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The US Trade War: How China Should React

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During the presidential campaign 2016, Donald Trump had made more than 280 promises. However, the pollpromises were formalized through the “Contract with the American Voter,” on October 22, 2016, listing out about the 60 promises for action, the day President would be in office. Out of these promises, currently the plan to curtail Chinese trade was put in practice by the initiating the trade war with China to bridge up the trade deficit with China. In this context, the new trade war has already been set in by imposing a higher tariff against China, particularly its steel and aluminum. It will remain interesting to see how the trade war will unfolds and how China would react?

Out of the  280 poll promises made during the presidential campaign (2016), Donald Trump formalized the same through the “Contract with the American Voter,” issued on October 22, 2016. Realizing the drastic consequences out of trade deficits with China, Trump rolled out a  plan to curtail Chinese trade was the key plank of “Make US Great Again” policy. At the domestic front, the US administration has repeatedly acknowledged that economic slowdown and unemployment in the country are attributed to the trade deficit with China.Trump criticized frequently the North American Free Trade Agreement (NAFTA). He has taken it as, “the worst trade deal the US has ever signed.” He has also called Trans-Pacific Partnership (TPP) as “the death blow for American manufacturing.” Donald Trump in a video message (November 21, 2016), introduced an economic strategy of “Putting America First.” The main focus of the strategy would be to negotiate  the “fair, bilateral trade deals that bring jobs and industry back to American shores.” Only after the three days after becoming president (January 23, 2017), the President Trump withdrew the US from theTrans-Pacific Partnership with the conviction to strengthen the U.S.economy.

The most serious concern for Donald Trump is China and hence he avowed to turn the trade balance in the US favourby imposing high tariffs and other non-tariff trade barriers to resuscitate its economy and creation of job opportunities.

Trade Between the US and China

As per the office of US Trade Representative (USTR),China is the largest trading partner of the US. China is the largest goods trading partner of the US, the quantum of whichwas standing at $578.2 billion in two way during 2016. The trade in services between the US and China is stood at an estimated quantum of  $70.3 billion (2016). The exports of the services on part of the US is $54.2 billion while the imports of the same were $16.1 billion having services trade surplus in its favour of the value of $38.0 billion (2016).The exports of goods on part of the US is totaled at $115.6 billion, whereas the imports of the same is  $462.6 billion. Therefore, as far as the trade balance is concerned, it is in favour of China,totaled at  $347.0 billion in 2016.

As far as the US export of goods is concerned since 2001, it has shown exponential growth i.e., 503%. In 2016, it was reached to $115.6 billion, however, the same has shown somewhat minor slump i.e., 0.3% ($330 million) during the year of 2015. The top goods include in the export category are agriculture ($ 21 bn); grain, seeds, fruit ($15 billion); aircraft ($15 billion); electrical machinery ($12 billion);  machinery ($11 billion) and vehicles ($11 billion). In the services category, the export was estimatedat$54.2 billion (2016). It is said that it was increased roughly 908% since 2001. The leading services exports from the U.S. to China are intellectual property (trademark, computer software),travel, and transport sectors.

The US is the largest destination for Chinese exports. The Chinese goods export to the US is totaled $462.6 billion (2016). However, it has shown somewhat decline at the rate of 4.3% ($20.6 billion) from 2015, but it has shown continuous increased growth at the rate of  60.8% since 2006. The Chinese contribution in the overall US goods import accounts for 21.1% (2016). The Chinese goods export list included electrical machinery ($129 billion), machinery ($97 billion), furniture and bedding ($29 billion), toys and sports equipment ($24 billion) and footwear ($15 billion). China is the 3rd largest agricultural goods exporter to the US i.e., $4.3 billion (2016).

The major concern on part of the US is the trade deficit, which is in favour of China. In 2016, the same was stood at $367 billion (2015), however, it was decreased at the rate of 5.5% decrease ($20.2 billion) totaling at $347 billion in 2016. Again, the trade deficit reached $375 billion (2017). The US exports to China were only $130 billion, whereas its imports from China were $506 billion. Moreover, China is the largest lender to the US. The debt of the US from China as of January 2018, is $1.17 trillion. The leadership of the US percieved that it gives a massive political leverage to China over the US fiscal policy.

Trade War Between the US and China

The major root of the trade war been the US and China has been embedded in the trade deficit. Even being a major power, the US has not been able to bridge up the gap of trade deficit. It has been argued that trade war originates from Chinese trade and industrial policies. Apart from these policies, Chinese currency manipulation has further put the both countries on confrontational mode. However, Trupms’s being one plus year in office, the trade deficit has not been showing any positive sign in the US favour. Ultimately, hehad  to launcha salvo of tariffs against China as in the year of 2017, the U.S. trade deficit with China is stood at US$   375 billion in 2017. The  U.S. exports to China is only $130 billion, whereas it imports stood at $506 billion.

