US and Chinese delegations in negotiations, November 2018

Things are not going well for America in our trade war with China. Even as talks stalled last week the economic conflict escalated with President Trump’s announcement of additional tariff’s against Chinese imports. The move was a negotiating tactic by the president aimed at using America’s position as the largest recipient of Chinese exports (18% of total Chinese exports in 2018) to force an agreement between the two countries. Unfortunately for Trump, the stock market, and America in general, China responded by countering with new sanctions against US imports to China. The result was another series of alarms and growing concerns over the trade war with China. The reality however is that this is just one battle in the larger geopolitical struggle between the two countries, and America could very easily lose both.

The rationale behind the Trump administration’s trade negotiations with China are the same as they’ve been for two decades. The most high profile issue is America’s need to protect itself from Chinese violations of US intellectual property rights (IPRs), as well as forced technology transfers for companies investing in the country. But for American economists and politicians the most important issue is the US trade deficit with China. The $420 billion deficit combined with China’s control of 28% of America’s public debt has convinced many that it is a source of geopolitical leverage over the United States and thus a growing threat to national security. For these and other reasons (e.g. increased Chinese defense spending, territorial issues in the South China Sea, etc.) America has engaged the Chinese in continuous economic and diplomatic skirmishes since the end of the Cold War.

President Trump believes he can win this battle due to the sheer weight of America’s economic might, and he may be correct. What should really be considered however is that China’s willingness to fight from a disadvantage signals they have already accepted the possibility of short-term losses and disruptions. There are several reasons for the Chinese strategy including waiting for “a more serious administration” in 2020 and confidence born of the Communist party’s long-standing political and economic control in the country. What is clear however is that Beijing is being uncharacteristically restrained as they are aware of the fine line between political rhetoric and fiscal responsibility. Trump’s obliteration of that line with frequent, aggressive, and sometimes confusing communications regarding US policywork to China’s favor as despite the violations laid out above, they are still able to play the role of the victim.

In the end China will win the current trade dispute because they have time on their side. President Trump must consider daily the impact of the trade war on the temperature of America’s economy and political landscape using the Dow Jones as a thermometer. Chinese president Xi Jinping however sees the dispute as a war of attrition, one in which China, “thinks it can outlast the US.” By making the issue one of national pride, maintaining political control of the majority of wealthy citizens, and widening the ‘war’ to include investment and currency markets, China will be able to rally domestic support for their position. Simultaneously, any lengthy downturn in the US economy will have significant repercussions for president Trump’s 20/20 reelection bid as America’s economic growth over the last two years is widely considered one of the few positives he can point to from his first term. In the end, Trump may have to accept much less than what he is demanding from the Chinese in order to claim some sort of win heading into election season. The irony will be that anything less than full Chinese commitments to honor international law protecting IPRs and increase the Chinese import of US goods will in reality be a Chinese victory.

Eurasian leaders celebrate China’s “One Belt, One Road” economic initiative, April 2019

The biggest issue for America’s future economic and national security will be the degree to which the current trade dispute hastens the diversification and strengthening of the Chinese economy. China at this moment is having the same realization regarding their dependence on the US consumer market as America did regarding Middle East oil in the 1970s. America’s response was to simultaneously develop alternative energy and domestic petroleum sources with the result being energy self-sufficiency in a generation. China has been engaging similar strategies for the last decade focusing specifically on increasing the strength of their domestic consumer market, expanding trade relations throughout the world, and reducing barriers to foreign direct investment. The result is that each successive trade dispute has had less and less of an impact on the Chinese economy, in turn indicating the declining leverage and overall economic power the United States has. When combined with China’s quiet negotiations to possibly assume the position in the Transpacific Partnership turned down by Trump, they are fully prepared to not only weather the current battle, but perhaps when the war altogether.

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Dr. Darius Watson, PhD is a professor of international relations, political theory, and security studies. He is also the primary contributor to the news and analysis website drillbitnews.com, as well as the senior consultant for Watson Consulting & Analysis, LLC. Dr. Watson is an active scholar, analyst, and instructor with a record of commitment to publication, professional presentations, and most importantly his students.