United States, China and Phase I Agreement

It does seem likely—or at least possible—that the United States and China will call a momentary retreat in their trade war and sign a so-called Phase I agreement promising greater Chinese agricultural imports from the United States and a U.S. cancellation of a scheduled 15 percent tariff increase on $250 billion of Chinese exports. Whether they can get this done in time for Trump’s meeting with Xi Jinping  in mid-November is unclear and so is it uncertain whether then or later they can formalize their agreement in writing, something they have twice failed to do. But all of that misses the larger point.

Even the more important and vexed question of whether this agreement, if achieved, will lead to a Phase 2 addressing the broader set of concerns at the heart of the conflict and bringing it to an end ignores the deeper drama unfolding. The two countries on whom the peace and prosperity of the world in the first half of the 21st century will most depend stand poised at the edge of tumultuous geostrategic reckoning, and the current trade war may well be its highly destructive initial stage. The United States appears only partially interested in correcting China’s unfair trade practices, and they are many—from patent infringement to constraining the transfer of foreign firms’ proprietary data, from the theft of intellectual property to subsidizing exports in violation of WTO norms. Rather the Trump administration’s underlying objective, mounting evidence suggests, is to box China in as a strategic competitor, hobble its high-tech growth, and cut ties giving Beijing leverage in the relationship. Were Washington only concerned with righting a distorted trade relationship, it would be making common cause with others, such as Japan, South Korea, India, and Europe, who share many of the same grievances over trade with China. Instead Trump and his people—with moderate voices like Rex Tillerson and the economic advisor, Gary Cohn, gone, and China hawks like Mike Pompeo and economic advisor, Peter Navarro, ascendant--seem set on a far more momentous goal: namely, to decouple the U.S. economy from that of China and to contain China by as many means as possible.

China-USA: Ideology No Longer Matters
Yan Xuetong
The result of the strategic competition between the United States and China is more likely to be determined by who has more technological influence rather than ideological impact on the rest of the world.
Expert Opinions

Navarro, the author of a book called Death by China, has said that the United States must destroy the supply chains fettering the United States to China. Administration actions blocking Chinese access to “emerging and foundational technologies” important in the development of artificial intelligence, quantum computing, and fifth-generation telecommunications, justified on national security grounds, are meant to curb any role for U.S. companies as China advances in these areas. The visa bans on Chinese scientists and businessmen, the surveillance of Chinese graduate students in U.S. universities, and the impediments placed on Chinese investors by U.S. security agencies serve not to make Washington’s trade case but to severe economic relations between the two countries.

China did not want a trade war with the United States, but having gotten one, it is more than willing to wage it. True, in this dance of fury, China is the partner dancing backwards. China has retaliated to each new round of U.S. tariffs with tariffs of its own, but given the unequal trade balance between the two countries, China’s arsenal is limited—albeit sharp-edged when U.S. soybean and hog farmers can be targeted. However, to the extent China’s leadership sees U.S. strategy as not merely intended to create an unfair U.S. economic advantage, but to contain China and, more than that, to force fundamental change in its economic system, it appears ready to double down in its response, including by means other than tariffs. This includes threatening to interrupt the supply of Chinese rare earth elements to U.S. industry, 80 percent of which comes from China. Or, if China felt the threat was serious enough, it could resort to the large-scale sale of the 17 percent of U.S. foreign government debt that it owns. Both steps would be costly to China, but it would be foolish to bet that Chinese leaders would not bear those costs. Similarly, while contrary to the U.S. claim, the IMF did not judge the Chinese central bank’s decision to let the Yuan drop 4 percent in August 2019 to be currency manipulation. But were the U.S.-Chinese trade war to deepen, China well might turn a tariff war into a currency war.

US-China Trade War Is A Chance to Boost Economic Cooperation Between Beijing and Moscow
Yu Hongjun
The US-China trade war is a chance to provide an impetus to economic cooperation between Beijing and Moscow, according to Yu Hongjun, Vice President of the Chinese People’s Association for Peace and Disarmament (CPAPD) and former deputy head of the International Liaison Department of the Central Committee of the Communist Party of China. He was interviewed by valdaiclub.com on the sidelines of an expert discussion, titled “Cooperation Between China and Russia Amid New International Conditions.”

Expert Opinions

In this increasingly fraught environment, observers everywhere, including in Russia, should not lose sight of an ominous big picture. Leaders in China and the United States may at times soften their voices and tactics, when the political consequences of the economic pain caused roil critical domestic constituencies, but the crumbling of the U.S.-China political-economic relationship will continue as long as Donald Trump awakens each morning in the White House. And the new “economic iron curtain” falling between the two countries (the phrase used by former U.S. Secretary of the Treasury Henry Paulson) will be but one critical dimension of an economic world in increasing disarray. As the architect of the post-World War II liberal order fostering trade and capital flows, technology transfers as a path to growth, and the mediating effects of international financial institutions turns it back on that order and wages a struggle against the existing global trading system, its embrace of economic nationalism will inevitably be imitated by other key players.

The World Bank now estimates that in 2020 the U.S.-China trade war will lower global economic growth by nearly 1 percent. Disrupted markets and falling growth, however, will be but one malign effect from the return to the zero-sum national economic policies of the 1930s.

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