Trade war hurting Americans and fuelling geopolitical tensions

When US Secretary of State Anthony Blinken visited China last year to “stabilize” the relationship between the two superpowers, strengthen high-level channels of communication, explore areas of cooperation and align China on shared transnational challenges — he gained the Chinese support on “all of that”.

Blinken’s efforts soon panned out into a historic in-person Xi-Biden meeting — touted by the US President as “some of the most constructive and productive discussions we’ve had” — as China agreed to the longtime US demand of restoring military-to-military communication and curbing the production of fentanyl precursors.

As the Biden administration tries to manage differences, it is critical for Beijing and Washington to jump-start constructive and meaningful dialogue on trade and economy, in particular tariffs on each other’s goods that are hurting people and companies across the two countries.

Over the years, a bolshie policy of the administrations has pushed America and China to an endless odyssey of economic rivalry, fearing Beijing in near-term could catch up or surpass Washington in economy and technology. In its insatiable quest for global economic and tech supremacy, America is deploying all tools to prevent this from happening.

This stubborn approach is hurting Americans and the US economy. For instance, most tariffs on goods from China are still in effect, inflicting significant harms to the US consumers, businesses and manufacturing competitiveness. The Section 301 and 232 tariffs on Chinese steel and aluminum as well as March 2024 petition to address China’s shipping and shipbuilding practices continue to undermine the country’s image as a champion of free trade, conceding more moral weight to China internationally.

A vast majority of the increase in US tax collection ($211 billion of $233 billion ) came from Section 301 tariffs on China. These taxes were paid by Americans. Biden during his election campaign himself had acknowledged this fact, blaming Trump’s tariffs for saddling Americans consumers, farmers and companies.

One of the major US concerns is its trade deficit with China. Even as America’s trade gap with China dropped by $102.9 billion to $279.4 billion, its deficit with Mexico surged with Mexico $21.9 billion to $152.4 billion. The data supports Xeneta’s analysis that the Chinese firms were potentially rerouting its exports into the US through Mexico to circumvent the tariffs, weakening the US leverage in talks with China on economy and trade issues.

The Financial Times’ analysis of a leading freight benchmarking firm further suggests Mexico is turning into a regional hub for Chinese companies for exports to the US. “Reducing reliance on China is an easy soundbite for politicians, but the reality is very different,” Erik Devetak, Xeneta’s chief product and data officer, told the British daily. A BBC report also underscores how countless Chinese companies were relocating industrial parks in Mexico to bring production to the country to avoid US tariffs. Rather than the US, third countries such as Vietnam and Malaysia continue to reap benefits from the trade war.

A CATO Institute’s study recently concluded that irrespective of this being a problem, tariffs were not a “valid solution”. Higher tariffs aren’t either as they would drive Chinese companies to shift production to other states or cost $31 billion to American consumers, per National Retail Foundation, and cut the US GDP by 0.5%, according to Bloomberg. Biden’s plea to triple the tariff on steel and aluminum from China to appease the politically powerful steel industry and ban TikTok could help him charge his election campaign; it won’t support his mission to stabilise the China-US relationship.

Before the tariff war, China was the fastest growing large market for the US. But retaliatory duties have positioned the US exporters, relying on Chinese components, at a huge disadvantage against competitors. Tariffs tend to heat up corruption, protectionism and appreciate the value of the US dollar, chastising the US manufacturers in terms of lower sales and profits.

China in the middle of the property crisis in Q1-2024 posted a strong growth of 5.3%, official data showed. The International Monetary Fund last year saw Beijing as the world’s leading growth driver for the next five years; it retained its forecast this year, expecting the Middle Kingdom to remain the top contributor to global growth.

According to the US-China Business Council’s recent report, exports to China in 2023 fell 4.3% to $144.9 billion; China remains an important market for American companies, supporting about one million jobs in the US. Further tariff spat between Beijing and Washington, it warned, could make other countries more competitive amid geopolitical tensions and economic slowdowns.

With a lot of restrictions already in place on China and military assistance of $61 billion for Ukraine, $26 billion for Israel to escalate the Israeli brutality against Palestinians and $8 billion to “counter communist China” in the Indo-Pacific, neither Washington can boast of supporting peace and standing up for human rights nor could it come out clean of fueling wars and conflicts.

On the one side, America is mercilessly pouring American taxpayers’ money to aid its military-industrial complex at the cost of human lives and on the other, the US government is making their and American companies’ survival more difficult by threatening to wage a new barrage of tariffs, which will be potentially diverted to support Israel and counter China and Russia.

Experts agree tariffs could have unintended consequences for American consumers, companies and GDP, stating tax hikes as a “stopgap” measure to rein in overcapacity. Removal of bilateral tariffs would curtail America’s ability to channel funds for its strategic objectives: they will slash inflation, create more jobs, eliminate shortage of goods, increase economic output and reduce geopolitical tensions. The US should opt for the latter.

Published in The Express Tribune, May 8^th, 2024.

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