While some of US’s and China’s policy aims may be at odds, the two countries are finding areas where their interests overlap, and neither wants a trade war.

The central story for the world’s economy in 2017 has been the relationship between the US and China. However, while the figures of trade and investment passing between the world’s two largest trading partners are significant to the global financial system, it is the shifting alliances of the rest of the world that possibly has the more significant long-term implications. The erratic, often abrasive behavior of the American president, Donald Trump, seems to be driving US allies and enemies alike into the Chinese sphere of influence.

Shifts in US policy under Trump have given the People’s Republic of China (PRC) the opportunity to court traditional US allies. The US withdrawal from the Paris Accords has given China an opportunity to move closer to Europe, through cooperation on environmental issues.[1] Trump’s enmity with Chancellor, Merkel has reminded Germany that China represents a tremendous market for Volkswagens, as they cool their relationship with the US and begin engaging more with China.[2] Accusations from the US that Pakistan is harboring terrorists is also helping to move Pakistan firmly into the Chinese camp.[3] Panama, a country which uses the US dollar as its currency and owes its independence to a US invasion of Colombia has decided to rescind its recognition of US ally Taiwan and recognize the PRC, a move which many see as a move away from the United States.[4] Elsewhere in the Americas, China and Argentina signed a nuclear cooperation agreement whereby China is providing Argentina with two nuclear reactors totaling $1.5 billion, and 85% of the financing to pay for them.[5] There is even speculation that China may build a naval base in Argentina. Australia, a country which has been called “the most China dependent economy in the developed world” is moving to strengthen its bilateral China trade, which is already worth over $124 billion.[6]

PRC foreign policy also indicates a desire to draw in traditional rivals of the US. China recently held joint naval exercises with Russia and by virtue of US led international sanctions, Iran has no other option but to accept Chinese loans and investments, the most recent round of which total $15 billion and $10 respectively.[7]

Any discussion of the effectiveness of Donald Trump’s China policy so far would have to view this realignment of global allegiances as a direct result of Trump’s foreign policy in general and as having a significant impact on China. One could argue that Trump’s foreign policy has given China a better position in the world.

In general, Trump’s foreign policy, thus far, has been to disengage with the rest of the world. The US withdrawing from the Trans Pacific Partnership (TPP), which occurred on the first day of the Trump presidency, was the first concrete step toward a US retraction from the current world order. Shortly afterwards, at the World Economic Forum in Davos, Xi Jinping promised to lead the world’s globalization initiatives.[8] For each step the US takes towards isolation, China appears to be taking a step toward engagement.

Since taking office, Donald Trump has signaled that he, and many of his supporters, were displeased with the post-World War II role of the US , as underwriter and leader of most global initiatives—everything from the UN to the World Bank.[9] Xi Jinping, on the other hand, has personally offered to lead the world in globalization of trade, through such initiatives as China’s Belt and Road, and in the reduction of greenhouse gases through the Paris Climate Accords. Most recently, through the G-20, Xi has proposed China participate with the worlds’’ most developed countries to manage global energy issues.[10]

During the run up to presidency, Trump threatened heavy tariffs and restrictions against trade with China. Although he has not taken the extreme steps he warned about earlier, he has begun restricting some trade with China. President Trump blocked the China-backed Canyon Bridge Capital Partners’ from purchasing the US company Lattice Semiconductor on the grounds of national security. This prompted Beijing’s top advisory board to warn President Trump that having closed doors could be damaging for the US.[11]

However, the prevention of the Lattice deal wasn’t a unilateral move by Trump as it did have some cross-party support. A bipartisan group of 22 House members also opposed the acquisition,[12] as did the Committee on Foreign Investment in the United States (CFIUS), which operates under Section 721 of the Defense Production Act of 1950.[13] Treasury Secretary Steven Mnuchin is chairman of CFIUS (an inter-agency committee), which investigates the implications of foreign investment in the US. Before leaving the White House, former Trump advisor Steve Bannon called for a strengthening of CFIUS, as do many who remain, such as Senate Majority leader Whip John Cornyn of Texas and Representative Robert Pittenger (Republican, North Carolina).[14] As a result of increased scrutiny by CFIUS, the value of Chinese investment in the US in 2017 is down 70% from the previous year.[15]

Other voices in Washington are also advising restrictions on China. Many in the US government see China as an adversary because of China’s aggressive economic expansion beyond its own borders, its military buildup, and its claims on the South China Sea.[16] U.S. Trade Representative Robert Lighthizer said that China’s economic strategy was a major threat to world trade, citing the sheer scale of the Chinese economy, as well as China’s strategies of coordinated economic development, subsidies to state owned firms, forced technology transfer, and the creation of national champions. Some believed that the departure of Steve Bannon, who the New York Times referred to as “The man who all but declared economic war with China”[17] might signal a looser trade policy or softer stance toward China, however, Representative Lightizer appears to be continuing in a similar fashion.[18]

