At a time when China is opening its domestic market to more foreign trade and investment than at any time in China’s modern history, policy makers in Beijing have opted to retaliate against America’s ongoing tariff onslaught in a manner that will force US producers to apprehend the reality that in a prolonged trade war of Washington’s own making, US industries will be the penultimate victims. In response to Donald Trump’s indication that he would raise tariffs on over $200 billion of Chinese imports from 10% to 25%, Beijing in return stated that it is preparing retaliatory measures for tariffs on 5,207 different US imports to China at variable tariff rates ranging from 5% to 25%. Taken in totality, the new Chinese proposals will cover $60 billion in US imports.
A spokesperson from China’s Customs Tariff Commission of the State Council described the new tariffs in the following way,
“China’s countermeasures with differentiated tariff rates are rational and restrained, and were proposed after extensively soliciting opinions and careful evaluation. The measures have taken into full consideration factors including the people’s well-being, the bearing capacity of companies, and maintaining the functioning of the global industrial chain.
China always believes that consultation based on the principles of mutual respect, equality, and mutual benefit is the effective way of resolving trade differences, and any unilateral threat or blackmail will only aggravate contradictions and hurt the interests of all side”.
It is indeed due to the lack of meaningful consultation between China and the US that Beijing has decided to elevate the stakes in a manner that is directly reflective of Donald Trump’s unwillingness to negotiate a new era in Sino-US trading relations on a win-win model. In thinking that China will be “broken” by US tariffs, Donald Trump’s nation is rapidly learning that a mutually disadvantageous trade war is far more disadvantageous to US businesses than to Chinese industries.
US agricultural producers in particular are feeling the sting of the trade war. Because US farmers are now experiencing the phenomenon of having a surplus of goods that they cannot sell on the Chinese market due to the retaliatory tariffs already in place, the American federal government will now likely have to bail farmers out due to the losses of revenue they have incurred simply because they are being artificially isolated from the Chinese market that represents a lion’s share of their profits.
By contrast, the Chinese phone maker Huawei has just overtaken the US brand Apple as the most purchased make of smartphone in the world. This has occurred in spite of Huawei being almost entirely absent from the American market. The divergence between US agriculture’s collective struggle to retain healthy profits without access to the Chinese market and Huawei beating all of its American competitors to become the second most popular smartphone brand in the world just after South Korea’s Samsung, is indicative of the fact that many of China’s flagship brands can not only survive but thrive even when being cut off from the US market.
The polar fortunes of the US agricultural industry cut off from Chinese markets and Chinese electronics firms cut off from the US market makes it clear that in an ever more inter-connected world, while a trade war is mutually detrimental to all “combatants”, in the specific case of China and the United States it is American producers that are clearly worse off than their Chinese counterparts in other industries.
While a strong US Dollar combined with a weaker Yuan will make many Chinese goods on the US market still highly competitive in terms of pricing in spite of tariffs, an equal and opposite effect is being felt by US producers whose warehouses of goods that would have normally been shipped off to China are now left to rot.
Throughout all of this, the US continues to criticise China’s trade practices as “unfair” because of the domestic win-win relationship between central government and private producers. Yet while the Chinese public and private sectors invest in one another based on the principles of the cyclically prosperous market socialist model, the US is now being forced to subsidise (aka pay) its own farmers whose industry has been partly stagnated during the early stages of the trade war on China. Far from working with its domestic agricultural industry to pursue new efficient developmental models, Washington is bailing out its domestic agricultural produces because they would become insolvent or on the brink of insolvency otherwise. To put matters bluntly, the US government is now facing the medium term possibility of paying its farmers to throw away foodstuffs while Chinese investment in its various domestic industries is used to help push Chinese goods to the forefront of innovation while helping Chinese products ranging from agriculture to industrial goods to reach foreign shelves.
The US trade war on China has therefore resulted in the US having to spend money on bailing out domestic industries that would not need the help if Washington officials would work to resolve the trade war on a win-win compromise. All the while, Chinese producers are able to secure multiple markets for their goods in spite of the closed economic attitude and policies of the current US administration.
The result is that both China and the US are now using government funds to stimulate areas of the economy. The difference is that while China is doing so in order to sell its products and thus gain a return on its investment, the US is simply ploughing money into sectors partly ruined by its own foolish trading policies. China continues to move forward while for US farmers, the trade war has represented a major step backwards.