By Hanif Ghaffari

A contemplation on the U.S.-China Trade War

April 9, 2018

TEHRAN - The trade war raised between the United States and China has entered a new phase. In 2017, there existed a verbal conflict between Washington and Beijing, but now we are witnessing a perfect pragmatic dispute between the two countries.

The United States' threatening approach towards China (which was reflected in Trump's National Security Doctrine) has led to an intensification of the conflict in 2018. Trump seems to be actualizing his protectionist economic slogans during the 2016 presidential competitions.

 During his campaign, Trump claimed that the economic cooperation between Washington and Beijing had a devastating effect on the U.S. economy, and that this process should be modified using economic restraint approaches.

 Imposing tariffs on Chinese imported goods, imposing strict importing laws and regulations, enhancing import controls, etc. are among the measures that Trump intends to put into effect and thus, start a full-fledged confrontation with Beijing.

 At the other side, Beijing announced that it's going to stand against the United States until the last minute, and will, in return, impose restrictive rules on American goods and companies in China. Last month and in spite of global objection, Trump announced that there will be tariffs on steel and aluminum imports; 25% on imported steel and 10% on imported aluminum to the United States.

 Following this order, the Chinese Ministry of Commerce also announced that it will impose tariffs on 128 items of imported goods by the United States, including pork and fruits.

Here are some points that should be taken into consideration: Firstly, the economic conflict between the United States and China will further exacerbate the economic players in the international system, including the European Union.

 The European Union has not yet responded decisively to Donald Trump's protectionist economic measures. However, the Chinese have shown their opposition to Trump government with their countermeasures against the United States.

 The fact is that the effects of Trump's unilateral protectionist plans on the trade process between the two countries of U.S. and China can't be denied. Accordingly, the United States will suffer losses in its exports due to the Chinese counteraction.

 In recent years, and on average, the value of U.S.-China trade exchanges has been over $ 600 billion a year. This is while imposing restrictions on imports based on protectionist economic policies will surely reduce this level. However, the President of the United States claims that it is necessary to enforce such policies, in any possible way, against the two main economic partners of Washington, namely China and the European Union.

 Many economic analysts believe that although these policies can be temporarily effective in boosting the U.S. economy, they'll be destructive in the long run since there's going to be counteractions by the other sides. It's not without a reason that many analysts and experts have warned Trump on his economic policies including the restrictive tariffs imposed against China and the European Union.

The second point is that the economic conflict between China and the United States has directly challenged the rules of free trade in the international system. Many economic theorists argue that in the time of globalization, the application of any discriminations and restrictions in which is to affect free trade will lead to a fragmentation in the structure of the international economy.

 Trump has now challenged free-trade rules through applying his protectionist economic policies. China's recent objection of the United States to the World Trade Organization can also be analyzed in the same vein.

The Chinese Ministry of Commerce has emphasized that, given the U.S.'s refusal to negotiate with China on compensation for tariff imposition on its goods in accordance with WTO rules, China will have to begin the dispute settlement process in the Organization to defend its rights and its legitimate interests.

 The Chinese authorities rightly argue that the restrictive measures taken by Trump's government against Beijing are in contrast with the principles of the free trade system. However, given his specific political and economic approach, Trump seems to be prepared to stand up against the World Trade Organization. This is while putting specific penalties and limitations by the WTO against the United States will naturally affect the U.S. economy.

Third, the structural impacts of the U.S.-China trade conflict is not limited to the time of Trump's presence at the White House. Even if the next U.S. government decides to cancel the trade and import restrictions imposed by Trump's administration, the normalization of business relations between Washington and Beijing will take a long time.

 On the other hand, the effects of this economic confusion (which will last at least until 2020), will lead to a deformation of the free trade structure in the international arena. In such a situation, the redefinition of the international economy based on "free trade" is going to be extremely difficult. It should not be forgotten that the Chinese have not yet used their capacities in economic confrontation with Trump's government.

China holds about $ 1 trillion of U.S. debt. On the other hand, the Chinese have always been the biggest winners and buyers of the Treasury auctions until 2016. This has led some U.S. economists to warn against the consequences of economic confrontation with Beijing. They argue that Washington and Beijing's conflict won't be limited to the "export-import" field, but will be extended to other areas.

 Beijing can use the U.S. foreign debtin its economic dispute with Trump's administration. Hence, Washington's economic plans against Beijing will ultimately result in gross economic strike on the United States itself.

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