The US-China trade ‘war’
Besides Gaza and Ukraine, the main foreign policy topic during the United States presidential election face-off will be US trade with China.
China is one of the largest export markets for American goods and services, and the United States is the top export market for China; in 2023, China exported $448 billion to the US and imported $195 billion. This trade brought lower prices to US consumers and higher profits for American corporations, but has not prevented contestation due to China’s State-led development and subsidies for targeted industries, while Chinese investments in the US and intellectual property issues raise security-related concerns. It was clear during President Trump’s tenure that he was dissatisfied with the existing international trade order and aimed to revisit its pattern. The stated motives were to strengthen the technological superiority of the US, increase exports, improve market access to other countries, return manufacturing jobs to the US by ‘insourcing’, invigorate the domestic economy, and especially, to maintain primacy in the world economy.
A major factor in the US-China trade war is a shift in the nature of cutting-edge processes and the most profitable forms of economic production, which causes the fading of US hegemony and its disinclination to sustain the liberal international trade order, which established institutionalised practices and norms to manage the world economy. Unwilling to bear its economic and political costs, the challenge to institutions of global governance comes from the US, ironically the country that made them key to its rise as a world leader. On the other hand, China remains supportive of these institutions as a pathway to economic growth and international engagement.
Both American political parties vow to bring manufacturing jobs back home, and the upcoming election sees a contest for support in regions that experience job losses. But it has to be seen if jobs are created within new sectors where the past nature of employment is being made redundant. Yet, the US still hosts significant sites of cutting-edge economic activity such as Silicon Valley, and the nation uses its military budget to promote innovation.
President Joe Biden followed Trump in adopting an aggressive approach. He retained most of Trump’s tariffs up to 25% on $360 billion in imports from China and introduced several of up to 100% on $18 billion worth of imports, export controls to restrict Beijing’s access to advanced technology, and banned Chinese investments in sensitive technologies. He quadrupled tariffs on electric vehicles made in China, tripled those on steel and aluminium, and doubled the duty on semi-conductors. In turn, China raised tariffs on US exports from 8% in 2018 to over 21% in 2020, impacting over 58% of US exports.
It is probable that China will be excluded from any US-led trans-Atlantic and Pacific Rim trading groups while China builds its own trading and security groups, in which case China and the US might proceed to an outcome of economic decoupling, which may lead to another Cold War. China’s economy is more dependent on the US than vice versa, and Beijing would prefer any US decline to be a slow and gradual process.
New core processes require supply chains that feed the final high-value-added manufacturing process and a global network to sell new products. The U.S. and China compete across R&D, the protection and violation of intellectual property rights, and the formation of new trade relationships. New networks of economic production and trade require arrangements of geopolitical security, especially control of sea lanes of communication, which is likely to provoke military tension between the U.S. and China as China tries to establish control of its inner island chain in defensive and power projection strategies.
Measures like Biden’s CHIPS and Science Act to stimulate production of semiconductors and energise scientific research and technology can be regarded as defensive measures in an interconnected world—the so-called ‘small yard and high fences’—and insufficient to deal with the China threat. During Biden’s term, US policy towards China broadened to encompass military security and human rights concerns, and his officials argued that policy should be based on competition but not catastrophe. Biden’s tariffs on imports of Chinese electric vehicles, lithium batteries, and solar panels generate a negative effect on the promotion of renewable energy. If Trump returns to power, this contradiction will be addressed by his dismissive approach to climate change.
Under Trump, the US could shift from defensive to offensive approaches without reference to its allies in Europe, who would prefer not to take sides. And what importance Trump would give to QUAD and AUKUS when he disfavours security alliances with negligible costs for the beneficiaries remains an open question.
(The writer is a former foreign secretary)