11/01/2019 No. 147
 
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An Update on the U. S. - China Trade War
By Yung-Sheng Cha
August 1, 2019


The trade war between U. S. and China has been going on for more than a year. There was no deal or agreement after several rounds of negotiations. The U. S. slapped a 25% tariff on $250 billion of Chinese imports. China retaliated by imposing tariffs on U. S. products. The talks between the U. S. and China on trade stalled in May of 2019. In the meantime, the relation between Washington and Beijing deteriorated further. In addition to not allowing the Chinese giant company Huawei to sell its products in the U. S., U. S. President Donald Trump also announced the policy of not allowing U. S. companies to sell their products to Huawei, in an attempt to choke Huawei’s development and growth. The U. S. also tightened the rules and regulations by making it more difficult for Chinese students to come to the U. S. for advanced studies.

 

The main reason that there was no deal is that there are fundamental differences in principles between Washington and Beijing. Trump wants “America First”, which is a zero-sum game, while China wants to negotiate based on the principles of “Equal Status (平等待遇)” and a “Win-Win (互利共嬴)” outcome for both Beijing and Washington. If these differences are not resolved, it is difficult to reach a final deal.

 

Because no agreements were reached at the time, Trump again threatened to impose additional tariff on the remaining $300 billion worth of imports from China if President Xi did not agree to meet him in Osaka, Japan, at the G20 meeting in late June. Trump and Xi finally agreed to meet on the sidelines of the G20 meeting. The following are some temporary agreements reached at that meeting, which were announced by Trump.

(1) The U. S. will not impose the 25% tariff on the remaining $300 billion worth of Chinese imports.

(2) Washington and Beijing will restart the negotiation again. No timetable is set for this round of negotiation.

(3) The restriction on Huawei will be eased somewhat. U. S. companies will be allowed to sell their products to Huawei, although details remain to be worked out.

(4) China promised to purchase more U. S. farm products.

(5) Trump promised to make it easier for Chinese students to come to the U. S. and to stay in the U. S.

 

Most pundits considered these agreements to be a give-away to China by the U. S. and that Trump relented in this round of talks. Of course, Trump and his economic team will not admit that they retreated because that could hurt the chances of Trump being re-elected. However, if you look carefully at these agreements, they really do not look bad for the U. S. On the other hand, they definitely look good for China.

 

Agreement (1) prevented the trade war from becoming a full-fledged tariff war that would not only hurt the economies of China and the U. S., but also that of the world. In other words, it resulted in a win-win situation.

 

Agreement (2) provides the hope that agreements could be reached in the future (compared to the present situation of no planned talks between Washington and Beijing). This positive development may alleviate some of the concerns of the financial communities around the world.

 

Agreement (3) is good for American companies which sells billions of dollars’ worth of products to Huawei. It is also good for Huawei because it gives Huawei more time to develop its own hardware and software necessary for it to continue to operate around the world. Again, this agreement resulted in a win-win situation.

 

Agreement (4) is good for American farmers, particularly for soy bean farmers. It is also good for China because China consumes a lot of soy beans. It makes perfect sense for the largest soy-bean producers to sell to the largest consumers of soy beans. It is truly a win-win deal.

 

Agreement (5) is good for Chinese students who wish to study in the U. S. It is also good for America to be able to retain some of the bright scientists and engineers from China.

 

Overall, it is quite clear that all the temporary agreements that Trump announced are good for both Washington and Beijing. It is a win-win deal for both countries. However, because the deal is also good for China, the China hawks (among both Republicans and Democrats) are not pleased. For example, Senators Mark Rubio (a Republican) and Chuck Schumer (a Democrat) both were very critical of Trump for reaching such a deal. Usually, when someone criticizes Trump, he will immediately fight back. But this time Trump was silent. This is because Trump is, to a large extent, the key figure that created the atmosphere in the U. S. that China is a bad actor who took advantage of the U. S. How can Trump, who demonized China, defend a deal that is also good for China?

 

The outcome of the Trump-Xi meeting in Osaka is clearly a step in the right direction. It is also in the direction (win-win) that China would like to pursue. Whether a final deal can be reached in the future is still unclear. Trump certainly would like to have a deal in the next 6-12 months ahead of the election in November 2020. There is no time constraint on China and the Chinese team will continue to negotiate based on its core principles of “Equal Status (平等待遇)” and a “Win-Win (互利共嬴)” outcome. The uncertainty is mainly with Trump who is notoriously unpredictable. However, it is an absolute certainty that Trump will declare total success and complete victory no matter what happens.

 

Y. S. Cha

July 2019

Darien, Illinois

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Yung-Sheng Cha graduated from the Mechanical Engineering Department of National Taiwan University in 1967. He received his M.Sc. and Ph.D. degrees in Mechanical Engineering from Lehigh University in 1970 and 1973, respectively. He was employed by the Argonne National Laboratory in 1974 until his retirement in 2006. While at Argonne, his research focus was mainly on different energy systems. Dr. Cha is a U. S. citizen.
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