China–United States trade war

Donald Trump and Xi Jinping at the 2019 G20 Osaka summit

The China–United States trade war (simplified Chinese: 中美贸易战; traditional Chinese: 中美貿易戰; pinyin: Zhōngměi Màoyìzhàn) is an ongoing economic conflict between the world’s two largest national economies, China and the United States. The conflict, initiated by President of the United States Donald Trump, has been characterized by increasing tariffs and other trade barriers with the goal of forcing China to make changes to what the U.S. says are "unfair trade practices".[1] Among the trade practices and their effects which the U.S. claims are unfair are the growing trade deficit, the theft of intellectual property, and the forced transfer of American technology to China. Those, and other rationales for the tariffs, were explained in a government report published in March 2018.[2]

Since the 1980s, Trump advocated tariffs to reduce the U.S. trade deficit and promote domestic manufacturing, saying the country was being "ripped off" by its trading partners; imposing tariffs became a major plank of his presidential campaign. Although some economists and politicians argue that the United States' persistent trade deficit is problematic, many economists argue that it is not a problem,[3] and very few advocate tariffs as a solution, citing historical evidence that escalating tariff conflicts result in no winners.[4][5][6][7]

In the United States, the trade war has brought struggles for farmers and manufacturers and higher prices for consumers. In other countries it has also caused economic damage, though some countries have benefited from increased manufacturing to fill the gaps. It has also led to stock market instability. The governments of several countries, including China and the United States, have taken steps to address some of the damage. The trade war has been criticized internationally; in the U.S., businesses and agricultural organizations have also been critical, though most farmers continued to support Trump. Among U.S. politicians the response has been mixed.

The trade war has caused a significant deterioration in China–United States relations as the countries exchanged tit-for-tat tariffs for over a year, with Trump threatening more to come, with no resolution in sight.[8][9][10][11]

Background

The rapidly increasing US trade imbalance with China
U.S. trade deficit (in billions, goods and services) by country in 2014

China and the United States are some of world's largest economies, ranked 1st and 2nd, in terms of GDP (PPP). China as the world's largest exporter and the United States as the world's largest importer. They have so far been important pillars for the global economy.

By 1984, the United States had become China's third-largest trading partner, and China became America's 14th largest. However, the annual renewal of China's MFN status was constantly challenged by anti-Chinese pressure groups during US congressional hearings. For example, U.S. imports from China almost doubled within five years from $51.5 billion ($84.2 billion in 2019 dollars) in 1996 to $102 billion ($148 billion in 2019 dollars) in 2001.[12] The American textile industry lobbied Congress for, and received, tariffs on Chinese textiles according to the WTO Agreement on Textiles and Clothing. In reaction to the 1989 Tiananmen Square protests' suppression, the Bush I administration and Congress imposed administrative and legal constraints on investment, exports, and other trade relations with China.[13]

In 1991, China only accounted for 1% of total imports to the United States.[14] The Clinton presidency from 1992 started with an executive order (128590) that linked renewal of China's MFN status with seven human rights conditions, including "preservation of Tibetan indigenous religion and culture" and "access to prisons for international human rights organizations"—Clinton reversed this position a year later. Other challenges to Sino-American relations in this decade included the Cox Committee investigations against supposed nonprofit involvement in "promoting communism", the persecution of Taiwanese-American scientist Wen Ho Lee for unproven allegations of espionage for the PRC, and the 1999 United States bombing of the Chinese embassy in Belgrade. But relations warmed after the September 2001 initiation of the War on Terror.[15]

China joins the World Trade Organization

Bill Clinton and Chinese President Jiang Zemin holding a joint press conference at the White House, October 29, 1997

With the United States–China Relations Act of 2000, China was allowed to join WTO in 2001 and was given a most favoured nation (MFN) status.[16][17] President Bill Clinton in 2000 pushed Congress to approve the U.S.-China trade agreement and China’s accession to the WTO, saying that more trade with China would advance America’s economic interests.

However, his administration had accused the Chinese of failing to comply with global trade rules and demanded that the Chinese first resolve a list of outstanding trade grievances with Washington, including opening its markets and protecting copyrights and patents. Among the key issues were that China was a major source of pirated musical compact disks and video laser disks, along with virtually all the computer software sold in China. On intellectual property rights, there was no enforcement of China's written laws, and as a result the piracy and theft of American-produced music, videos and software was costing American companies $1 billion a year by 1994 ($1.73 billion in 2019 dollars).[18]

By 2000, Clinton said he was optimistic on achieving a fair agreement: "Economically, this agreement is the equivalent of a one-way street. It requires China to open its markets—with a fifth of the world’s population, potentially the biggest markets in the world—to both our products and services in unprecedented new ways," said Clinton. In a speech that year, he stated his hopes:

