A Sino-US trade war may be upon us – and China may have the upper hand

William Marshall says while the Trump administration’s aggressive moves against China are making the headlines, it may be the longer-term Chinese plan to build up its intellectual property heft that will have a greater impact

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Under Donald Trump, the US has taken aggressive action to try and enforce what, in its view, should be a more level playing field with China. Illustration: Craig Stephens

Published: 9:57am, 8 Dec 2017Updated: 12:58pm, 23 Mar 2018

Since the election of US President Donald Trump, storm clouds have been looming over trade relations between the United States and China. Over the past seven months, the US has sanctioned Chinese entities that allegedly trade with North Korea, kicked off an investigation into China’s trade practices with respect to intellectual property protection, initiated an anti-dumping investigation against aluminium sheet from China, submitted a strongly worded argument to the World Trade Organisation against China being granted market-economy status and, just last week, a Treasury Department official told the Financial Times that the Comprehensive Economic Dialogue between the US and China had been put on hold.

As rhetoric gives way to aggressive US action, a long-feared trade war may indeed be upon us.

While the aggression and bombast of the early rounds certainly go to the Trump administration, a coherent long-term strategy seems to be lacking. With the suspension of the Comprehensive Economic Dialogue, the Trump administration has abandoned what has been arguably the most effective trade negotiation tool employed by previous US administrations with China.

When dealing with the world’s largest economy, engagement rather than estrangement is always more likely to get results. While it may seem that President Xi Jinping and his government in Beijing are laying down passively, they are not. The late-mover advantage and the economic upper hand may ultimately be China’s, although Trump’s approach seems more optimised for headlines.

The deficit in US goods trade with China has long been a pressure point with succeeding US administrations. In recent years, that deficit has grown to unprecedented levels. In the most recent statistics from the US Census Bureau, the trade imbalance in goods imported from China versus goods exported to China has grown by more than 33 per cent in the year to date through October this year, compared with the same period last year. For a president who was elected in part on his tough talk surrounding US trade relations with China, this is not a headline number Trump will be re-tweeting.

The US is preparing for a trade war with China – don’t be fooled by the noise

For its part, China is concerned about America’s willingness to recognise China as a market economy, the restrictive application of US export control laws against China and the protection of Chinese enterprises investing in the US.

In a policy paper unveiled this year, the Ministry of Commerce recognised the concerns the US has regarding the trade deficit, the exchange rate of the renminbi, overcapacity, market access and intellectual property protection. However, in what could be read as a subtle reminder to remain engaged, it went on to point out that China is the biggest market for US exports outside North America. Over the past 10 years, it said, the average growth rate of US exports to China was nearly three times that of US exports overall and around twice the growth rate of China’s exports to the US. Thus far, such reminders have not had their intended effect.