Is US-China trade war sustainable?

The US risks inadvertently bolstering China’s position on the world stage

KARACHI:

The new tariffs regime on Chinese-made electric cars, solar panels, steel, and other goods, being escalated by US President Joe Biden, could potentially have profound effects on the US economy and its citizens. According to the White House, measures were implemented to safeguard US jobs, though China’s potential reactions to these increases remain a concern.

“Imposing new taxes, high tariffs, or duties on Chinese products, especially electric cars, as China manufactures high-quality vehicles with advanced technology, modern features, and competitive prices. America struggles to compete, hence the imposition of duties and obstacles to Chinese EVs. Similarly, there are bans on many Chinese products like car batteries, accessories for renewable energy, solar panels, and other items,” stated Zamir Ahmed Awan, an analyst at the Global Silk Route Research Alliance (GSRRA), a think-tank.

He stated that the use of political tools aims to achieve American objectives to contain and isolate China.

“When it comes to soft or hard war, I believe Americans are not unwise; they will never engage in physical conflict with China. America has a history of targeting naive, weak, poor, and backward countries,” he remarked.

He pointed out that China possesses a robust defence system, making it difficult for the US to overwhelm it easily. No country can prevail against China through force alone. The optimal path forward involves collaboration and cooperation with China to maximise the benefits arising from its rise.

Mustafa Hyder Sayed, Executive Director of the Pakistan China Institute, expressed concerns about the latest tariff regime imposed by the US, which raises questions and hampers sales in the EV auto industry. This reflects the United States’ willingness to contain China’s ascent.

He pointed out that the US is unable to match the quality and price of Chinese products. Rather than accepting this reality or attempting to compete, the US is endeavouring to contain China, akin to a child who, upon losing a race, throws a tantrum rather than accepting defeat gracefully.

Moreover, the US is levelling old allegations, such as accusing the Chinese government of funnelling money into Chinese companies. However, it does not make sense to link this to the national security of the US. China’s economy is the second-largest in the world and is predicted to surpass that of the US by 2030, which may indeed have economic repercussions for the US.

He stressed that neither the US nor China can afford conflict or war, given how intertwined their economies are. The US is the largest consumer of Chinese products, and it owes trillions of dollars to China. Additionally, the most influential lobby of China is in the US, represented by companies like Boeing, Apple, and Ford, which generate substantial sales in China.

He also noted that the US is unmistakably losing its dominance, a sentiment echoed recently by Indian Foreign Minister Jaishankar. The dominance that the US established at the end of the Cold War has effectively come to an end.

Trade war

A trade war has been underway between the US and China since the establishment of diplomatic relations between the two countries in the early 1970s. Initially, US companies invested in China and entered its market with the intention of tapping into its vast potential. They set up manufacturing units to take advantage of cheap labour, affordable raw materials, and flexible incentive-based policies. During the 1970s to the 1990s and even into the early 2020s, these companies reaped substantial profits and dominated the Chinese market.

However, when China joined the World Trade Organisation (WTO), the dynamics began to shift gradually. China started exporting its products to the rest of the world, marking the early 2000s as a turning point. Consequently, the Chinese economy experienced rapid growth. By 2005, China had surpassed the German economy, becoming the third-largest economy in the world. Germany accepted China’s rise gracefully.

In 2010, China surpassed the Japanese economy, cementing its position as the second-largest economy globally. Japan, a historical rival of China, did not readily accept this development and began creating obstacles for China. Americans also foresaw the trajectory of China’s development, speculating that in the coming years, China might surpass the US economy. Consequently, they perceived China’s ascent as a threat to the US economy and sought to maintain their hegemonic status as the sole superpower in a unipolar world.

Recognising China as a potential threat, former President Bill Clinton was among the first to highlight China’s rise as a concern for America. Subsequent administrations, including that of former President Barack Obama, implemented mild and discreet measures in response. However, former President Donald Trump escalated tensions by declaring a full-blown trade war against China, imposing tariffs, sanctions, and blacklisting Chinese companies.

Current US President Joe Biden has continued to take decisive action, blacklisting additional Chinese companies and entrepreneurs and imposing further sanctions and bans on Chinese products and commodities. This ongoing trade dispute underscores the deep-rooted conflict between the US and China over economic dominance and global influence.

The latest tariffs include semiconductors, which will see an increase from 25% to 50% by 2025, certain steel and aluminium products facing an escalation from 7.5% to 25% in 2024, electric vehicles encountering a surge from 25% to 100% in 2024, lithium batteries and critical minerals experiencing a hike from 7.5% to 25% in 2024, solar cells facing an increment from 25% to 50% in 2024, ship-to-shore cranes witnessing a rise from 0% to 25% in 2024, and rubber medical and surgical gloves undergoing an increase from 7.5% to 25% in 2026.

This punitive tariff regime planned by the US is anticipated to harm the US more than China. The new strategies of the US may significantly impact multi-billion-dollar enterprises, such as Boeing, the largest American company, which is heavily reliant on the Chinese market. Approximately 29% of Boeing’s revenue comes from China. Similarly, Tesla, an American enterprise with manufacturing plants in China, derives 60% of its revenue from the Chinese market. Apple garners around 85% of its revenue from China, while GM and many other major US companies have established manufacturing plants and branches there, yielding substantial profits.

If China reciprocates with similar sanctions on American enterprises, it could spell disaster for American companies, leading to business losses and exerting pressure on the American administration.

On the contrary, the American economy is experiencing an overall decline, mirroring global economic challenges. It is also important to note that only affluent Americans can afford expensive products, while the majority of the middle class struggle to do so. Chinese products, with their acceptable quality and low prices, often meet the criteria of affordability.

If Chinese products are barred from entering the American markets, it would disproportionately affect the middle and lower classes, potentially sparking unrest and political instability, akin to protests. This would further intensify pressure on the American administration. Ultimately, such measures by the American administration would harm American consumers and society more than they would impact China.

Furthermore, American sanctions compel China to develop its own modern alternative technologies, fostering further growth. Consequently, these counterproductive American sanctions and anti-China actions may inadvertently favour China in the long run.

THE WRITER IS A STAFF CORRESPONDENT

Published in The Express Tribune, May 20^th, 2024.

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