it appears that the trade deficit between the
U.S. and China has decreased, Trump’s tariff policies actually cause the U.S. trade deficit with
Europe, Mexico, Japan, South Korea, and Taiwan to increase as a result.Therefore, the U.S.
72
overall trade deficit has not decreased.Second, the pandemic and U.S.-China trade tensions are
exacerbating each other: China is highly unlikely to fulfill its commitment of purchasing roughly
$60 billion more in U.S. goods than it had in 2017 — roughly $180 billion in U.S. goods this
year.According to Bloomberg calculations based on Chinese Customs Administration data,
China in the first half of 2020 had purchased only 23% of the total purchase target for the year.
While part of this is attributable to trade flow disruptions caused by COVID-19, much of the gap
owes to the impracticality of the agreement from the start.
115
Besides, the virus has weighed
heavily on both countries, plunging their economies into the deepest contractions for decades and
destroying tens of millions of jobs.
116
Indeed, China’s GDP contracted by 6.8% in the first
quarter of 2020, and the IMF expects it to grow by just 1.2% over the entire year, assuming a
significant rebound in economic activity. The low GDP growth and high risk of job
losses largely damage people’s purchasing power, thus reducing the export demand. What is
worse, the lack of a vaccine and fears about a second wave of infections make it unlikely to
allow China to fulfill its Phase One purchasing commitments. Recent reports show that new
cases of COVID-19 in China come from imported seafood products, therefore, the Chinese
government will certainly restrict imports from countries with severe pandemic circumstances
such as the US.
115
The Brookings Institute, More pain than gain:How the US-China Trade War hurt America?
https://www.brookings.edu/blog/order-from-chaos/2020/08/07/more-pain-than-gain-how-the-us-china-trade-war-hurt-america/
116
Laura He, A US-China trade War is the last thing the World Economy Needs,
https://www.cnn.com/2020/05/19/economy/us-china-trade-war-resume-coronavirus-intl-hnk/index.html
73
Mutual blame over the coronavirus pandemic has undeniably reignited tensions between the
United States and China, threatening to break what was already a fragile truce on trade between
the world's biggest economies. Earlier in August, Trump, who has claimed without providing
evidence that the virus originated in a laboratory in Wuhan, hinted that the United States could
enact more tariffs on China as punishment for the pandemic.
117
His administration is also moving
to further restrict Huawei's ability to work with US companies and has already banned the use of
Tiktok and Wechat in the US.The Global Times hinted that Beijing could soon retaliate against
Washington decisions by restricting American firms including Apple, Boeing, Qualcomm and
Cisco.
In summary, while the Phase One deal has eased trade tensions, COVID-19 threatens to
overshadow the agreement and to subsume the entire U.S.-China relationship. If the tensions
continue to escalate, the dispute will not only weaken the world’s recovery from COVID-19, but
it will also slow down technological innovations.
117
Laura He, A US-China trade War is the last thing the World Economy Needs,
https://www.cnn.com/2020/05/19/economy/us-china-trade-war-resume-coronavirus-intl-hnk/index.html
74
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Abstract (if available)
Abstract
This thesis examines the US-China trade war from March 2018 to January 2020. Starting with a clear definition of a trade war, the thesis traces its evolution of the US-China trade war and analyzes the “psychological game” between the United States and China. Next, the thesis examines the influence of the trade war on both the US and China, followed by an examination of its influence on the rest of the world. The thesis argues that the US-China trade war not only damages the economic development of both countries, but also slows global GDP growth. Despite these negative effects, it does bring new development opportunities to some regions of the world which we might consider. In the final part, the thesis seeks to understand why President Donald Trump launched the trade war since it does not seem to be a sound economic policy. This is done by the inherent problems of Sino-US relations, economic and political considerations, strategic motivation and the historic implications which factor into the US-China trade war.
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Asset Metadata
Creator
Song, Kejia
(author)
Core Title
US-China trade war: past, present and future
School
College of Letters, Arts and Sciences
Degree
Master of Arts
Degree Program
East Asian Area Studies
Publication Date
09/21/2020
Defense Date
09/21/2020
Publisher
University of Southern California
(original),
University of Southern California. Libraries
(digital)
Tag
Economic development,OAI-PMH Harvest,psychological game,strategic competition,US-China trade war
Language
English
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Electronically uploaded by the author
(provenance)
Advisor
Wise, Carol (
committee chair
), Heikkila, Eric (
committee member
), Rosen, Stanley (
committee member
)
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hkskj@163.com,kejiason@usc.edu
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Tags
psychological game
strategic competition
US-China trade war