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US - China: How to Avoid a Broader Trade War

Just as Donald Trump's sometimes aggressive rhetoric has gotten the attention of North Korea's Kim Jung Un, so his tough talk about rectifying trade imbalances with China has also alerted Beijing to the risks of a trade war with the United States. Whether Trump's assertive wielding to the carrot and the stick in both cases simultaneously will be successful remains to be seen.

Also similar to the North Korean discussions, it is not clear what the Trump administration exactly wants in a revised trade framework with China. President Trump, along with his Treasury Secretary Steve Mnuchin and Commerce Secretary Wilbur Ross tend to emphasize reducing the current $337 billion annual deficit by raising US exports in agriculture, energy, and other sectors.

Others, notably US Trade Representative Robert Lighthizer and Republicans in the Senate and the Congress place more emphasis on strengthening intellectual property rights (IPR). The two goals, of course, are not mutually exclusive, but there are limits to how fast and how deep such changes can be made. In addition, the first approach has already raised concerns amongst US allies, partners, and competitors that increased US exports to China will come at the expense of their own exports to China. This must be a concern in Russia as the Trump administration has shown inclinations to try to separate the budding Sino-Russian partnership as it would like to do with the Russo-Iranian relationship.

The second approach of strengthening IPR for US companies in China is more strategically targeted to stall fulfillment of Xi Jinping's ambitious high technology goals for China in the coming decade. This is a tack that should be more attractive to US allies, partners, and even a competitor like Russia who all share concerns about the rapid economic and technological growth of China.

It is likely that China and the United States will find a way to work through their differences to avoid a broader trade war. Each country's economic success remains highly interdependent, and as then US Treasury Secretary Lawrence Summers said in the 1990s, a US-China trade war, to borrow the nuclear war metaphor, risks mutually assured destruction.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.