There is no denying the fact that China’s astounding economic growth over the last half-century has vaulted the nation into the upper echelon of the world’s economic powers. China’s success can be primarily attributed to the impact of opening up their economy to the global markets, as it transformed itself from a primarily agrarian society to an industrial behemoth. China’s growth from the little brother of the developed world into an economic powerhouse has thrown its relationship to many of the entrenched economic powers into flux. America’s relationship with China has been an issue of great consternation amongst American leaders as the country’s trade deficit with China continues to increase. It has become such a prominent debate that one of now-President Donald Trump’s most vigorous campaign promises was to lower America’s trade deficit with China and protect American jobs in the process. The trade war between China and the U.S. has only intensified since the beginning of Trump’s presidency, with both countries levying steep tariffs against the other in the hope of gaining the upper hand in economic and political negotiations.

            In his article Trump Might Win his Trade War with China, author Henry Olsen describes the basis for the current trade war, and why Trump and Xi Jinping, the President of the People’s Republic of China, have been so reluctant to strike a deal up to this point. Olsen focuses on the negotiation strategies of past American leaders to demonstrate why Trump has acted so differently towards China. Olsen posits that historically American leaders have not been willing to walk away from negotiations with China out of fear of losing the overall gains to U.S. consumers from trade with China. A saying that Olsen references is “if you don’t walk away, you will overpay,” to demonstrate the new business-oriented perspective that Trump has brought to the Oval Office: if there’s a deal that isn’t to his liking, he has shown that he is willing to walk away from the negotiating table.[1] By imposing tariffs on $250 billion worth of Chinese goods, Olsen argues that Trump is using his economic leverage to “serve as the stick that would push China to the bargaining table.”[2] By taking a wildly different approach to past American administrations towards China, Olsen believes that Trump has proven that “leaders can be responsive to their citizens and that elections can produce change.”[3] In this essay, I will analyze how the economic relationship between China and the United States became so tense as well as the claims that Olsen references about Trump’s leadership.

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Free Trade is not the Only Way to Economic Prosperity:

            In the article The Rise of China and the Free Trade Myth, author Pankaj Mishra analyzes the history of trade through the lense of China and other East Asian country’s development, dispelling the myth that free trade is really free. Mishra points out that China’s rise is partly due to heavy American economic influence in Asia, dating back to the end of World War II. Under American occupation, Japan instituted an extremely restrictive foreign-trade and foreign-exchange system, allowing the country to develop a world-class manufacturing economy on the back of intense nationalistic pride.[4] In the 1950s, Korea and Taiwan inherited Japan’s protectionist policies, and since the United States viewed these developing East Asian countries as a buffer against Communism, it helped promote their neomercantilist practices while giving them unlimited access to American markets.[5] Before the United States could realize their mistake, Japan had copied many goods invented in America and manufactured them at a superior quality for lower prices.[6] These countries had succeeded under authoritarian states who promoted protectionist measures and aggressive development projects. China’s first foreign investments in the 1980s actually came from Japan, and, encouraged by the United States, China joined the World Trade Organization in 2001, giving it access limitless export markets.

            Despite Trump’s confidence in the American economy, America’s status as the world’s premier economic power has undoubtedly slipped, and much of that is due to the development of China’s economy. As China has become the leading exporter in the world, the trading networks that China dominates has reduced the dependency of Latin American and Sub-Saharan African countries on European and American markets. While economists like Milton Friedman have long advocated for free trade and unregulated markets, China has thrived under a Communist government overseeing protectionist economic measures by “controlling its currency, owning large businesses and intervening heavily in investment decisions by private companies.”[7] It is widely acknowledged that China has used suspect economic strategies to stimulate growth, many of which have angered the United States. One such issue is that American companies are forced to disclose proprietary technology to China as a condition of working in the country. This technology can then be used to compete with those same firms, biting into the market share of foreign firms. This tactic is a popular one amongst developing countries, as it allows them to play catch-up with more technologically developed countries while simultaneously helping domestic businesses thrive off of others ideas.

            China’s “One Belt, One Road” initiative has also been a boon for their economy while interfering with American foreign policy interests. Unveiled by Xi in 2013, China has offered massive infrastructure deals to many former American territories, like the Philippines, and American allies, like Malaysia and Brunei, pivoting Asia away from America and into China’s arms. Complementing the largest overseas investment initiative ever undertaken by a single nation is the China-led 16+1, a political and commercial group consisting of 11 EU countries and 5 non-EU European countries that have all signed infrastructure deals with China.[8] By pulling out of the Trans Pacific Partnership and pursuing increasingly protectionist measures, Trump has decreased American influence in Asia while giving China a window to dominate the region. China has even proposed its own alternative to the TPP, the Regional Comprehensive Economic Partnership, while also creating an alternative to the World Bank in 2014, the Asian Infrastructure Investment Bank.

