Invest KOREA

A prolonged gargantuan trade war between two Goliaths, namely the U.S. and China, seems never to cease with ease. Already embattled for more than a year, and after months of highly anticipated talks and negotiations between the high-powered delegations, the two sides are far from coming to a mutually acceptable agreement. In fact, the schism between the countries seems to be getting even wider and deeper than Pacific Ocean, when the Trump administration announced immediately before negotiations to raise its tariffs on the USD 200 billion worth of Chinese imports from 10 percent to 25 percent, threatening further to impose similar tariffs to an additional USD 300 billion worth of Chinese imports.

On the surface, the crux of the issue looks like unfair trade practices, including cyber-theft of intellectual property and state-sponsorship of strategic industries, all making Chinese products very competitive in the U.S. markets. More specifically, the U.S. is too weary to disregard China’s state-sponsored hacking, manipulated acquisitions of high-tech companies, subsidies to crucial state industries and discrimination against foreign companies, all of which are believed to take American jobs away.

No matter how it may be defined, the trade war between the U.S. and China is, in essence, a war of global dominance. The U.S. never wants to give in to the ever increasing Chinese influence in trade as well as in all other spheres including diplomacy and military involvement. The trade issue is just a small fraction, like a tip of an iceberg, of the entire U.S.-China conflict. This became clear when U.S. Secretary of State Mike Pompeo began to criticize China as an authoritarian regime similar to Russia or Iran. U.S. Trade Representative Robert Lighthizer also complained about Chinese aggression in trade practices. All these remarks remind us of the axis of evil that former U.S. President George W. Bush as well as then under-secretary John Bolton spoke about in 2002.

With this real intention in disguise, the U.S. will try at first to reduce Chinese exports, followed by the restriction of Chinese investment in the U.S., and finally, interfere with Chinese financial systems and transactions, asking them to abide by global standards and rules, which are crucial ways to rein in the Chinese global influence. This might develop into erecting mutual hatred, à la the bamboo curtain of the 1960s.

The real fear is that China cannot be ignorant about the intention of the U.S. China knows better than anybody else about the real concern, frustration or threat felt by the U.S. Many journalists in China criticize that the U.S. adopts irrational weapons of tariffs misjudging the strength, capability and will of China. Many believe that the U.S. is a declining super power, just trying to upend the emerging Chinese power by useless and inefficient trade barriers. China will definitely resort to its weaponries, and will never give up its principles and integrity to external pressure even at the deadliest cost.

Of course, all the parties will feel the pains of the internecine trade war. China shall witness substantial reduction in its exports to the U.S. Also, the U.S. economy will have some negative influences of Chinese retaliation through shortages, higher prices or inconvenience. Some shortages might be supplemented by imports from third countries, making no real contribution to growth or job creation in the U.S.

Possibly, the trade war between the G2 might spread throughout the world with significant and multiplying ripple effects, which no one can possibly measure its true magnitude. Chinese exports to the U.S. being three times larger than U.S. exports to China, the U.S. trade barriers definitely have greater damage on the Chinese economy. But it should not be taken to mean that China will easily give in to the U.S. aggression or that the Chinese government will lose public support. It will have exactly the opposite consequence as Chinese political rigidity or integrity is gaining much stronger support by persevering through the economic crunch. So, the negative effects of the trade war on political support should be felt in greater degrees in the U.S. than in China.

As the likelihood of ascertaining political support through the prolonged U.S.-China trade war is much weaker in the U.S., there is a strong chance that the U.S. will soon come up with a strikingly surprising deal with China. That deal has to be struck before China embarks on massive barriers on U.S. exports such as corn, fuel and airplanes. Once the barriers have been imposed, the real and political effects will be beyond public imagination even if they are immediately nullified.

Many analysts believe that a deal could be struck to avoid either political or economic catastrophe on both sides sooner or later between the two political leaders. Even so, real tension will just submerge under water, waiting for another well-suited time to bring up the U.S.-Sino issue again.

By Professor Se Don Shin
Dean, Sookmyung Women’s University
seshin@sm.ac.kr

The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA