Trump’s Trade War Will End American Dominance
April 26, 2018: Workers at a Californian almonds factory in the United States. They hope that China-U.S. trade frictions can be addressed as soon as possible. Xinhua Just when it seemed that China and the United States had reached consensus on bilateral trade, the Sino-U.S. trade tensions suddenly escalated. On June 16, China decided to impose additional duty of 25 percent on approximately US$50 billion worth of imported products originating in the U.S., as a countermeasure against the Donald Trump administration’s announcement to impose additional tariffs on US$50 billion worth of Chinese goods the day before. This measure by the U.S. government flies in the face of what was achieved in negotiations between the governments of China and the United States. The Trump administration is still hell-bent on launching a trade war, which will lead to severe consequences.
Since the end of World War II, no major economic power has ever imposed a 25 percent additional tariff on another country, and never has a bilateral trade war reached US$100 billion so quickly. The incident triggered global worries and a chain reaction. Many U.S. allies are closely watching Trump’s trade protectionism schemes. IMF chief Christine Lagarde raised warnings in early April that a Sino-U.S. trade war would force the world economy to accelerate isolationism rather than integration.
Both China and the United States are deeply rooted in the world economy. For many other countries, they are the largest trading partners or the largest export markets. The competitive industries of the two countries are seen throughout the global industrial chain. If China and the United States suspend mutual cooperation, the existing global production, transport and sales layout would be disrupted.
As the two largest economies in the world, responsible behavior from China and the United States is crucial to the stability of the global economy. China has repeatedly stressed that it would not start a trade war but does not fear one. Trump’s remarks about trade wars emit a certain naiveté considering he seems to believe that the United States would easily win. Most major economies have long been accustomed to accepting the leadership of the United States, but when the current U.S. leader becomes irresponsible, the prospects for recovery of the world economy diminish and countries are forced to cope with a world economic interaction model dominated by short-term behavior. Trump-style economic logic will only massively increase operating costs of enterprises.
The World Economic Outlook report released by the IMF in early April projected a 3.9 percent global growth and a 5 percent growth for trade volume in 2018. This is the highest estimate since 2012, but still significantly lower than the growth rates in 2007. If the additional tariffs of the two countries take effect on schedule on July 6, the IMF will surely significantly amend its April forecast, which will further shake the confidence of investors everywhere.
More bad news for the world economy came from the dive in foreign direct investment. According to the World Investment Report 2018 published by the United Nations Conference on Trade and Development (UNCTAD) in early June, global foreign direct investment flow fell by 23 percent in 2017, and the share of foreign added value in global trade fell to 30 percent between 2016 and 2017. This means that the expansion of international production and global value chains is slowing. The Trump team’s analysis is based on 2017 data, which will seriously mislead U.S. decision-making.
In a world economy powered by industrial chains, the pattern of interaction between major economies cannot be altered over night. A trade war will only urge China to open further and fuel aspirations for the Belt and Road Initiative to boost Eurasia’s common economic development. An interconnected Eurasian economy will end the era of American dominance more quickly.
The author is director and researcher of the Major Countries Relationship Research Department of the National Institute of International Strategy under the Chinese Academy of Social Sciences.