Andrey Manoylo, PhD (political science), professor of the Moscow State Lomonosov University US, China in a tug of trade war: who is going to win? / SCO Shanghai Cooperation Organization

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US, China in a tug of trade war: who is going to win?
22.04.2019 13:08 Andrey Manoylo, PhD (political science), professor of the Moscow State Lomonosov University

Contemporary hybrid wars always include an economic, commercial and financial component. At first, countries entering a hybrid war may not feel any significant changes in their lives: their citizens continue crossing borders freely, no one is shooting at them or trying to take them prisoners; their cities are not being bombed, there are no tanks moving through the streets or cruise missiles falling on schools, kindergartens and hospitals. But the governments are already making aggressive plans of destroying the economies of their adversaries using the methods of economic, financial and trade warfare in order to disrupt and eliminate their resources, without which one cannot put up resistance in a conventional war.

It is in this state of an undeclared war that the two global leaders the United States and China find themselves now, having entered a trade war in 2018, which has become a war of attrition for China. It began a year after Donald Trumps inauguration as US President. That day the US Administration for the first time used special protective trade measures designed to help American manufacturers to cope with the growing pressure of imports. The move did not came as a surprise for American citizens: entering the presidential race, Trump had promised to revive the policy of protectionism. Everyone knew that having become president he would certainly attack the trade monopoly of China, which had flooded the US market with its goods. For China, Trumps attack was unpleasant, but predictable: the US-Chinese relations were moving towards a conflict in the previous year.

The ideological basis for the future confrontation with China was created by the new US National Security Strategy, adopted after Trump assumed office in 2017, which officially declared Russia and China among the most dangerous rivals of the United States on the geopolitical stage, alongside terrorist organizations.

The main reason for the trade war is extremely simple. There is a clear disproportion in the US-Chinese trade: America buys from China more than sells to it. At the beginning of 2018, the disparity of the US-Chinese trade balance was about $375 billion, while the total trade volume was some $461 billion. It means a huge difference in sales volumes: having sold $461 billion worth of goods to the US, China bought only $89 billion worth of American products. Americans cash in the amount equalling half of the Pentagons annual budget, changed hands without a hitch and disappeared in the pockets of Chinese manufacturers and businessmen.

The strategy of the trade war is very simple indeed. Trump plans to make up for the $375 billion difference in trade volumes with duties levied on Chinese goods imported in the US and thus eliminate the misbalance. American manufacturers of end products welcome the war: imported Chinese goods will become more expensive and sell less well, giving way to domestic products. But this is true only about a relatively small segment, because many American goods are made of Chinese parts, units and electronics.

In order to respond to Trump properly, China should attack the US in a different dimension, asymmetrically, going beyond the rules of the game established by the US for the American-Chinese trade war. But it looks like Beijing is not doing this.

The trade duties raised by the US are killing Chinas small and medium-sized businesses. Large corporations are also suffering losses, but they have resources to survive. The active steps taken against China helped Trump to reduce the trade misbalance to $261 billion by autumn 2018. This is a critical threshold for the Chinese economy, a red line, crossing of which will mean ultimate destruction of medium-sized businesses and the beginning of collapse of larger Chinese corporations. Trump knows what he is after and, probably, understands that he is destroying the situation for decades to come, but he needs the result. The next presidential election is drawing closer, and he may fail to win without a convincing victory over China.

By now, the results of the trade war between China and the United States look as follows. China lost the first one-year round. Trump will continue exerting pressure on China to fully eliminate the trade misbalance, because he is confident of his strength and knows that Beijing has nothing to respond with. He will continue stifling China with new duties until someone publicly punches him on the nose. In 2019, Trump will use any means available to him to squeeze China for another $260 billion, but China may be willing to pay the price. And then, having fixed and written off losses, it will start rebuilding its economy from ruins, calmly and methodically. After all, the Chinese state is over 6,000 years old. Perhaps, China hopes that after Trump leaves the political stage, the rudeness, peremptoriness and inability to hear another opinion will go with him, along with the barbarian policy towards China.

In the war against the US, it would be useful for China to lean not only on its own strength, but on the combined potential of such alliances as the Shanghai Cooperation Organization and BRICS. Only then would China be able to turn the tide in its favor, making the US, perhaps, to step back for a while. But to do so, BRICS needs to be urgently transformed from an international hobbies club into a fully fledged international organization with its legal capacity, foreign political strategy and own system of supranational governance bodies.

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