The trade deficit of the US vis-a-vis China has been percieved as a consequence of the latters’restrictive trade practices. The restrictions include a wide array of barriers to foreign goods and services. Although, China has introduced its open market economy in 1978 and even expanded the scope of the same after becoming the member of the WTO (2001). However, China  has introduced the market economy but its trade and industrial policies are aimed at protecting the state-owned enterprises by levying the high tariffsover the imports. Moreover, the other restrictions such as theindustries required special permission to import goods, inconsistent application of laws and regulations, transfer of technology from the foreign firmsfor the Chinese market access etc. Apart from these restriction, the lack of transparency and currency manipulation on part of China have been emerging as major concerns for the Trumps’regime. Therefore, it has become a major compulsionon part of the Trump regime to take a hard-line stance against China.

Within the seventy-day in administration, the President Trump  in his administration’s annual trade policy report to Congress (March 2017), had openly challenged the World Trade Organization (WTO)particularly for “China’s unfair advantage.” He went further with the accusation of  Chinese dumping of  steel,  aluminum and chemical products. In the same month, the US Department of Commerce had announced two antidumping (AD) and countervailing duty investigations (CVD)against China. Even the pre-Trump regimes have also been engaged with China over the dumping casesin the WTO. The Obama administration had become frustrated over Chinese economic reforms and increasingly skeptical about the prospect for future reforms. Till date, the US has registered 16 cases against China, to address its concerns such as Chinese Ads, CVDs, industrial policy and the dominance of state-owned enterprises.In this background, China has turned to the Dispute Settlement Mechanism (DSM) of the WTO to address such perceived unfairness use of such investigations. China had filed 11 cases against the US at the WTO as the former percieves per se the leading target of the USs’ AD and CVD investigations. Robert ELighthizer (United States Trade Representative) has also givenan indication that the U.S. may take action against the WTO for its alleged failures not to check the Chinese unfair trade practices.

President Trump has aired portentous signals with the beginning of the year of 2018. The salvo of high tariffs had launched against its trade deficit with China. President Trump by using the Section 301 of the US Trade Act of 1974, had unilaterally imposed trade tariffs on China. In January, he imposed tariffs on solar panels and washing machines. In a tweet issued on March 2, 2018, Trump asserted that “Trade wars are good and easy to win.” President Trump had signed an executive memorandum on 22 March 2018 to enforce  25 percent tariff on steel and a 10 percent tariff on aluminum imports. The measures have been designed to counter the Chinese unfair trade practices as the administration believes that it involves stealing of the US companiesintellectual property. Trump gave signals that the tariffs would cover at least cover  $60 billion in tariffs on Chinese goods.

Chinas Reactions

China has reacted very aggressively to the US’s new trade war. It has been seen that China is in assertive mode and not going to budge to the US pressure. The Chinese Foreign Ministry spokeswoman Hua Chunying said, “We don’t want a trade war, but we are not afraid of it.”If we unfold the statement, it clearly conveyed the message to the US, how China is likely going to take the sanctions? Moreover,  the Chinese Commerce Ministry has  also used the same tone and tenor while asking  the Trump regime on 28 March not to go ahead with such planned tariffs. It can be taken as a warning signal to the Trump regime as China could set off a same chain of  reactions. Moreover, the Xi governemnt has given clear signal that China would,“fight to the end.” Although, the US economically and militarly is in stronger position but at the same time China has also been following the suit. China has been emerged a stronger economy, moreover, it is a major lender to the US which gives its stronger position vis-a-vis the US. If the trade war lingers on, the losses or gains are not unilateral. One can percieve  that the US has to suffer more losses as compared to China. The developing countries have already opened up and messed up their economies under the global instituions’ pressure. In this milieu, loss of employment opportunities, health services and education, suicides of the farmers, loss of local industries and many more challanges have become the part and parcel of the people’s life.  In this miliu, it should be left to the individual countries’ decision, how much its economy is to be opened? Moreover, if any country is asked for the same, it should be under the international laws, not as per the invidual countries’s whimsical and impulsive actions.