The president of the United States is using the numerous legal tools at his disposal to place restrictions on imports from China. In August of 2017, President Trump ordered the United States Trade Representative to launch an investigation into alleged IP theft and technology transfer by China. Under Section 301 of the Trade Act of 1974, the president of the United States has broad powers to restrict trade or impose tariffs against trade which he feels represents a threat to national security.[19] In addition, President Trump has already raised tariffs on Chinese aluminum foil imports under charges of heavy subsidies to the Chinese aluminum industry. Tariffs of up to 81% were enacted under Section 232 of the trade law of 1962, which empowers the president to levy tariffs if a US industry is threatened.[20] The US Department of Justice has also filed a complaint against Chinese-backed Zhongwang US, accusing its affiliate Perfectus Aluminum of illegally importing aluminum into the US, evading billions of dollars’ worth of import duties.[21]

Trump’s actions, however, do not necessarily signal a coordinated anti-China shift in US trade policy. Although Trump has enacted a number of tariffs against Chinese imports and prevented some Chinese acquisitions, these actions seem to be occurring in isolation. The New York Times recognized that while President Trump has acknowledged the importance of the US-China relationship, he has yet to formulate a coherent China policy.[22]

Despite these negative actions in Sino-US relations, there have been some positive movements that have come from the American side. President’s Trump and Xi had what Trump referred to as a “good conversation” about North Korea and about Trump’s upcoming visit to China. President Xi stressed to Chinese state media the importance of this visit, which will occur in November.[23] Xi Jinping and Donald Trump also agreed to take a coordinated and stronger stance against North Korea. However, Beijing will most likely be careful not to take steps which topple the regime for fear of unleashing a humanitarian crisis just across the border.[24] In August, the two countries’ military leaders signed an agreement increasing communication.[25] As of July, China allowed US imports of rice for the first time.[26] In late September, Bloomberg announced that Beijing may be preparing to loosen restrictions on US access to the Chinese automotive market as well as allowing foreign companies to own controlling interest in joint ventures in the financial industry.[27]

In conclusion, while some of US’s and China’s policy aims may appear to be at odds, the two countries can find areas where their interests overlap, such as North Korea and mutually beneficial trade. Additionally, neither country actually wants a trade war. Although trade with China only represents a small amount of US total exports, losing any exports would be bad news for the economy. Furthermore, in the absence of a clear China policy, the two presidents could take issues on a case by case basis and agree or disagree in isolation without a single issue threatening to wreck the entire relationship.

At the end of the day, both presidents want their respective countries to make money and for their citizens to have the fairest trade deals possible. It seems this goal is most likely to be achieved through repeated dialogue and step, by step agreements.

References

[1] Ewa Krukowska , Jonathan Stearns , and Nikos Chrysoloras, EU Tilts to China in Climate Fight Amid Signs of Trump Softening, September 18, 2017, Bloomberg, https://www.bloomberg.com/news/articles/2017-09-18/eu-tilts-to-china-in-climate-fight-after-trump-exits-paris-deal

[2] Erik KirschbaumIn, the age of Trump, China seen as important global partner for Germany’s next chancellor, September 17, 2017, South China Morning Post, http://www.scmp.com/news/world/europe/article/2111564/age-trump-china-seen-important-global-partner-germanys-next

[3] Ralph Jennings , Threats From America Will Move A Wary Pakistan Even Closer To China, September 18, 2017, Forbes, https://www.forbes.com/sites/ralphjennings/2017/09/18/china-will-capitalize-on-americas-economic-threat-against-pakistan/#56d366737df6

[4] Panama’s President Says Switching China Ties Not ‘Checkbook Diplomacy’, September 18, 2017, Reuters, https://www.usnews.com/news/world/articles/2017-09-18/panamas-president-says-switching-china-ties-not-checkbook-diplomacy

[5] Debalina Ghoshal, Argentina-China Nuclear Cooperation: Is China’s Influence In South America Concern For United States? – Analysis, Eurasia Review, September 19, 2017 http://www.eurasiareview.com/17092017-argentina-china-nuclear-cooperation-is-chinas-influence-in-south-america-concern-for-united-states-analysis/

[6] Bloomberg, Australia, China seek to boost economic ties Polls show Australians think too much Chinese property buying is allowed Down Under, September 16, 2017, Business Standard, http://www.business-standard.com/article/international/australia-china-seek-to-boost-economic-ties-117091600894_1.html

[7] Sputnik, Sputnik InternationalUS Sanctions Continue to Backfire: China Opens $10 Billion Credit Line for Iran, Global Research, September 17, 2017, https://www.globalresearch.ca/us-sanctions-continue-to-backfire-china-opens-10-billion-credit-line-for-iran/5609356

World War 3: China and Russia begin naval drills near North Korea, September 18, 2017, Express UK, http://www.express.co.uk/news/world/855528/World-War-3-North-Korea-naval-drill-China-Russia-nuclear-war

[8] Paul Ebeling, President Trump Challenges China and Globalization, September 15, 2017, Live Trading News, http://www.livetradingnews.com/president-trump-challenges-china-globalization-54865.html#.WcE0IcgjHIU