For the first time, our companies will be able to sell and distribute products in China made by workers here in America without being forced to relocate manufacturing to China, sell through the Chinese government, or transfer valuable technology—for the first time. We’ll be able to export products without exporting jobs.[19]

As a new member, China agreed to rapidly lower import tariffs and open its markets, although many trade officials doubted it would stand by those promises.[20] China did cut tariffs after it joined the WTO, but it nonetheless continued to steal U.S. intellectual property (IP) and forced American companies to transfer technology to access the Chinese market, which were violations of WTO rules.[20]

In 2008, the WTO issued a formal ruling against China for requiring foreign automakers operating there to buy most components from local suppliers or face higher tariffs, 25 percent, instead of the normal 10 percent. The WTO agreed that it amounted to an unfair discrimination against foreign parts, a violation of global trade rules.[21] The original complaint was filed in 2006 by the European Union, the United States and Canada, by which time there had already been accusations against China for using a combination of subsidies, tax incentives and an undervalued currency to gain an unfair advantage over foreign companies operating in China.[21]

China lowered its average import tariffs to 10% by 2005 from the 40% it maintained in the 1990s.[20] In 2005 Chinese exports to the U.S. increased 31 percent, but imports from the U.S. rose only 16 percent. And while the U.S. trade deficit with China was $90.2 billion in 2001 ($130 billion in 2019 dollars), it nearly doubled by 2005.[20] In the four years after joining the WTO, China in general complied with many of its legal obligations, including passing laws and meeting deadlines. However, it was slow to enforce intellectual property rights and add transparency to its industrial rules and regulations, which made it difficult for U.S. businesses to access its market.[20] By 2019 the estimated costs to the U.S. economy from Chinese IP theft was between $225 billion and $600 billion annually.[22]

The Obama administration confronted other issues in 2010, when it opened an investigation into whether the Chinese government was subsidizing its alternative energy companies, such as solar and wind turbine, in violation of WTO guidelines that it agreed to. It was one of the first challenges of China's alleged efforts to control major growing industries.[23] As explained by Obama's Trade Representative, Ron Kirk, "Green technology will be an engine for the jobs of the future, and this administration is committed to ensuring a level playing field for American workers."[23]

United Steelworkers President Leo Gerard said that those subsidies were in "direct violation" of WTO rules.[24] Along with disallowed subsidies, Gerard pointed out that U.S. firms establishing joint ventures with Chinese companies must surrender technologies and designs as a condition of doing business:

As they steal the technology and force the companies to China, they are locking down research and development. If we are not going to do solar panels and fluorescent bulbs and wind turbines here, the next generation of R and D will not be here.[24]

When President Obama met with Chinese President Hu Jintao in 2011, officials were concerned that China was not acting in the free trade spirit it agreed to when it joined the WTO 10 years earlier. They proclaimed that China was still restricting foreign investment, avoiding national treatment of foreign firms, failing to protect intellectual property rights, and distorting trade with its government subsidies.[25] There were also complaints by various lawmakers who wanted the administration to act against what they said was China's manipulating its currency, worried that it would allow China to underprice its exports and put American and other nations' manufacturing at a great disadvantage.[26] The U.S.-China Business Council in 2014 said that China was restricting investment in more than 100 industrial sectors, including agriculture, petrochemicals and health services, while the U.S. was restricting investment outright in just five sectors.[27]

A number of senators and congressmen wanted the White House to place tariffs on some of the underpriced Chinese imports, stating that if the administration wouldn't do so, they threatened to mandate some tariffs on their own.[26] In a general poll sponsored by Allstate Insurance and the National Journal in 2010, thirty-six percent of the American population would support tariffs on imports and would penalize companies that moved jobs overseas.[26]

By 2018, U.S. manufacturing jobs had decreased by almost 5 million since 2000, with the decline accelerating.[28][29][30]

Trump administration's complaints

Since the 1980s, President Trump has frequently advocated tariffs to reduce the U.S. trade deficit and promote domestic manufacturing, saying the country was being "ripped off" by its trading partners, and imposing tariffs was a major plank of his presidential campaign.[31][32][33][34][35] In early 2011, he stated that because China has manipulated their currency, "it is almost impossible for our companies to compete with Chinese companies."[36] At the time, Alan Tonelson, of the U.S. Business and Industry Council, said the degree of Chinese undervaluation was at least 40%, claiming that tariffs were the only way to fix this: "Nothing else has worked, nothing else will work."[36] In 2017, the U.S. had a $336 billion trade deficit with China and a $566 billion trade deficit overall.[37]

U.S. Secretary of Commerce Wilbur Ross meets with Chinese Minister of Industry and Information Technology Miao Wei, Beijing, September 2017

