Trump announced on June 15 that the U.S. will impose US$50 billion in tariffs on Chinese products. Taiwan’s United Daily News published an article on June 16 and listed four possible outcomes of the China-U.S. trade war. A summary follows:
1. Both sides take a step back: This would have been possible a month ago. Secretary of the Treasury Mnuchin announced that the U.S. would put the trade war on hold while the U.S. accepted China’s increase in the purchase of U.S. products. That scenario fell by the wayside a few days later and both parties are back at ground zero. Currently it is unlikely that both parties will reach an agreement. The U.S. wants China to focus on structural change and stop forcing U.S. companies operating businesses in China to transfer their technology while Beijing will not make any concessions that result in major changes to its path to “Made in China 2025.”
2. China Makes Concessions: Xi Jinping has repeatedly expressed his desire to defend the current global trade order and promote economic restructuring. Once a trade war occurs, it will interfere with the Chinese government’s economic management work. In May, China’s economic performance already started to slow down. The most favorable situation for the U.S. is that China retreats on the issue of science and technology and becomes open to more imports of U.S. products and services.
3. The U.S. Makes Concessions: Although Trump boasted that he is a great “negotiator,” his record on foreign negotiations conducted after he took office is still lacking. China understands that Trump has always bluffed and he is quite satisfied with the rise in the stock market and the enthusiasm for the economy. The list of items involved in China’s revenge includes a series of agricultural products such as soybeans, sorghum, and cotton, which will be a major blow to states that are agricultural. It is the agricultural states that generally supported Trump in the 2016 election. Therefore, Trump’s current action may be suggesting that he not only wants to continue negotiations, but also wants to solve short-term problems first, rather than long-term problems.
4. The U.S. and China start the Trade War: Both parties may not be able to solve the problem soon and the situation may change rapidly. Both parties are reluctant to show weakness. Trump gets a lot of support from the “rust belt” traditional industrial states and these states have been heavily hit by “globalization.” As the U.S. Congress is about to hold a mid-term election in November, he must appease his political base.
Xi Jinping’s long-term strategy is to make China a global technology leader. If the U.S. requires China to make a systematic change to its basic economic model, it may put both parties in a state of long-term tension. In the past, the U.S. asked China to relax control of the steel making industry but achieved limited results.
Bloomberg’s economists expect that the direct impact of the trade war on the economic growth of the two sides will be limited. However, the harm incurred will intensify if it hurts corporate and consumer confidence. A trade war may harm American laborers, farmers, and consumers. Although it has not reached that point, it has caused anxiety. Once a major conflict occurs, the consequences will be difficult to reverse.
Source: United Daily News, June 16, 2018