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Deal or No Deal?

            After agreeing to halt new trade tariffs for 90 days in December, it remains to be seen if a deal will be struck between Trump and Xi before early March. Trump’s demands, however, are extremely far-reaching and seek to completely change China’s economic behavior. Trump seeks to reduce China’s trade surplus and curb Chinese imports while discouraging American companies from outsourcing their manufacturing operations to China. Throughout negotiations, however, China has focused on territorial disputes, such as America’s large arms deal with Taiwan and tension in the South China Sea. Despite their disagreements, author Nicholas Kristof argues in his piece The Dangerous Naïveté of Trump and Xi that the two leaders are not so dissimilar. He remarks that both are “impetuous, authoritarian, and overconfident nationalists” who equally appear to “underestimate the other side’s capacity to inflict pain,” which he believes presents a huge danger to the current global order.[9] Contrary to Olsen’s optimism, Kristof paints a picture of two overconfident leaders who are miscalculating the other’s likelihood to make concessions in trade negotiations. While Trump believes his use of tariffs represent a blow that China cannot counter, Kristof points to China’s ability to hurt the U.S. in other ways: Chinese nationalism could make it unpatriotic to indulge in American brands, safety inspections could shutter American establishments, and custom delays and investigations could halt operations of American corporations in China.[10] Both sides seem to lack a complete understanding of each other’s demands and diplomatic tensions are at a high, so therefore it seems extremely unlikely that a deal will be struck between China and the United States before the deadline, which could lead to high stakes showdown of the highest order.

            As Trump is seeking to completely alter how Chinese firms operate and view American investment and involvement in the Chinese economy, it does not appear likely that he will get his way. Olsen claims that “economics are always subordinate to politics,” and these negotiations are only one element of Trump’s political image.[11] By playing tough with China, he is sticking to his campaign promise and engendering increased support from his base, thus proving Olsen’s point that leaders can be responsive to their citizens. Trump’s trade war has not helped the American economy, nor is it a tactic supported by America’s political elite, but, just like his promise to build a wall along the Mexican-American border, Trump has shown that he intends to follow through on the promises that got him elected, and for him, anything that isn’t a concession to China is a victory for Trump.

 

 

Bibliography:

Kristof, Nicholas. "The Dangerous Naïveté of Trump and Xi." The New York Times. November 17, 2018. Accessed February 07, 2019. https://www.nytimes.com/2018/11/17/opinion/sunday/china-trade-war.html.

 

Mishra, Pankaj. "The Rise of China and the Fall of the 'Free Trade' Myth." The New York Times. February 07, 2018. Accessed February 07, 2019. https://www.nytimes.com/2018/02/07/magazine/the-rise-of-china-and-the-fall-of-the-free-trade-myth.html.

 

Olsen, Henry. "Trump Might Win His Trade War with China." The Washington Post. January 10, 2019. Accessed February 07, 2019. https://www.washingtonpost.com/opinions/2019/01/10/trump-might-win-his-trade-war-with-china/?utm_term=.6d0e8c3efa3d.

 

 

 

[1] Olsen, Henry. "Trump Might Win His Trade War with China." The Washington Post. January 10, 2019. Accessed February 07, 2019. https://www.washingtonpost.com/opinions/2019/01/10/trump-might-win-his-trade-war-with-china/?utm_term=.6d0e8c3efa3d.

[2] Olsen, Henry

[3] Ibid.

[4] Mishra, Pankaj. "The Rise of China and the Fall of the 'Free Trade' Myth." The New York Times. February 07, 2018. Accessed February 07, 2019. https://www.nytimes.com/2018/02/07/magazine/the-rise-of-china-and-the-fall-of-the-free-trade-myth.html.

[5] Ibid.

[6] Ibid.

[7] Mishra, Pankaj

[8] Ibid.

[9] Kristof, Nicholas. "The Dangerous Naïveté of Trump and Xi." The New York Times. November 17, 2018. Accessed February 07, 2019. https://www.nytimes.com/2018/11/17/opinion/sunday/china-trade-war.html.

[10] Ibid.

[11] Ibid.

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JSIS B 332 POLITICAL ECONOMY OF INTERNATIONAL TRADE AND FINANCE

Theoretical and historical analysis to explore the causes and effects of the rise and decline of four major international trade and monetary regimes. Foundations and emerging features of the new international trade and monetary regime and its implications for the world economy.

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