In early April 2018, based on its Section 301 investigation, the U.S. government announced that it would impose a tariff of 25 percent on more than 1,300 kinds of imported products originating in China, involving about US $50 billion of Chinese exports to the U.S. For the U.S. government’s unilateral act of ignoring international trade rules, China immediately responded and announced that it would impose additional tariffs of 25 percent on 14 categories of 106 products such as soybeans, automobiles, and chemical products originating in the U.S., amounting to about US $50 billion of imports from the U.S. Two days later, U.S. President Trump tweeted to consider taxing an additional US $100 billion of Chinese imports. China immediately made it clear that if the U.S. announced the list of US $100 billion of taxable products, China would not hesitate to make a counterattack.
This trade conflict is a reflection of the shift of U.S. strategic direction toward the economic and trade sphere. The recent reports issued by the U.S., including the U.S. national security strategy report, the nuclear threat report, and the State of the Union, are very prominent in marking the strategic shift of the U.S. The main focus of the U.S. national strategy was originally terrorism. The U.S. has never explicitly proposed that China should be an opponent that needs to be restrained. However, several reports successively issued by the U.S. have listed China as top opponent. The struggle between the two major powers will affect the global political and economic diplomacy. At the same time, their fierce competition will also become normal.
Stemming from Strategic Anxiety
The recent 301 investigation report has caused a great uproar in the world, which also interferes in China’s internal affairs. It sorts out all the important documents released by China in recent years, from Xi Jinping’s report delivered at the 19th National Congress of the Communist Party of China, to China’s 13th Five-Year Plan, 12th Five-Year Plan, “Made in China 2025”, and several documents of the State Council, the National Development and Reform Commission, and the Ministry of Industry and Information Technology, as well as documents made by provincial-level governments, industrial associations, including some company's brochures. Zhang Xiangchen, Chinese ambassador to the WTO, pointed out that the report has been patched together with contents from important documents issued by China in recent years and basically no logical relationship can be seen. The argument is also very confusing, and some of them are even inaccurate. All of China’s five-year plans, government work reports, and documents of the State Council are all in accordance with the law to exercise the right to govern China’s internal affairs by its own government. The U.S. does not have the right to criticize China’s internal governance methods and programs. The accusation puts the interests of one country above international rules.
In addition, through the 301 investigation report, we can see a shift in the U.S. from purely trade-related issues to comprehensively impeding the process of China’s modernization, and fully blocking China’s industries moving from the low to the high end. It appears as if the U.S. appears insecure and intimidated, it is moving from strategic doubts and strategic anxieties to strategic misjudgments.
There are also deep-seated reasons within American society. China's high-tech and manufacturing development are what the U.S. most fears. The output value of Chinese manufacturing exceeded that of the U.S. in 2010, accounting for 19.8 percent of the world’s total, while the share of the U.S. dropped to 19.4 percent. In 2016, China’s manufacturing output accounted for 25.5 percent of the world, while that of the U.S. dropped to over 15 percent. Moreover, China’s industries have continued to move toward the mid-to-high end. In this process, China has introduced a series of major policies guiding the industry towards mid-to-high end, which has caused great panic in the U.S. In fact, the U.S. has also supported its development of high-tech industry with its state policies. The information superhighway during the Clinton administration supported the development of the information industry with state backing. In 2011, to safeguard its leading position of the advanced manufacturing industry, the U.S. used state intervention to maintain the advanced level of manufacturing development. In particular, the federal government’s documents to accelerate the development of advanced manufacturing industries in 2014 were all to lead the U.S. manufacturing industry toward higher levels. Germany's high-tech strategy 2020 and the industries 4.0 are all examples of state backed initiatives. It is totally unjustifiable that only China has been investigated, criticized and penalties imposed.
In fact, Chinese manufacturing and the U.S. manufacturing are not at the same level at all. The U.S. manufacturing industry is generally at the high end, which is in the world's first echelon. China is still at the mid-to-low end, and it is generally in the follow-up phase, and very few industries and products have led the way. China relies on its own efforts to explore the international market and steadily achieves transformation and upgrading. This process is still in a nascent phase.
Misunderstandings and Misjudgments
The 301 investigation report is also a manifestation of misunderstandings and misjudgments of the U.S. Some American experts suggested that Made in China 2025 is to use government influence to guide the development of the manufacturing industry. It is said that some of China’s documents are proposed to force the U.S. companies to transfer technology to Chinese companies, especially in the area of new energy vehicles. In fact, the Chinese government does not have such documents. Chinese companies paid for the technology transfer and conducted fair negotiations. The U.S. companies and Chinese companies conducted equal transactions, which are in full compliance with international law, and in line with the interests of companies in both countries.
The misjudgment in strategy also manifests itself in the fact that some U.S. scholars and government officials suspect that if the U.S. has trained its own opponent by pushing China onto an open path and introducing China into the WTO organization. Now that China has become a threat to the U.S., this kind of reflection has been popular in the U.S. society. The U.S. public opinion suffers from this misjudgment, thinking that China is stronger than the U.S. According to a public opinion survey in the U.S., many people think that China is the most powerful in the world, while the U.S. takes the second place. There are also international organizations, such as the World Bank and the International Monetary Fund, which use purchasing power to evaluate that China was the largest economy in the world in 2014, all of which caused the U.S. to come to this inaccurate conclusion. In fact, the proportion of global transactions and payment settlements in RMB was only 1.23 percent in 2017, while the US dollar was 62 percent.
Therefore, we must pay special attention to the misjudgments of the U.S. society over Sino-U.S. economic and trade relations, international and economic status of the two countries. Efforts should be made to let people understand the huge gap between China and the U.S. We must have a clear understanding of China’s current stage of development. China must make great efforts to achieve the set development goals.
Rational and Powerful Counterattack
China is in line with international rules in this game. China has always advocated negotiation, while the U.S. does not negotiate unilaterally, hence the emergence of trade conflicts. Countries around the world must follow international rules and international order, and cannot place the interests of one country above global interests, place a country’s domestic rules above international rules, and place a country’s subjective assumption above international economic, political, and diplomatic patterns. A rising China is the most stable force for boosting the peaceful development of human society. The U.S. has now become the biggest variable – Trump’s style of governance has made the U.S. the largest variable in all aspects of global political, economic, diplomatic, and geopolitical calculations.
In this case, communication between the two countries is very important. Without communication between experts, scholars, and the people, economic and trade conflicts between the two countries will not only harm the feelings of goodwill that have been cultivated between China and the U.S., but also make Trump go further down the wrong road.
Sino-U.S. relations are not only the concern of the Chinese people, but also the entire world. The significance of these relations has exceeded bilateral significance and taken on global significance. If the relations are harmonious, the world thrives, if unnecessarily competitive, the world will be chaotic, and precious progress lost.
The author is the Chief Economist and Deputy Director of China Center for International Economic Exchanges.
