United front required to change US course as trade war begins
There can be no winners as Washington and Beijing land tariff blows, and cool heads are needed with global peace, stability and development under threat
It is no longer just a war of words. China and the United States have begun exchanging blows in a trade war. As threatened, Washington’s 25 per cent duty on US$34 billion worth of Chinese goods took effect yesterday.
As promised, China immediately fought back by imposing equivalent countermeasures against US products.
Worryingly, it is not just an American trade war with China but, effectively, sabotage by the US of the free-trade system Washington initiated decades ago, which has driven global economic growth and China’s rise. As such it is a “new cold war” that threatens global peace, stability and development.
China’s strong response arguably serves the broader interests of the global community, but trade wars are ultimately defined by futility. There can be no winners, only losers both at home and abroad, as collateral damage spreads from tit-for-tat actions by two global trade giants.
Negative aspects abound. Stock markets have been falling. Beijing injected 700 billion yuan (HK$827 billion) of liquidity into the economy on Thursday amid concerns economic growth is losing momentum. The pain of a full-blown Sino-US trade war will spread quickly to US allies such as Japan, South Korea and Taiwan who make inputs for Chinese exports.
Retaliatory boycotts against US brands could risk damage to Chinese co-owners. US producers who use imported inputs could be affected by their own country’s tariffs.
The world is therefore facing troubled times that bode ill for global economic growth, prosperity and jobs. It is not too late to pull back from the brink if cool heads are allowed to prevail.
President Donald Trump’s aggressive trade policies reflect his populist campaign rhetoric of “American first”. Polls indicate he retains support among Republican voters, but it is not clear whether that is true of Republican lawmakers concerned about his trade policies, not to mention possible job losses and a voter backlash.
China remains committed to globalisation and free trade, but needs friends in the battle to ensure they prevail. A unified voice of reason must stand up for the global trading system.
China and Europe may have their differences but their decision to set up a working group to revamp the World Trade Organisation to counter US unilateralism makes sense. Global pressure must be exerted.
Ahead of a Sino-European summit on July 16-17, Europe has resisted action against the US in the WTO, but a joint communique affirming commitment to the multilateral trading system is welcome. Trade rivals will have to present a united front if they are to persuade the US to change course.
First, Brussels and Beijing must address their own disputes through the global framework – the WTO – and China needs to open up its economy to Europe to reduce bilateral friction.