Dr. Bawa Singh is teaching in the Centre for South and Central Asian Studies, School of Global Relations, Central University of Punjab, Bathinda, India-151001. bawasingh73[at]gmail.com

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East Asia

Time to play the Taiwan card

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At a time when the dragon is breathing fire, India must explore alternative tactics, perhaps establishment of formal diplomatic ties with Taiwan can be a landmark step

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The standoff on the Ladakh border between the Indian Army and the PLA (People’s Liberation Army) continues amid failing talks and casus belli measures being unleashed by the Chinese regime. While the union government and the armed forces make it clear that they will do whatever it takes to protect India’s sovereignty and integrity, precious little has been done on the foreign policy front. While India and its democratic allies which comprise the Quad security grouping declare their intent to form the ‘Asian NATO’, the Quad continues to suffer from indecisiveness which was pretty much evident when the Quad did not even issue a joint statement to condemn China at the foreign ministers meeting held last year, only America publicly called out China.

In such a situation, it is imperative that India explore alternate diplomatic and militaristic routes to tame the dragon.

Recognizing Taiwan

Establishing formal diplomatic ties with Taiwan after recognizing should be vigorously pursuing by South Block. Indo-Taiwan ties date back to the early 1950s when Chiang Kai Shek, the ex Chinese president and former head of state fled to the island of Formosa following the victory of Mao Zedong in the long drawn out Chinese civil war called on Nehru to establish and further ties with Formosa, however Nehru believing that Chiang was nothing but a “peanut” decided to ignore his call, choosing instead to concentrate on building ties with People’s Republic of China (PRC).

Seven decades on, plethora of changes has taken place on the foreign affairs front, while both China and India have developed considerably both militarily and economically the dragon has surpassed elephant to become an economic powerhouse in its own might. It has now embraced aggressiveness to enforce its 5th century vision of the ‘Middle Kingdom’. In such a situation providing legitimacy to the existence of Taiwan is a necessary first step.

Paradigm shift in policy

Establishing formal diplomatic ties with Taiwan will bring about a paradigm shift vis-à-vis India’s foreign policy. It will enforce the idea that liberal democracy is the last word in the battle of ideologies as Francis Fukuyama had visualized in his landmark book ‘The End of History and the Last Man’ and that there is no alternative to human rights and liberties, not even the Chinese model of ‘authoritarian development’. It will be the boldest step that any global leader has taken, not even the mighty US which has no formal diplomatic relations with Taiwan has taken this step.

Recognizing Taiwan will entail a lot of benefits for the mandarins of India’s foreign policy regime- firstly, Taiwan is a robust democracy with a booming economy, it will prove to be an alternative to China albeit in a relatively less proportion, secondly, India can bolster the legitimacy as the leader of the democratic world at a time when the democratic institutions in the US-often regarded as the cradle of democracy has been undermined.

Thirdly, India can get the support of another powerful ally in its attempt to carve out a new supply chain alliance which India-Japan-Australia formalized recently. Fourthly, recognizing Taiwan will make it clear to China that India means some serious business and if the need arises then India will not back down from sending dedicated naval and air assets in the disputed South China Sea region to enforce freedom of navigation principle in the resource rich region. Lastly, the Quad security grouping will be institutionalized which in the near future can even be extended to include new members, it will be the first time that India will be a part of any dedicated military and economic alliance which will deter the aggression of the Chinese war machine in the strategic Indian Ocean and Indo-Pacific Region.

Caveats remain

However the recognition may invite severe ramifications for India. China will be infuriated and can choose to ratchet up tensions with India. India must be extremely careful while dealing with China as China is our second largest bilateral trade partner and a key export partner of India with regard to raw materials and goods. According to a FICCI report, India imports more than 40% of several important goods like the API (Active Pharmaceutical Ingredients), television, chemicals, chips, textiles and many more.

The dragon will as a possible retaliatory measure can activate its propaganda machinery to wage psychological warfare with India. It can also activate its terror financing networks which for years remained a chronic internal security for India in the northeast of the country. China will also collaborate with its ‘iron brother’ Pakistan to try and deter India by intensifying terrorism in the Kashmir valley and elsewhere. Further, China can use its potent disinformation empire to try and peddle fake news about the credibility of India’s indigenous vaccines at a time when the light at the end of the tunnel of a pandemic stricken world has appeared.

Exercising caution

Keeping all the dangers in mind, the Modi government must keep national interests in mind. Despite all the risks, it must work with all the like- minded countries to take own the mighty dragon responsible for unleashing a deadly virus which has wrecked havoc on humanity. For the sake of the free world, India must take the hard step which will reinforce India’s position in cementing its place as the leader of the free world.

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Pro-Communism warping Hong Kong

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The latest turmoil in the Covid-ridden strata of mainland China is not servile to any pandemic, however, the issue has been one of the most queer and rare kinds, enough to be classified as one of the endemic issues in the global affairs. The tension at helm is the chaos following the announcement of a “New Security Law” by the Chinese regime which is being eyed as one of the monumental events of this decade; slicing off a sliver of attention from the deadly Corona virus that continues to exponentiate around the world in its second wave and sporadic variants.

