Macroscope | China needs to put its house in order as the trade war goes from bad to worse

In contrast with the progress seen in United States-European Union negotiations, there are no signs of trade talks resuming between the US and China since the breakdown of negotiations in June.

This underscores a fundamental difference between the US-EU and US-China disputes. The former is genuinely about trade between two allies, while the latter is a structural conflict – disguised as a trade spat – between two adversaries. That structural conflict is centred on China’s rapid catch-up in technology and innovation, which, in the eyes of the Trump administration, has been achieved via illegal technology transfer and lax protection of intellectual property.

Hence, besides the trade war that is currently taking place – targeting China’s technology products, the US has also imposed restrictions on China’s investment in its hi-tech sectors, undertaken sanctions against Chinese tech companies (for instance, ZTE), and demanded that Beijing alter its industrial policies (Made in China 2025) designed to upgrade the Chinese economy via technology advancement.

Given the structural nature of the dispute, there is no easy fix. US President Donald Trump is very likely to implement additional tariffs before the midterm elections, countered by Beijing’s proposed retaliation.