In-Flight Reading: Projecting the Coming Sino-U.S. Trade War

By Jeffrey Bean – 

President Xi Jinping departs the greeting area with President Donald Trump during the latter’s visit to Beijing, China on November 8, 2017. Source: White House’s flickr photostream, U.S. Government Work.

As President Donald Trump’s first full year in office comes to a close, experts on U.S.-China relations have begun to take stock of developments in this crucial economic relationship. Analysis from scholars, journalists, and government officials indicate the United States may initiate unilateral action and begin implementing trade remedies to address the trade imbalance in Sino-American commerce. From the perspective of these analysts, a trade war in 2018 between the two most crucial global economies is looking increasing likely.

U.S. official statistics show that $578.6 billion in total (two way) goods trade took place between the countries during 2016. For that same period, the U.S. goods trade deficit with China was $347 billion – a fact which received considerable attention during the U.S. presidential campaign, and during President Trump’s first 10 months in office. Dr. Scott Kennedy, deputy director of the CSIS Freeman Chair in China Studies, and other experts have made the case in recent weeks that the likelihood of U.S. trade intervention is increasing.

Many analysts have flagged the empty and re-heated nature of the deals President Trump and President Xi announced in Beijing during Trump’s Asia trip. Moreover, in an op-ed for the South China Morning Post on November 21, Dr. Kennedy argues that the apparent calm of Trump’s engagement with Xi, belies U.S. efforts to beef-up regulatory mechanisms to penalize unfair Chinese trade practices. Dr. Kennedy explained to Bloomberg that new measures could take the form of additional tariffs on Chinese products and new limits on Chinese investment in the United States.

On this front, U.S. legislative tools are moving to update the trade and investment rules rubric. Senators John Cornyn (R-TX), Diane Feinstein (D-CA), and Richard Burr (R-NC) have introduced in the Senate the Foreign Investment Risk Review Modernization Act, which would expand the scope and remit of the Committee on Foreign Investment in the United States (CFIUS), in ways that would make acquisitions and investments by China and others subject to deeper review and potentially, suspension. Parallel legislation was introduced in the House by Robert Pittenger (R-NC 9) and several other members. The bills reportedly have bipartisan support in Congress, and lawmakers view the issue as critical. A recent Department of Defense commissioned report on China’s tech transfer strategy argues that U.S. tech secrets vulnerability to Chinese investment represents a genuine threat to U.S. national and economic security.

Maneuvering on trade and investment is part of a larger policy picture that suggests the U.S. position toward China may be hardening as a result of geopolitical considerations and especially U.S. politics. Dr. Ely Ratner of the Council on Foreign Relations explains in detail three key domestic political considerations that make a confrontation more likely in a recent piece for the Lowy Interpreter, “Trump’s coming hard line on China.”

Andrew Browne of the Wall Street Journal identifies the same overall trend, arguing USTR Robert Lighthizer is the organizing force behind a pending Trump administration effort to change China’s behavior on trade in his November 21 piece, “U.S. Readies Trade Sledgehammer for China.” Browne’s commentary also highlights the potential damage to the World Trade Organization’s institutional value if the United States and China step outside WTO frameworks to fight a trade war. Wendy Cutler of the Asia Society Policy Institute points out that deadlines are approaching in complicated U.S. trade law cases against China in her op-ed for The Hill, “Trade storms brewing after Trump’s Asia trip.” Cutler places the looming Sino-U.S. friction in the context of a broader U.S. move toward greater trade protectionism.

And Beijing is unlikely to go quietly, especially if the United States is standing alone, as Dr. Kennedy described to Politico during Trump’s Asia trip:

“My sense is he [Trump] is going to very quickly turn to a tougher line, particularly on China,” Kennedy said. “[In response], it’s going to be a combination of [China] targeting exports from the U.S., as well as [going after] American companies that have investments in China and making life much harder for them.”

Some Chinese commentators, such as Bernard Chan of the Hong Kong Executive Council, perhaps sensing that a trade war is coming – have tried to emphasize the downsides to compel U.S. policymakers to pull back.    

The impact of Sino-U.S. trade conflict, potential U.S. withdrawal from a leadership position in international multilateral institutions, and discussions about reshaping institutions like the World Bank, IMF, and the WTO now that globalization’s effects are better understood, are complex issues. Kennedy assesses the landscape in an interview with China Global Television Network:

Framing a cohesive U.S. effort to address China’s mercantilist practices, while avoiding additional damage to the international order, is also the subject of a recent commentary, “Predatory Economics and the China Challenge,” by Matthew Goodman, CSIS Simon Chair in Political Economy. Goodman argues that Washington must hold Beijing to account and protect resources vital to national security, but also advocates Trump adopt a positive economic agenda in consultation with partners and allies, and invest in U.S. domestic infrastructure to restore the foundation of U.S. economic advantage.

UPDATE: On Tuesday, November 28, 2017, the U.S. Commerce Department self-initiated an anti-dumping investigation against China.

To learn more on the changing developments in U.S.-China trade, follow and read the work at CSIS of the Freeman Chair in China Studies, China Power Project, Simon Chair in Political Economy, and the Scholl Chair in International Business.

Mr. Jeffrey D. Bean is editor of the CSIS Asia Policy Blog, CogitAsia and producer of the CogitAsia Podcast. Follow him on twitter @BeanJD.

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