With Trump assuming office in January, the US has begun the phase I of the Trade War 2.0. As a first step, President Trump has taken two concrete steps – on 04 February, an additional 10% tariff was imposed on all Chinese goods bringing the average tariff on Chinese goods entering the US market to around 30%, and ended the de minimis exemption that allowed packages worth less than $800, bound for individual consumers, to avoid tariff. In addition, Trump has stated that the US might revoke China’s permanent normal trade relations status in place since 2000. This could raise the tariff on Chinese goods to over 60%. In response, China announced starting 10 February, it will impose levels of 15% on imports of US coal and LNG and 10% for crude oil as well as on some farm equipment and some autos.
Trade War 1.0, that began in March, 2018 under President Trump led to a sizeable reduction in trade between the US and China and trade diversion leading to reorganization of value chains. A truce, the so-called Phase One Agreement, was signed in January 2020 after the new tariff increases of 2019. Since the start of the trade conflict, the tariff on goods entering the US from China saw a rise from 2.6% to 17.5%. Tariffs are part of a strategy on part of US to restrict the trade flow between the US and Chinese economy with the aim to address the imbalance in trade, encourage manufacturing in the US, and mitigate the challenge posed by China’s state-led capitalist mode of production. The center of gravity of the trade conflict is well enshrined in the Phase One economic and trade agreement signed by the United States and China on January 15, 2020. This agreement calls for China to strengthen protection and enforcement of Intellectual Property (IP) in China which will help secure a level playing field for American companies and preserve American competitiveness. This agreement requires China to promulgate an Action Plan that will outline the structural changes that China will take to implement its obligations. A top priority for the US in this regard is the protections for trade secrets and enforcement against trade secret theft in China. For the first time in any trade agreement, China agreed to end its long-standing practice of forcing or pressuring foreign companies to transfer their technology to Chinese companies as a condition for obtaining market access, administrative approvals, or receiving advantages from the government.
Despite a commitment and undertaking of obligation by China, trade war continued unabated under the Biden administration which towards the fag end of its tenure on 02 December, 2024 announced a package of rules designed to further impair China’s capability to produce advanced-node semiconductors necessary for its military modernization. The idea of using economic pressure to achieve broader strategic objectives has bipartisan support in the US. China called this interfering in trade between China and third countries, which is a typical act of economic coercion and non-market practice. In retaliation, China announced retaliatory export controls on gallium, germanium, and antimony to the US the following day. At the Asia-Pacific Economic Cooperation (APEC) summit in Lima, Peru, US President Joe Biden and Chinese President Xi Jinping engaged in a candid two-hour discussion on November 16, addressing key issues in US-China relations but failed at producing any major break- through.
Unlike the trade war in his first term, Trump is likely to force China to make major strategic concessions much early in the game. During the Trade War 1.0, China initially began by playing hard ball and attempted to match the US in imposing tariffs and adhered to the philosophy that a trade war was detrimental to US economy. Upon realising President Trump’s intent to escalate, China yielded with the historical trade agreement and commitments to import $200 billion worth goods from the US. However, under Biden administration, this agreement has not been implemented, nor has China fulfilled its commitments of increasing imports.
Having won the first round, Trump will effectuate the dictum – appeasement only makes the aggressor more aggressive. China’s immediate response to Trump’s policy has been much muted and pragmatic, and aimed at nationalist sentiment at home. In response to the US imposition of 10% additional tariff on hundreds of billions of dollars’ worth of goods, China responded with tariffs on only $10 billion worth of imports. According to Trump, the additional tariffs on Chinese goods were Washington’s response to China’s role in manufacturing precursor chemicals essential to fentanyl production in Mexico. This is just the beginning of Trump’s negotiation with China which during the course of his Presidency will aim to extract major geo-political and strategic concessions from China – Russia-Ukraine War, Taiwan, Belt and Road initiative, Philippines, South China Sea, BRICS, fentanyl etc. Given the sluggish state of Chinese economy, which is required to support its strategic objective of national rejuvenation leaves no choice for China but surrender and roll back some of its ambitious plans. Reports suggesting China’s willingness to work with Trump to keep TikTok running in the US establishes China’s inferior position in the Trade War 2.0.
The writer lectures at Sichuan International Studies University, Chongqing, PRC.
