The contrasting views expressed by US President-elect Donald Trump and Chinese President Xi Jinping are ample reflections of how the leaders of the two most influential nations view their future trade relations and how they intend to address key economic priorities.
The trade conflict between the US and China can escalate as Trump seems to follow a hard-liner stance on trade and tariffs. Soon after the US elections, reports of imposing up to 60 per cent tariffs on Chinese imports sparked concerns among the trade and business community in the US and China as the matter is crucial for traders and consumers of both countries.
Of late, promptly responding to the de-dollarization idea of BRICS member states, President-elect Donald Trump threatened to impose 100 per cent tariffs on the nations creating the dollar’s rival currency in international commerce.
The BRICS member states proposed the idea of de-dollarization to lessen the domination of the dollar across emerging economies and decrease the reliance on the US dollar in global trade and business. Though certain BRICS leaders talk of the possibility of using national currencies as an alternative for business transactions, they are not yet there. In the wake of geopolitical differences among members of BRICS, there are slim chances of BRICS switching over to national currencies for their trade and business transactions.
Tariffs would cost a US household more than US$ 2600 in a year which severely affects low-income US citizens.
Chinese President Xi Jinping on the other hand, adopted a conciliatory tone towards the US. In a bid to foster a cooperative business environment, he hoped to build stable, healthy and sustainable relations with the US. Taking a cue from the past, he reiterated that “tariff wars, trade wars, and sci-tech wars go against the trend of history and law of economics and there will be no winner”.
As the engine of growth, President Xi claims, the Chinese economy contributes nearly 30 per cent to the world’s economic growth and that suggests China’s sustained rapid development. China as President Xi envisions would surely align with “high-standard international business and trade rules, build market-oriented, law-based internationalized business environment” which would create opportunities for other countries to pursue their key economic interests. China, therefore, seems willing to continue with dialogue to resolve contentious trade issues to expand cooperation for which the key is to reduce the rhetoric of conflict and confrontation.
In 2018, the trade conflict between the US and China began due to longstanding US concerns about the growing imbalance in trade, violation of intellectual property rights, issues of market access, currency manipulation, and certain alleged unfair commercial practices. The Trump administration imposed punitive tariffs on Chinese goods and correspondingly, China also reciprocated by levying tariffs on US goods. The impasse that resulted from tariffs and retaliatory tariffs persisted for months and then in 2020 the US and China signed a Phase One Deal to recommence commitment to fair trade practices.
Considering Trump’s policy as unthoughtful, many observers believed that the Biden administration would follow a different course on China, but President Biden not only followed suit but “raised the stakes against China”. Regardless of pleas made by the US business community, President Joe Biden refused to ease restrictions and instead implemented additional sanctions. President Biden had a hard job of striking a balance between being tough on China and sounding soft on China.
There are economic and political considerations of the US-China trade conflict. The trade conflict not only hurt Chinese economic interests but has also harmed US companies and consumers, resulting in a slowing down of the growth of both countries.
A detailed study carried out by the Peterson Institute for International Economics reveals that tariffs would cost a US household more than US$ 2600 in a year which severely affects low-income US citizens.
There are political considerations too, driving the conflict. Trade conflict also aims at containing China’s growing global influence. In the context of domestic US politics, China is framed as an adversary so for the upcoming Trump administration, there would be a political cost of sounding soft on China. Also, trade conflict has strained the international business environment as countries dependent on the US or China are caught in the crossfire and will be sufferers of the spillover impact of the conflict.
Though the rhetoric of confrontation over the US-China trade conflict continues, saner elements in Washington and Beijing suggest that both the US and China should manage their conflict responsibly and find ways to pursue key economic priorities.
As both economies are largely interdependent and have global implications, unending escalations would potentially imperil global financial stability. Through sustained diplomatic engagement, both countries need to make a transition from zero-sum competition to a comprehensive mechanism that fosters trust, transparency, and positive engagement. Meaningful engagement will not only benefit the US and China but will also contribute to collective global good. That is where, perhaps the world at large wants to be.
The writer is the Director China-Pakistan Study Centre at the Institute of Strategic Studies Islamabad.