US-China Trade War: Divergent Points of View

So many articles have come out of China that view China as the victim, and the US has been picking on China and Huawei. In China this victimization is played up in the news and, with the absence of varying views, believed by most Chinese people.

On the surface they seem to have a persuasive argument: China is up and coming, the US is a “has been” country that refuses to step down, and therefore is trying to contain China’s rise. The US is racist. There is a clash of civilizations. The US is a bully. The US under Trump is against international trading and international order.

This article by Zhang Jun, dean of the School of Economics, Fudan University is persuasive but merely flourishes the “China victim” viewpoint. Professor Zhang writes that the US is the aggressor, and China is merely reacting to the fight. His arguments include:

  • China is trying to keep global supply chain stable
  • China has shown and will continue to show great trade restraint
  • China wants to preserves economic growth, social stability, state integrity
  • China protects global economy’s stability
  • China is moving towards free markets, eventually
  • China believes in trend of capitalist-led globalization, china has benefited, will not be reversed, but US is reversing free markets
  • the US should relax restrictions on exports, give China more time
  • US is the leader, but has lost its int’l vision

The other side of the argument, not published in China, paints a completely different picture. China joined the WTO in 2001, 18 years ago. Since then the world has waited for China to reform and slowly open up. In the recent reign of Xi Jinping this reform has reversed. China does:

  • unfair international trade, blocking international companies from vast areas of China’s economy, while Chinese companies can do business freely in the West
  • IP theft: China forces foreign companies to partner with a Chinese company, and share the foreign company’s intellectual property. IP enforcement in China is sorely lacking
  • China provides subsidies for their large state owned and private companies, a huge advantage to the West’s private corporations, who receive little government help.
  • China provides subsidies so that Chinese companies can price their products far below market value, giving Chinese companies a substantial advantage.
  • China codifies into law that all Chinese companies and people must pledge allegiance to the CCP.
  • Annexation and militarization of South China Seas island, contested by multiple countries. In 2017 the Hague ruled that China has no jurisdiction over an island dispute with the Philippines, which China has ignored.
  • China continues to weaponize trade against all countries when they do not side with China’s view. These countries include: South Korea, Japan, Canada, Australia, New Zealand and the US. In Canada’s case because Canada has followed a US extradition request for Meng Wanzhou, Huawei CFO, China has jailed two Canadians indefinitely, and banned pork and canola producers from trading with China. Country to country punishment due to commercial disputes is an unfair trade tactic.

How much longer should the world be patient with China? Is 18 years not sufficient for China’s reforms. The US argument is that China has had more than sufficient time for reforms and they are still asking for more time?

Only China can make the decision to market reform and fair trade. In the meantime the US will add a tariff to all Chinese goods. This tariff will raise the price of Chinese goods in the US and discourage US citizens from buying Chinese goods. The tariff collected can be used by the US government to level the trade playing field with China. These US tariffs will encourage Chinese and foreign companies to move factories out of China to other countries that have fair trade policies. In an indirect way this moves US trade away from China’s unfair trade practice to other countries that do practice fair trade.

Tariffs are a blunt instrument that will initially hurt US citizens, but is there any other instrument that is better? The world needs to tell China that fair trade is important and that if you wish to trade globally you need to play by the same rules as all other countries. Only China can make the decision to reform.

From the standpoint of a China that has substantially benefited from a global trading system that is largely open, China wishes to preserve this status quo. Each day China delays its decision is a day China benefits and foreign companies and people are hurt by China’s tactics. With this background it looks like China will do and say anything that allows it to preserve status quo. It is this status quo that is hurting world trade and the citizens of other countries.

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