The law that set out by the Chinese lawmakers back on 22nd May 2020, threatens the liberties of subversion and sedition enjoyed by the citizens of Hong Kong under a constitution. Simplistically named “Basic Law”, it aims to tame the country scaffolded by the “One country, Two systems” framework since the power handover by the former colony to China back in 1997. This act came around amidst strained economic relations between the two superpowers of the world; China and USA, each passing the baton in the blame game of who sustains the blood-crown of the catastrophe impending on the world courtesy of the lethal virus that engulfs every periphery in each continent on the globe. The matters seem complex at sight and a glimpse to the historical timeline of how riddled the relations were could hint at how strained they could reach.

The colony, known as ‘Hong Kong’ today, had been the battle ground, figuratively, to the major competitors of the 20th century: The Great Britain and China. The British dominated the colony for more than 150 years, tracing back to the late 19th century; leasing the territory for the span to morph it into the modernised metropolis marking it as the hub we know today. In 1997, an agreement was reached via an accord, ‘The Sino-British Joint Declaration‘ between the two sides. The treaty allowed Hong Kong a semi-autonomous status, that is, relaying self-sufficiency in all the national domains except in defence and foreign affairs. The allotted autonomy arches under the sovereignty of China until year 2047, henceforward melding into the mainland China as harkened by the Chinese hegemony over decades.

Despite of the granted protection of Hong Kong’s own legislation, borders and freedom of speech, the liberties have been trampled on by the Chinese government over the last couple of decades. A similar law abolishing the right to sedition was initiated in 2003 yet mass protests calling out up and about 50,000 citizens impeded the efforts that went futile and drastically ended up being shunned for good. The Communist party under the wings of Chinese president Xi Jinping have expounded further in tightening their talons on the city since 2012 as efforts were made to corrode the educational system of the country via meddling with the curriculum, biasing the foundation to hail Chinese communism. These acts were proactive reactions to the advances of the United States forging relations with the city. China even tried to manipulate the elections in 2014, tampering with the selection their Chief Executive leading to a 3-month long protest known as the ‘Umbrella movement’ and ultimate downfall of Hong Kong’s autonomous political system.

The security law falls in tandem to the events of 2019; the legislation allowing the convicts from Hong Kong to be extradited in China causing a rave of fear of a massive tactical crackdown of the Anti-communist activists of Hong Kong, sighting it just as ruse to underwhelm the right of sedition of the people of Hong Kong. The Law passed by the parliament notions to only one thing; The ultimate end to Hong Kong. The lawmakers in China, hailing from the National People’s Congress (NPC), sight this move as extricating a threat to the national security and stability of the country while many of the pro-activists in Hong Kong deem the law as betrayal, accusing China of walking back on its promise of high-degree autonomy and freedom of speech, marking it as the final straw, the last struggle before the country could override the laws in the city and indirectly, transition from the entity holding the right to veto the laws to now gripping the law altogether.

Despite of the speculated protests to spark like the history dictates, many of the sage minds predict either a relatively dormant demonstrations or none at all, having a tint of finality in the statement shote the protests are “high stake in risk and repression”. The recent arrest of the leading activists of Hong Kong standing up to voice their disdain to the separatist efforts of China further solidify the notion. Despite of a global condemnation to the new law, the efforts of China resume to subdue any opposition in Honk Kong no matter how sparse. Foreseeing no way out for Hong Kong this time; the Covid-19 paralysis the United States in its own crisis and the legislature inclining towards the Chinese pressure, a complete erasure of Hong Kong is sighted and could not be restrained- for better or for worse.

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East Asia

The Belligerent Chinese Diplomacy and Its Failure

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The Chinese media has recently reported of Xi Jinping writing a letter to George Schultz the former chairman of Starbucks, the US coffee giant. In the letter, he has requested Schultz to play a positive role in advancing the US-China relations. While head of a major state writing letter to big corporate heads is not a common but not an unusual development either, this letter from Jinping should be seen in a relevant context. It indicates a certain amount of desperation and difficulty of China in its dealings with the US.

It suggests that after months of aggressive posturing and verbal duels against Trump, the State Department and Pentagon, China is now cosying up to the new Joe Biden administration. Further, it also means the recent Chinese aggressive posturing, wolf diplomacy has failed to bring in the desired results and that the Xi Jinping-led CCP is under more pressure now to soft-pedal the recent acrimonious ties between the two.

