Nine years ago it was car tyres followed by chicken feet. Now it’s washing machines and solar panels followed by sorghum. Aluminium and steel may soon be tossed in the mix.
The familiar trade skirmishes between the United States and China usually end with a whimper. But American presidents have traditionally been like the proverbial cartoon character who gets dropped off a cliff, run over with a steam roller and blown up with dynamite; he gets up, arches an angry eyebrow and declares: “Next time, I’m going to get really mad!”
Is the “next time” finally here in the US versus China trade dispute? Is President Donald Trump about to get really mad and launch new trade actions against China? Will the administration really start rejecting more Chinese commercial deals in the US on national security grounds? And will Beijing retaliate with an all out global trade war? Don’t count on it.
For all the huffing and puffing, it’s good first to remember that we’ve actually been here before.
New presidents always come into office promising to get tough on China’s unfair trade practices, usually after making pledges to working class constituencies in rust belt states like Pennsylvania, Ohio and Michigan. President George W. Bush imposed 30 per cent tariffs on imported steel in 2002, a sop to the steelworkers union, but got slapped back by the World Trade Organisation the following year. President Barack Obama, following through on a pledge to his autoworker supporters, in 2009 imposed tariffs on Chinese imported tyres, 35 per cent the first year and 30 per cent the second year.
The Obama tyre tariffs are instructive because they illustrate the Chinese government’s keen instinct for finding just the right retaliatory target. In that case, China chose American chicken feet, accusing US poultry farmers of dumping the paws onto the Chinese market. Suddenly plump juicy chicken feet imported from America – a trade worth some US$278 million in 2009 – virtually collapsed. By 2011, America’s poultry farmers had lost an estimated US$1 billion in business and were crying foul.
So China’s trade officials recognise that a well-targeted retaliatory strike, particularly in the agriculture sector where the US actually enjoys a surplus with China, is far more effective than carpet bombing in a full-fledged trade war. That is what makes the choice of sorghum wickedly ingenious.
The US now sends China about US$1billon a year worth of sorghum, the grain used to make gut-busting baiju alcohol. And in the US, much of the sorghum comes from places like Texas, Kansas and Oklahoma – all states handily won by Trump in the 2016 election. It’s almost as if the Chinese leadership keeps a 2016 electoral college map pinned to the wall in Zhongnanhai.
But the other reason an all-out trade war seems unlikely is for the simple reason that China’s leader know the country’s trade practices are unfair and tilted toward protecting its domestic industries. The surprise is only that they have been able to get away with it for this long.
China’s decades-long manipulation of its currency to keep its exports cheap, its subsidies to key state-owned enterprises, the restrictions and burdensome regulations imposed on foreign companies, the forced transfer of high-end technologies and the pilfering of intellectual property are all well known and long established. Trump seems to be the first US president willing to openly call them out on it, and to do something about it.
How does the unfairness look?
Consider: US car companies doing business in China are forced to partner with a usually inferior and less popular local car firm, and transfer their technology to the local partner. By contrast, a Chinese company can go set up a company in Michigan or Ohio tomorrow, with no such restrictions. A car company or auto parts manufacturing plant wouldn’t even trigger a US national security review.
Consider: China’s UnionPay became the world’s largest bank card company, mainly because of the restrictions imposed on competing companies like Visa and MasterCard. China lost a WTO case in 2012 that said UnionPay held an unfair monopoly over its US competitors, but China has since been stalling and delaying in opening its domestic credit card market.
Consider: Hollywood sees China as its largest potential overseas market, but the Chinese government continues to restrict the number of foreign films allowed onto movie screens. Under a deal between Trump and Chinese President Xi Jinping, Beijing will expand the number of Hollywood films allowed shown in China – but there will still be a cap. And in terms of intellectual property, any Hollywood film is still readily available on bootleg DVDs readily available in barely concealed shops in all the major cities.
And consider: while China’s Great Firewall blocks the world’s top internet companies – Facebook, Google, Twitter, WhatsApp – its own home-grown internet companies, like Baidu, have been flourishing, freed from foreign competition. Meanwhile, Chinese-owned WeChat is able to operate all over the United States without restriction.
If Beijing seems more willing to bend now on foreign competition, from credit card companies to Hollywood films to internet companies, it is simply because it has already given domestic companies a time to grow beneath the government’s protective shell, and to dominate the captive local market.
From the time of China’s opening, through the 1980s and 1990s, successive US administrations turned a relative blind eye to China’s unfair practices. Chinese firms were in their infancy and not seen as a threat internationally. The lure of a billion Chinese consumers was simply too big to ignore. And, besides, in those early days Japan and later South Korea were seen as the biggest trade threats. China was still a developing country, the argument went, and just needed time to catch up.
After 2001, when China joined the World Trade Organisation, it was assumed that trade disputes would be handled through an agreed mechanism. China was now developed, it was said, and a more developed, more prosperous China would be more bound to the rules-based international system. Of course, we all know how that turned out. When China now allows in American beef or more Hollywood films, as it has, Trump will tout it as a victory of his new “get tough” trade stance. And the nationalists in China, led by the Global Times tabloid, will complain shrilly about American economic imperialism and unfair demands. But to China, these are all just minor concessions after decades of unfair trade practices.
So will there be a trade war? We’ve already had one for the last four decades. And guess what? China has already won.