In supporting tariffs as president, he said that China was costing the American economy hundreds of billions of dollars a year because of unfair trade practices. After imposing tariffs, he denied entering into a trade war, claiming the "trade war was lost many years ago by the foolish, or incompetent, people who represented the U.S." He said that the U.S. has a trade deficit of $500 billion a year, with intellectual property (IP) theft costing an additional $300 billion. "We cannot let this continue," he said.[38][39] Former White House Counsel, Jim Schultz, said that "through multiple presidential administrations — Clinton, Bush and Obama — the United States has naively looked the other way while China cheated its way to an unfair advantage in the international trade market."[40]

Among the unfair trade practices asserted by the Trump administration is the theft of U.S. intellectual property (IP).[22] James Andrew Lewis, senior vice president at the Center for Strategic and International Studies, claims that IP has been taken through espionage, theft and forced technology transfers due to mandatory joint ventures.[41] Estimated cost to the U.S. from IP theft is between $225 billion and $600 billion annually.[22]

Technology is considered the most important part of the U.S. economy.[42] According to U.S. Trade Representative Robert E. Lighthizer, China maintains a policy of "forced technology transfer," along with practicing "state capitalism," including buying U.S. technology companies and using cybertheft to gain technology.[42] As a result, officials in the Trump administration were, by early 2018, taking steps to prevent Chinese state-controlled companies from buying American technology companies and were trying to stop American companies from handing over their key technologies to China as a cost of entering their market.[42] According to political analyst Josh Rogin: "There was a belief that China would develop a private economy that would prove compatible with the WTO system. Chinese leadership has made a political decision to do the opposite. So now we have to respond."[42]

Lighthizer said that the value of the tariffs imposed was based on U.S. estimates of the actual economic damage caused by alleged theft of intellectual property and foreign-ownership restrictions that require foreign companies to transfer technology.[43][44] Such forced Joint ventures give Chinese companies illicit access to American technology.[55]

Over half of the members of the American Chamber of Commerce in the People's Republic of China thought that leakage of intellectual property was an important concern when doing business there.[56] For example, American auto makers must establish a joint venture majority-owned by a Chinese partner, after which the Chinese company receives rights to use the American company's intellectual property in order to produce domestic product based on it.[57][58]

Former director of the National Security Agency Keith B. Alexander called Chinese industrial espionage "the greatest transfer of wealth in history"[59] and, in August 2017, Robert Lighthizer investigated China's alleged unfair trade practices.[60][61][62]

Initiating steel and aluminum tariff actions in March 2018, Trump said "trade wars are good, and so easy to win,"[63] but as the conflict continued to escalate through August 2019, Trump stated, "I never said China was going to be easy."[64][65]

Peter Navarro, White House Office of Trade and Manufacturing Policy Director, explained that the tariffs are "purely defensive measures" to reduce the trade deficit.[66] He says that the cumulative trillions of dollars that Americans transfer overseas as a result of yearly deficits are then used by those countries to buy America's assets, as opposed to investing that money in the U.S. "If we do as we're doing . . . those trillions of dollars are in the hands of foreigners that they can then use to buy up America."[67]

European Commission allegations

The European Commission filed a complaint with the World Trade Organization over these rules in 2018, arguing that foreign companies are forced or induced to transfer IP to their Chinese partner, and establish research and development in China, as "performance requirements" to receive government approval in sectors such as electric vehicles. The EU believes that this violates WTO rules requiring fair treatment of domestic and foreign companies.[68]

China's response and counter-allegations

The Chinese government has denied forced transfer of IP is a mandatory practice, and acknowledged the impact of domestic R&D performed in China.[69] Former U.S. treasury secretary Larry Summers assessed that Chinese leadership in some technological fields was the result of "huge government investment in basic science" and not "theft" of U.S. properties.[70] In March 2019, the National People's Congress endorsed a new foreign investment bill, to take effect in 2020, which explicitly prohibits the forced transfer of IP from foreign companies, and grants stronger protection to foreign intellectual property and trade secrets. China had also planned to lift restrictions on foreign investment in the automotive industry in 2022. AmCham China policy committee chair Lester Ross felt that the draft text of the bill felt "rushed" and "broad", and also showed concern for a portion of the bill that grants the country power to retaliate against countries that impose restrictions on Chinese companies.[71][58][72]

The Chinese government has blamed the American government for starting the conflict and said that U.S. actions were making negotiations difficult. They say the trade war has had a negative effect on the world and that the U.S. government's real goal is to stifle China's growth.[73]

Hong Kong economics professor Lawrence J. Lau argues that a major cause is the growing battle between China and the U.S. for global economic and technological dominance. He argues, "It is also a reflection of the rise of populism, isolationism, nationalism and protectionism almost everywhere in the world, including in the US."[74]

Other Languages