[9] Meghan L. O’Sullivan, U.S. Energy Boom Can Bring China Into the Global Order

Beijing will continue to threaten the post-World War II system unless allowed to help reshape it, September 15, 2017, Bloomberg, https://www.bloomberg.com/view/articles/2017-09-15/u-s-energy-boom-can-bring-china-into-the-global-order

[10] Meghan L. O’Sullivan, U.S. Energy Boom Can Bring China Into the Global Order, September 15, 2017,Bloomberg, https://www.bloomberg.com/view/articles/2017-09-15/u-s-energy-boom-can-bring-china-into-the-global-order

[11] Nyshka Chandran, “China government advisor warns on Trump: When countries close their doors, they ‘will be harmed’”, September 19, 2017 https://www.cnbc.com/2017/09/18/fu-chengyu-warns-on-trump-singapore-summit.html

[12] Business Day, Analysis: Trump’s Lattice rejection is bad news for other Chinese investment, September 18, 2017, Business Day, https://www.businesslive.co.za/bd/world/americas/2017-09-18-analysis-trumps-lattice-rejection-is-bad-news-for-other-chinese-investment/

[13] The Committee on Foreign Investment in the United States (CFIUS), U.S. Department of Treasury, September 18, 2017, https://www.treasury.gov/resource-center/international/Pages/Committee-on-Foreign-Investment-in-US.aspx

[14] Business Day, Analysis: Trump’s Lattice rejection is bad news for other Chinese investment, September 18, 2017, Business Day, https://www.businesslive.co.za/bd/world/americas/2017-09-18-analysis-trumps-lattice-rejection-is-bad-news-for-other-chinese-investment/

[15] Business Day, Analysis: Trump’s Lattice rejection is bad news for other Chinese investment, September 18, 2017, Business Day, https://www.businesslive.co.za/bd/world/americas/2017-09-18-analysis-trumps-lattice-rejection-is-bad-news-for-other-chinese-investment/

[16] The Editorial Board, The China Puzzle, September 16, 2017, The New York Times, https://www.nytimes.com/2017/09/16/opinion/sunday/the-china-puzzle.html

[17] The Editorial Board, The China Puzzle, September 16, 2017, The New York Times, https://www.nytimes.com/2017/09/16/opinion/sunday/the-china-puzzle.html

[18] Andrew Mayeda, Trump’s Top Trade Negotiator Calls China ‘Unprecedented’ Threat, September 18, 2017, https://www.bloomberg.com/news/articles/2017-09-18/trump-s-top-trade-negotiator-calls-china-an-unprecedented-threat

[19] Robert Farley, Intellectual Property and the Coming US-China Trade War, August 24, 2017, The Diplomat, http://thediplomat.com/2017/08/intellectual-property-and-the-coming-us-china-trade-war/

[20] Ana Swanson, Trump edges closer to a trade war with China, thanks to aluminum foil, August 9, Washington Post, https://www.washingtonpost.com/news/wonk/wp/2017/08/09/trump-edges-closer-to-a-trade-war-with-china-thanks-to-aluminum-foil/?utm_term=.5232e6e0cae6

[21] Reuters Staff, China’s Zhongwang, Aleris extend merger deadline amid U.S. probe, September 16, 2017, Reuters, http://www.reuters.com/article/us-aluminum-china/chinas-zhongwang-aleris-extend-merger-deadline-amid-u-s-probe-idUSKCN1BR043

[22] The Editorial Board, The China Puzzle, September 16, 2017, The New York Times, https://www.nytimes.com/2017/09/16/opinion/sunday/the-china-puzzle.html

[23] Shanghai Daily, Xi notes ‘great importance’ of Trump’s China visit, September 19, 2017. Shanghai Daily, http://www.shanghaidaily.com/nation/Xi-notes-great-importance-of-Trumps-China-visit/shdaily.shtml

[24] Tom Phillips in Beijing and Justin McCurry, US and China agree to ‘maximise pressure’ on North Korea, September 19, 2017, The Guardian, https://www.theguardian.com/world/2017/sep/19/us-and-china-agree-to-maximise-pressure-on-north-korea

[25] Jim Garamone, U.S., Chinese Military Leaders Sign Agreement to Increase Communication, August 15, 2017, DoD News, https://www.defense.gov/News/Article/Article/1278684/us-chinese-military-leaders-sign-agreement-to-increase-communication/

[26] Sophia Yan, A grain deal may signal the U.S.-China relationship isn’t as bad as it seems, July 21, 2017, CNBC, https://www.cnbc.com/2017/07/21/a-grain-deal-may-signal-the-u-s-china-relationship-isnt-as-bad-as-it-seems.html

[27] Bloomberg, Amid Donald Trump’s trade war threats, China weighs helping Wall Street, Tesla, September 21, 2017, Straights Times, http://www.straitstimes.com/asia/east-asia/amid-donald-trumps-trade-war-threats-china-weighs-helping-wall-street-tesla