U.S.-China tariff threats and global economy

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Baku, 6 April 2018 –

After Trump’s announcement in early March on import tariffs of 25 percent on steel and 10 percent for aluminum, Washington and Beijing started slapping each other with tit-for-tat tariff threats. In an interview with Eurasia Diary, Professor of Political Sciences and International Relations at Bucknell University, Zhiqun Zhu said that there are several possible reasons why Trump initiated the recent round of trade brawl:

First of all, the US mid-term election is coming up later this year, and if Trump can score some points in trade, he can potentially help the Republican Party in the election.

Second, it is his campaign promise to fix the trade deficit with China and create more job in America, so he needs to do something to keep his promise.

Third, with changes of his cabinet members and advisors, Trump is surrounded by trade hawks and hardliners toward China now.

Finally and also interestingly, Trump has relied on China to deal with North Korea, and now that he has accepted an invitation to meet with Kim Jong-Un face to face, perhaps he thinks he does not need China's help that much now.

Professor also mentioned that in principle, trade disputes should be resolved through the WTO conflict resolution mechanism. The United States and China have long had problems in trade such as the growing trade imbalance, market access and intellectual property rights. These are not new issues and should be addressed through negotiations. Neither country has paid enough attention to the other's concerns. For example, while the United States complains about the trade deficit and theft of intellectual property rights, China points to US's unfair treatment of some Chinese investments and its ban on high-tech exports to China on national security grounds.

Tariffs or a trade war will not solve such long-standing problems and will only hurt both economies and businesses and consumers in both countries. The only solution is to sit down and negotiate an acceptable outcome to both sides.

Possible consequences of tension for global economy

Zhiqun Zhu stressed that settling trade disputes through tariffs or a trade war sets a bad example for other WTO members. If other countries follow suit, the international trade regime and international economic order will be disrupted.

According to him, in this era of high interdependence and global supply chain, bilateral trade is not simply between two countries anymore; other trading partners will inevitably be affected--a reason why no other country has come forward to support a potential trade war between the world's two largest economies.

The WTO itself is not powerful enough to compel the United States and China to follow its rules and resolve their disputes through existing mechanism and through negotiations.

It is really up to the United States and China, as the two largest economies and two most influential countries, to set a good example for others to follow WTO rules and settle disputes through negotiations and consultations. And if negotiations fail, they can file a suit through WTO. Unilateral imposition of high tariffs will only harm the integrity of the WTO.

The huge trade imbalance between the United States and China is structural since many of the Chinese exports to the US markets are not made by China alone. Multinational corporations including US businesses have moved their production facilities to China over the years. Many countries ship semi-finished products to China, where they are re-processed and packaged before being exported to overseas markets. So it is not realistic to eliminate US trade deficit with China.

Although the US has deficit in commodity trade, it actually enjoys surplus in service trade with China. One needs to look at the whole picture when analyzing the trade issue. The trade dispute, if not handled properly, may affect the two countries' cooperation in other areas such as North Korea.

More importantly, the recent tariff standoff reflects a bigger problem in US-China relations, which is how to deal with the rising power of China. China under the strong leadership of Xi Jinping is moving closer to realizing the "Chinese dream" of becoming a powerful, wealthy, and modern state. The United States, on the other hand, will not relinquish its dominant position in the world. So the conflict is inherent, but not inevitable if managed well. This is going to be a major challenge not just for the two countries but for the international community. The road ahead is not going to be smooth.

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