Trade war between U.S. & China is a power struggle between the countries
In 1985, the first year the U.S.-China trade balance was reported, the U.S. trade deficit with China was an insignificant sum of $600 million. The trade deficit with China reached its highest level last year,rose to $375.2 billion in 2017; and the cumulative U.S. trade deficit with China since 2001, the year China joined World Trade Organization, has climbed to more than $4.7 trillion.
On July 6, the Trump administration fired the first shot in the long-anticipated trade war with China — to impose an additional 25 percent ad valorem duty on more than 800 Chinese products worth about $34 billion, ranging from industrial machinery to medical devices and communication satellites. It was the first time that the United States implemented punitive tariffs on Chinese imports, after threatening to do so for years.
China immediately retaliated, increasing taxes on the same amount of American imports, including goods from soybeans to lobsters to pork. China’s retaliatory tariffs were targeted at President Trump’s supporters, especially American farmers.
To prepare yet another salvo in the escalating trade war, the U.S. Trade Representative office announced on July 10 a possible second round of 10 percent tariff hikes on more than 6,000 Chinese imports worth $200 billion. The move, if implemented, will bring total Chinese imports subject to punitive tariffs to approximately half of China’s exports to the U.S. in 2017. In the meantime, President Trump has threatened higher tariffs on $500 billion of Chinese goods, or all of China’s annual exports to the United States.
Since China imports far less from the United States than the United States imports from China — China bought around $130 billion of American goods in 2017, “China,” says Vishnu Varathan of Mizuho Bank, “cannot match fresh U.S. tariffs” in the mounting trade war. “Yet that hardly means China would be powerless to fight back once it ran out of U.S. goods to penalize,” writes Joe McDonald of Associated Press, “it possesses a range of other weapons with which to inflict pain on the U.S. economy. China has warned of ‘comprehensive measures’ it could take against the United States … possible tactics could include harassing automakers, retailers or other American companies that depend on China to drive revenue to selling U.S. government debt or disrupting diplomatic efforts over North Korea.”
The current trade war between the U.S. and China, therefore, is far more than just a trade imbalance; the spiraling conflict is also a great power struggle.
On a deeper level, writes Brian Bremner of Bloomberg News, “the standoff reflects an escalating economic and military rivalry between a status quo power and one of the most remarkable growth miracles in history. It is a clash between two divergent systems, with markedly divergent worldviews and national aspirations. That strategic tension seems likely to intensify, regardless of how the current brinkmanship over tariffs plays out.”
“It’s also a battle for global influence,” according to Bremner, “whereas the U.S. has long sought to spread democracy and free markets to other nations, China’s ruling Communist Party is just starting to pitch its heavy-handed growth model as an alternative for developing nations. And Xi is backing it up with hundreds of billions of dollars in loans for infrastructure projects from Asia to Europe and beyond.”
The trade conflict, as John Kemp of Reuters pointed out, “is really just one aspect of the increasing strategic competition between the United States and China. The United States wants to maintain its military, diplomatic and economic superiority, while China is determined not to accept second place and to achieve parity. The problem has been termed the Thucydides Trap, after the conflict in ancient Greece between Sparta, the incumbent superpower, and Athens, the rising superpower, that led to the Peloponnesian War.”
The question is: Can the United States and China escape the Thucydides Trap?
The United States and China may be heading toward a conflict neither wants.
The Thucydides Trap, writes the eminent Harvard scholar Graham Allison, “is a deadly pattern of structural stress that results when a rising power challenges a ruling one. This phenomenon is as old as history itself.
Over the past 500 years, these conditions have occurred sixteen times. War broke out in twelve of them.
Today, as an unstoppable China approaches an immovable America and both Xi Jinping and Donald Trump promise to make their countries ‘great again,’ the seventeenth case looks grim. Unless China is willing to scale back its ambitions or Washington can accept becoming number two in the Pacific, a trade conflict could soon escalate into all-out war.”
Xiaoxiong Yi is director of Marietta College’s China Program.