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Zhao Minghao: US has shot itself in the foot by escalating trade war

2019-05-31

By Zhao Minghao    Source: Global Times    Published: 2019-5-30


Amid mounting pressure by the Trump administration on economic and trade issues, China has remained resilient as Chinese pride soars.


As the US has recently tightened the screws on tariffs and as talk of a "tech cold war" looms, the prospect of an agreement between China and the US appears gloomier.


It is undeniable that the window for resolving China-US trade disputes is shrinking. At the end of next month, the heads of state of China and the US will attend the G20 summit in Osaka, Japan. If China-US trade negotiations cannot return to the right track before the summit, economy of the two countries and rest of the world will come under great pressure.


Although Trump has always boasted of the benefits that tariffs bring to the US, the US economy, especially its ordinary people, are indeed being hurt. According to a CNBC report, Boston Federal Reserve President Eric Rosengren said recently that the ongoing conflict between the world's largest economies is a "prominent downside risk."


The American people will pay more price for Trump administration's worsening trade dispute with China, about which US retailers such as Wal-Mart and Macy's have already warned. A recent study by the New York Fed shows that the latest round of tariffs imposed by the US on goods from China will cost the average American family $831 a year.


Agricultural institutions such as the US Soybean Export Association have clearly opposed the tariff war by the Trump administration. To cement Trump's voter base, the White House proposed to provide US farmers with a $16 billion aid, which is far higher than the US government's gain from tariffs on China. The first payment will be issued in July or August but the remaining subsidies will not be released until late autumn and early next year.


Even so, this subsidy does not eliminate the biggest worry of US soybean growers — losing the Chinese market forever. It will also bring new problems. High subsidies will encourage farmers to grow more soybeans but it will also create oversupply. What is even more worrying is the "tech cold war" launched by the Trump administration, targeting many Chinese companies such as Huawei. Trump is clearly more familiar with real estate and steel mills than the high-tech industry in Silicon Valley. Maliciously breaking the global technology supply chain will bring US a series of disadvantages.


While Huawei is under unprecedented pressure, the share prices of US companies such as chip makers have also suffered. According to Bloomberg, in a written submission to the US Department of Commerce, Microsoft warned that the proposed restrictions risked isolating the US from international research collaborations behind the development of many technologies, and that done wrongly, a new regime "could thwart U.S. interests."


Robert D. Atkinson, chairman of the Information Technology and Innovation Foundation (ITIF), has recently said that "limiting US technology exports to Chinese companies is a risky strategy." "Furthermore, limiting exports of US technology reduces output and jobs in the United States, hurting US competitiveness and speeding up China's technology independence," he said.


More ironically, the Trump administration's escalation of the trade war with China will not reduce the US trade deficit nor make US companies return home. The deficit has only shifted from China to other countries. For example, Vietnam's exports to the US are soaring. In the first quarter of 2019, Vietnam's trade surplus with the US increased by 45.5% year-on-year to $13.5 billion.


The shift in the industrial chain is not as simple as Trump and his hawkish advisors imagine. A recent survey by the American Chamber of Commerce shows that tariffs do not encourage US companies to move jobs back home, and more than 40 percent of US companies in China are still considering moving to Southeast Asia and Mexico.


Let alone winning, the Trump administration does not receive many benefits in the trade war. On the contrary, the US might be losing the opportunity to solve problems jointly and conscientiously with China. Moreover, the complete breakdown of China-US economic and trade negotiations will lead to new China-US tensions in diplomacy and security.


On a global scale, the Trump administration has made enough enemies and its blunders in the Middle East and Latin America have caused intractable crises. None of these will make Trump successful in the 2020 election. Undoubtedly, messing up the China-US relationship will never make the US great again.


The author is a visiting fellow at the Chongyang Institute for Financial Studies at Renmin University of China.

Key Words: US   China   trade   Zhao Minghao  

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