The year 2020 had been a very disappointing and calamitous year for the world. And Corona pandemic could well be cited as the most important reason. While the world as a whole has struggled to fight this unknown enemy individually as well as collectively, one country that has been in the limelight, for all the wrong reasons, been China.

Foreign policy and diplomacy is all about protecting and promoting the perceived national interests of a country. While achieving its objectives, the country tries to create and maintain a favourable image in the international community. The Chinese diplomatic endeavour since the ascension of Xi Jinping has been starkly opposite. From the most likely origin of Corona virus, to rebuking leaders, diplomats and media of other countries, China has been trying to create a new diplomatic norm, a new normal where none of the countries would dare criticising China, through political discourse, media or any other way while silently acceding to its territorial expansionary designs.

There  have  been  unusually  vitriolic  reactions  by  Chinese  diplomats against seemingly innocuous comments or actions by governments, politicians, diplomats  or  media  in  various  countries.  A  very  rational  request  by  the Australian government to initiate investigations by the international community into the genesis of Corona virus, made China so furious that apart from making crude undiplomatic comments, it even created a virtual political, diplomatic and trade war against the country. Critical comment by certain politicians in Brazil and Japan, led Chinese diplomats to publicly issue personalised attacks against them.

The Chinese ambassador to Sweden has went on to lambast the country’s media in most rustic manner. No wonder, in the last two years, he has been summoned to the Swedish foreign ministry an unprecedented 40 times and there have been demands from native politicians for his expulsion. In India, a country that is being seen as the closest political and military rival by China but is scared of admitting it publicly, the diplomats have kept on reminding the government and media not to play the so-called Tibet card or must adhere to One-China policy by not getting close to Taiwan, have repeatedly been ignored by the government as well as the media.

No wonder, a recent Pew Research study has revealed that globally China has lost a huge amount of goodwill. A significantly very high majority of natives in nine of the advanced economies like the US, UK, Germany, Australia, South Korea, Sweden, Netherlands think negatively of  China. Australia (81%), UK (74%), Sweden (85%), Netherlands (73%) show a very high increase in the negative perception against China, very recently and that has affected their politico-commercial relations too.

With the US, the Trump administration acting aggressively in the backdrop of the November Presidential elections, the Chinese actions of challenging the lone superpower has not helped the country anyway. On the contrary, US has become more supportive of Taiwan, politically as well as militarily, making it even more difficult or virtually impossible to China to even think  of  occupying  the  territory  forcibly  in  near  future.  India  that  had maintained a cautious approach towards Taiwan till recently, have started enhancing political and commercial relations with the country.

In Asia, its aggressive military designs against India’s northern borders has had a very rude awakening for China. Used to a timid Indian approach since 1950s under Nehru, it never expected the aggressive Indian response that even put its own military positions in Moldo and other strategic positions vulnerable. To further undermine political and military calculations, its adversaries in South China seas like Vietnam, Indonesia and Philippines today are in advance negotiations with India to secure sophisticated missiles and armaments.

A very significant strategic development in the form of QUAD has taken the preliminary shape and that whenever gets in a concrete form, could well portend an ominous future for China, politically and militarily. The belligerent Chinese behaviour, especially since the onset of Corona virus has brought India, Australia, the US and Japan very close. With talks of Vietnam, Philippines and others in south-east Asia joining it later, the future of a QUAD could well be a security nightmare for China.

In the economic realm, India has reacted sharply too. Being a huge market for Chinese cheap goods and scores of apps till recently, India has not only banished  hundreds  of  apps  but  has  also  been  working  on  a  mechanism  to regulate, control and even stop imports in a number of segments from China. A big share of enormous infrastructural contracts in telecommunications, roads, ports, airports and railways in India too, have become difficult for Chinese companies. And taking a leaf out of India, the US and other countries too, are making it difficult for Chinese organisations to secure big contracts in their respective countries.

Over the next few years, China is going to lose a huge chunk of its popular and big market in India while territorially too, it has failed to make any significant gains.  Strategically what China  wished to see was  countries like Japan, India, Australia, Vietnam, US all having disputes with it dealing individually  rather  than  getting  together  and  forming  a  coordinated  and collective political, economic and strategic response against it.  And the very opposite has happened. There have been greater and collective political, military and economic coordination amongst all these countries today and most of the strategies are aimed against one country, China.

All these developments including Xi’s letter to Schultz, indicate one point very  certainly  that  Chinese  belligerence  has  backfired  hugely.  It  needs  to reorient its diplomacy and political behaviour significantly and if it fails to do so, its position in the emerging post-Covid geopolitical order could be anything but that of an emerging superpower.

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