As the trade war between the world’s two largest economies further escalates, with
US$16 billion in tariffs and counter-tariffs between the United States and China coming into effect, a deep-seated conflict is emerging. Behind the US’ attack on China’s forced technology transfer policy, intellectual property theft and Made in China 2025 strategic plan, and behind the tit-for-tat tariffs, there lies a fundamental fault line of the trade war: the clash between the Chinese state-dominated economic model and the US-led free-market economy system.
Judging by his
tariffs on allies and his
embrace of a dictator, it appears that US President Donald Trump doesn’t typically care about ideological or political views as long as they align with his “America first” policy. However, the attack on
Made in China 2025, a plan to develop China’s hi-tech industries, has seemingly, intentionally or not, turned into an assault on the core of China’s political and economic system. The Chinese model is characterised by its government-led and -supported industrial growth and innovation that includes elements such as state-owned enterprises in key sectors, government-guided industrial policy and cheap credit from banks.
This challenge to Beijing’s economic model gained bipartisan support from elite groups within Washington’s China-policymaking community. It seems they are no longer under the illusion that China can be incorporated into the US’ free-market capitalism, and they think their China policy over the past two decades has failed.
Since China’s entry into the World Trade Organisation in 2001, and despite its further market reforms and booming private sector, China has retained state capitalism and even reinforced its coercive regime in the era of globalisation, thus developing into the world’s second-largest economy. The nation’s strategic transition and the growing resentment in US China-policy circles underpin the consensus on Trump’s policy: that China is succeeding at America’s expense.
The rationale for Trump’s challenge to the Chinese model and push for Chinese integration into the rule-based free-market economic system is similar to his predecessor Barack Obama’s. The difference is in the approach. Whereas Obama adopted the elaborately structured and face-saving approach of the
Trans-Pacific Partnership, Trump used a crude, downright old-fashioned weapon: tariffs.
