Two Decades of Poor Deals That Led to US-China Trade War

President Donald Trump, Xi Jinping, backdrop of Yuan

The Real Implications

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The media and international academics continuously persist in dictating to the American population their negative opinions of Trump’s trade war against China; they believe that this war will only serve to damage the U.S. Since the rise of China in the late 1980s and 90s there has been both significant concern of this rise, as well as a large number of Western Academics embracing it and becoming the “Chinophiles” we know today.

The land of the Orient has always provided mystery and uncertainty for those who do not take the time to try and understand it. The Chinese are, and credit to them, an industrious and opportunistic people. Their thinking and development, however, much like ours, is not without flaws. In fact, flaws in Chinese development are quite evident if given a closer look. A perfect example is the One Child Policy, although it might have had the best intentions the plan was always set to fail, due to the harsh demographic changes that were set to seriously impact the population in the future.

To step back though, and refocus on Chinese-American trade, a fundamental flaw becomes obvious; how can China win in a tariff war with the U.S. when it has such a large trade surplus? The very simple answer is that in a trade war it cannot.

This is not to say that China does not have other means of striking back, in fact, it has many. Chinese investment in the U.S. is significant, China owns large amounts of U.S. debt, and finally, if China were to target the technology market with repercussions, it would lead to severe problems for Silicon Valley.

All of this seems like the U.S. should be pessimistic about the future of the trade war, China holds plenty of good cards even if America has a good hand itself. What is important to consider, however, are the repercussions the U.S. has faced so far; China has not been able to match Trump on any tariff imposed, their stock market benchmark is down 15% since the beginning of the year, and on October 3, 2018, the Chinese have announced looking to sell three billion dollar-bonds. This is the second time this year a sale has been made in a bid to raise investment into the country, this comes at a time when investment and the Gross Domestic Product rise are slowing. To put in bluntly China is struggling.

The U.S. has felt the pressure too, with Trump having to put in financial support for the agricultural industry to ensure it is not hit too hard by the Tariffs imposed by China. Comparatively, amongst the trading of blows, the U.S. is coming out on top.

History of Failure

In December 2001, China finally became a member of the World Trade Organization. Since then a succession of compromises has been made to try and ensure the success of American Business in China. The negotiation of a trade deal between the U.S. and China in early 2002 is but one example, negotiations that had been going on prior to China joining the WTO. President Clinton was quick to assure the American people that trade relations with China had been a success and that the U.S. would assist China to gain entry to the WTO. This merely cemented Sino-American trading terms at a six to one ratio surplus in favor of China, $83 billion in exports to America’s $17 billion.

Subsequently negotiations for the rights of American businesses in China, and indeed a reduction of the trade surplus, fell upon deaf ears, as China enjoyed some of the fastest economic growth ever seen. The U.S. leadership had failed to successfully negotiate, by demanding too much and not being willing to sacrifice to achieve a fair relationship.

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The Chinese banked on this and were able to come away with a beneficial trade deal allowing the continued trade deficit for America to continue, the rights of American businesses in China to be eroded, and that is to say nothing of the Human rights violations that had persisted for years throughout negotiations.

This was only compiled later by a further failure by the Bush Administration and the even more detrimental Obama Administration. Obama’s turn to the East, saw China gain more geopolitical influence than it had ever had before in the region under the latest formation as a state. Negotiations continued to go nowhere, and Obama approached a trade deal with a trepidation, preferring to hope that China would behave if left alone.

Trump changed this.

The Moral Dimension

This trade war with China is not so much about a tit for tat trade war, which in the grand scheme of things will eventually resolve itself, both sides are willing to sit at the table, and China respects the leadership of Trump. China appreciates strong leadership. It is in both countries interests to eventually wind down the trade war. For the U.S., that is only after it has got certain concessions from the Chinese, concessions that should have been obtained when negotiations first began.

Even at great cost, China must be shown that it cannot push America around, that it cannot continue abusing both its trade privileges and American investment. The challenge posed to China is one of business morality internationally that could eventually lead to a change in attitude towards Human Rights.

Trump is willing to lead the battle, but Americans must be willing to stand firmly behind him, in order to challenge those that would unscrupulously take the world for their own.

Ray Jones
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