Trade War and Peace

BY CHRIS MILLER

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Gen. Joseph Dunford, the then-chairman of the U.S. Joint Chiefs of Staff, and then-Chief of the General Staff of the Chinese People’s Liberation Army Fang Fenghui shake hands after signing an agreement n Beijing on Aug. 15, 2017. 

“We have agreed to a very large Phase One Deal with China,” U.S. President Donald Trump tweeted on Dec. 13. “This is an amazing deal for all. Thank you!” he concluded. In a single moment, it seemed like the U.S.-Chinese relationship might be salvageable, after all. So will 2020 be a year of improvement in relations between Washington and Beijing? Don’t count on it.

Trump’s Trade Representative Robert Lighthizer declared the U.S.-Chinese deal “the most momentous day in trade history ever.” But 2019 is likely to be remembered not as a period of reconciliation in U.S.-Chinese economic relations but as the year when the Chinese-U.S. antagonism spun out of Trump’s control. His tweets can still roil the relationship like a missile test over the Taiwan Straits. At this point, even if Trump wanted to put this year’s antagonism behind him, it is not clear that he could succeed.

Start with trade, the subject of the “amazing deal.” Tariff Man, as Trump once declared himself, may have gone into hibernation. But most of the duties that he imposed remain. It is difficult to see how they will ever be rolled back. Trump would face deep embarrassment if he cut tariffs further without winning any concessions to open China’s market in return. Beijing, meanwhile, has survived the economic costs of the trade war and is not in a mood to submit to Trump’s bullying. Expecting new concessions from Chinese President Xi Jinping, therefore, would be unwise. Businesses in both countries have learned that tariffs are costly but survivable.

Could a post-Trump president remove tariffs even without winning Chinese concessions, by blaming the tariffs on Trump? Possibly. But that would be a risky political move in a China-skeptic era. More likely is that tariffs become a near permanent feature of the U.S.-Chinese trade relationship. That fact will not lead to the decoupling of the U.S. and Chinese economies overnight. But the tariffs will discourage deeper trade and investment as firms look to produce elsewhere.

The tariffs are not only relevant to American CEOs—they will shape the decision-making of the Chinese Communist Party, too. Whatever China’s promises to buy soybeans, Beijing has learned that the United States is not a trustworthy trade partner. China is redoubling efforts to produce manufacturing goods at home rather than importing from its frenemy.

China is redoubling efforts to produce manufacturing goods at home rather than importing from its frenemy. The trade war has handed hawks on both sides of the Pacific, therefore, a major victory. Unlike in most of the last four decades, economic policy in both countries is working against integration rather than supporting it.

In the tech sphere, too, hawks on both sides are winning. Trump’s own approach to tech regulation has been ambivalent. His administration has adopted aggressive strategies such as imposing export restrictions on ZTE, a Chinese electronics firm, and placing Huawei, the communications firm behind China’s 5G drive, on the Entity List, which limits listed firms’ ability to buy U.S. technology. But Trump has also refrained from delivering a death blow to either firm. Nor has he managed to get any allies to support his stance, in part because his tech policies are poorly planned and could be reversed any time the president logs on to Twitter.

In fact, the deeper one digs, the clearer it is that the tech war has spun out of Trump’s control and will continue long after he leaves office. During his tenure, the U.S. Congress has taken a much tougher attitude on Chinese tech than it had before, for example by legislating strict limits on Huawei’s operations in the United States. More notable, though, is the shift in Europe, where a long-standing consensus in favor of deeper economic ties with China is being upended by a wave of skepticism that Chinese firms can be trusted with critical infrastructure. German Chancellor Angela Merkel, for example, now faces a rebellion from legislators of different parties over her support for Huawei. France, Japan, and the United Kingdom also look likely to take a tough line on Huawei.

China, meanwhile, is undertaking its own efforts to cut tech ties with the United States. Beijing always had a more skeptical view of U.S. tech, setting up the Great Firewall two decades ago to keep out subversive foreign influences such as Google and Facebook. Now, seeing Washington’s willingness to threaten its access to the high-tech semiconductor technology, Beijing is pouring money into the production of semiconductors at home. The integration of the Chinese and U.S. tech sectors, therefore, has also likely peaked, even if Trump’s trade peace persists.

Since the opening of U.S.-Chinese relations in the 1970s, ideological differences between the two countries were contained by other factors. First, during the Cold War, the need for partners against the Soviet Union led the United States to downplay differences, for example, over the killing of protesters in Tiananmen Square in 1989. Later, after the Cold War ended, business interests lobbied U.S. policymakers to downplay human rights concerns to keep trade ties stable.

Now, economic interconnections have peaked, and Beijing and Washington both see the other as a geopolitical rival. So there is nothing left holding the two countries together. The thesis that Beijing can be convinced to act as a “responsible stakeholder” of the international system is an increasingly hard sell in the West, given China’s de facto annexation of the South China Sea and its escalating repression in Xinjiang. The argument that Trump’s United States will support the economic modernization of China, meanwhile, finds few adherents in Beijing. Although 2019 may have been the year of Trump’s “amazing deal” with Xi, 2020 will be the year we will realize that the deterioration in U.S.-Chinese relations that Trump launched is no longer under his control.