[Christopher Balding] What Trump’s trade war is really about

As the trade war between the US and China escalates, with President Donald Trump imposing tariffs on $34 billion of Chinese imports, both sides are trying to portray themselves as victims of an unconstrained unilateralist rival. They’re both wrong: This dispute is about something much bigger.

For many years, American foreign policy adopted a fairly strong pro-China stance. The US was a major proponent of China’s accession to the World Trade Organization and took no direct policy actions in response to its long-running manipulation of the yuan. It advocated for China’s development and tried to integrate it into the broader international system, despite China’s abuses in areas such as intellectual property.

All along, America’s goal was to avoid conflict, get China to reform and open its economy, and assimilate it into a system built around open markets and liberal values. The problem was that China never really accepted this system.

As Princeton professor Aaron Friedberg recently described the conflict:

America’s post-Cold War strategy for dealing with China was rooted in prevailing liberal ideas about the linkages between trade, economic growth and democracy, and a faith in the presumed universality and irresistible power of the human desire for freedom. The strategy pursued by China’s leaders, on the other hand, was, and still is, motivated first and foremost by their commitment to preserving the Chinese Communist Party’s monopoly on domestic political power.

A rapidly growing China that respected liberal norms and rules would’ve been widely welcomed. Europe, the US and Japan have all engaged in long-running disputes with each other, but they also share an understanding of what the rules are and an ultimate vision of more open markets. China doesn’t share that vision; in fact, it sometimes expresses contempt for it. This is the fundamental issue dividing the two countries.

Had Trump’s administration entered into negotiations on these grounds, it would’ve had significant leverage. Almost no other country shares China’s vision on these issues, and America’s many allies likely would’ve been willing to act as a united front if the US were pursuing coherent goals.

Unfortunately, Trump seems to have lost the plot in this regard, focusing instead on issues such as the bilateral trade deficit and manufacturing jobs. His administration has also taken to referring to China as a “strategic competitor,” thereby playing right into China’s rhetoric. Faced with this more aggressive approach, China now says it will not negotiate with a “gun to its head” and state media argues that Washington is trying to prevent China’s rise. That charge isn’t true, but Trump’s approach has given it more credibility.

The good news is that both sides seem to be engaging in some introspection. Trump has given ZTE Corp. -- which was rocked by US penalties after violating sanctions -- at least a temporary reprieve and China’s state media has been reflecting on the wisdom of closed markets. Despite the public bellicosity, both seem to realize they’re on a dangerous path.

Even so, a resolution isn’t obvious. If the dispute was simply over product subsidies or market access, a path forward could be reached. This is a much more fundamental conflict about values.


Christopher Balding
Christopher Balding is an associate professor of business and economics at the HSBC Business School in Shenzhen. -- Ed.

(Bloomberg)