China’s Seven Deadly Sins - Emily Gao

AN OVERVIEW OF THE TRADE WAR By Emily Gao

We have all seen the headlines of the infamous trade war between the United States and China. At first glance, it may seem like a petty dispute over monetary profit between the two nations, but the underlying economic and political intentions of Trump’s recent decisions stem from much more. To fully understand this ongoing trade battle, we must first dive into China’s economic history. Its role in the global economy started in 1978 with President Deng Xiao Ping when he opened the nation’s markets to foreign trade. Since then, China has established itself as the world’s manufacturing center, leading to unprecedented economic growth. According to The Economist, China’s GDP was a mere 6% of that of the United States in 1978. In 2018, China’s GDP was 66% of that of the US, and if one assesses based on local spending power, China has exceeded the US in that realm. In 2001, Bill Clinton encouraged China’s entrance into the World Trade Organization (WTO), an organization that ensures the smooth sailing of international commerce via rules and regulations. Clinton believed that this would

stimulate the economically symbiotic relationship between the two nations and also urge the communist nation to adopt more of a western capitalist approach to its economics. In Trump’s eyes, as well as the eyes of many economists, the latter was not achieved. The Trump administration claims that China achieved such rapid economic superiority by cheating its way through the system. David Rennie, the Beijing bureau chief of The Economist, points out that China heavily subsidizes its companies by giving advantages such as free land,

tax breaks, and federal funding. This uneven playing field gives Chinese businesses a leg up in foreign markets and harms what Trump is concerned about: American companies. A perfect example is Huawei, a Chinese technology company that manufactures cutting edge technology sold at cheaper prices due to copious amounts of government subsidies (Center for Strategic and International Studies). In addition, Trump has accused China of stealing foreign countries’ intellectual property. This includes menial things, such as China’s creation of an unauthorized brand called New Balahne as a cheap knock-off to the American sportswear brand New Balance. However, this stolen technology could also affect national security. According to ABC News, the US alleges that the Chinese J31 weapon system was modeled off of the American F35--and the information China gathered to complete this was done via hacking. Peter Navarro, Trump’s trade advisor, has listed seven things that the US wants from China. These are infamously known as the Seven Deadly Sins:

1. Stop stealing intellectual property 2. Stop forcing technology transfers 3, Stop hacking US computers 4, Stop dumping into US markets and consequently putting US companies out of business 5, Stop giving their state-owned enterprises heavy subsidies 6, Stop giving the US fentanyl (an easily abused narcotic) 7. Stop manipulating its currency Jim Cramer of CNBC and Wayne Kaufman of Phoenix Financial Services have also pointed out that these trade policies largely parallel Elizabeth Warren’s foreign policy plans, minus her emphasis on combating climate change and prioritizing human rights--an interesting and surprising piece of information. To urge China to make internal changes to its market structure, Trump imposed a 25% tariff, or tax, on Chinese imports in July of 2018. This would require American buyers to spend more money to purchase things manufactured in China. The goal was to deter American companies from purchasing Chinese goods and thus hurt China’s economy, pushing the nation to reform. It should come as no surprise that China did not cooperate. Instead of converting to fairer free trade practices, China simply instituted tariffs on US goods, resulting in negative effects on both American and Chinese businesses. Many economists have speculated that these tariffs have resulted in a loss of jobs on both sides, as American businesses are resorting to laying off workers to compensate for the extra money they have to pay on imports, whereas Chinese businesses are having to deal with increased international manufacturing markets. In October 2019, the US and China negotiated a ceasefire: the United States suspended tariffs valuing $368 billion in Chinese imports, and in return, China agreed to buy $40-$50 million in US farm products. Numerous economists have noted that many key issues,

including most of the Seven Deadly Sins, were not addressed in the terms of the ceasefire. On December 12, 2019, Trump and President Xi JinPing released that they had reached a tentative deal between the two superpowers. The conditions of the deal generated mixed reviews among analysts. Trump agreed not to impose new tariffs on China (which were originally planned to be put in place on December 15th) and in return, China agreed to increase purchase of US agricultural goods. Once again, many skeptics have pointed out that “details about the other aspects of the agreement--including structural changes to intellectual property rights that China is said to have agreed it would make--remain unclear” (CNN). The official “phase one” trade agreement between the two superpowers was signed on January 15th. Trump has claimed that “phase two” negotiations are to start soon thereafter. The deal includes agreements for China to place restrictions on counterfeit products and establishes new international protections on intellectual property. In return, the US has agreed to cut tariffs on Chinese products by half: from 15% to 7.5%. Both powers seem desperate to outlast each other. China has gone to exporting goods to other nations and Trump has stated that he will continue tackling the unfair trade practices of China, even if it has short term negative impacts on the US economy. In Trump’s words, “We can’t continue to let China rape our country, and that’s what they’re doing.”