US-China trade war reaches second anniversary, with superpower relations at ‘alarming’ lowest ebb

Two years after the US imposed the first trade war tariffs, its trade deficit with China has narrowed, but wider relationship are being held together by the sticking plaster of a phase one deal
China’s Foreign Minister Wang Yi says ties are ‘facing the most serious challenges since the establishment of diplomatic relations’ in 1979

US-China trade war

Finbarr Berminghamin Brussels

Published: 8:00pm, 9 Jul 2020

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On the second anniversary of Washington unleashing its first trade war tariffs on Beijing, tensions continue to flare over issues ranging from Hong Kong to technology, with observers in both countries agreed that the superpower relationship between China and the United States is at its lowest ebb in decades.

The motivation for US President Donald Trump was to close America’s trade deficit with China, and it has narrowed. China continues to purchase American farm goods, seen as crucial to Trump’s plans to win re-election in November, but these are widely viewed as sticking plasters on ties that otherwise appear on the verge of collapse.

“I don't know that we would have thought we would have fallen this far,” said Clark Jennings, former White House trade adviser to former US president Barack Obama.

“I don't think I will be considered blasphemous for saying as an Obama appointee that the Obama administration could be criticised for maybe not going far enough at certain points in the US-China relationship,” continued Jennings, now managing director at policy advisory firm C&M International.

“But if there were any gains [from the Trump administration’s strategy], at what cost? Not only to the US domestic economy, but at what cost to our relationships around the world and our standing on the global stage?”

Rather than be cowed, however, China has grown more belligerent on the international stage since the first 25 per cent tariff was placed on US$34 billion of goods on July 6, 2018, engaging in trade and geopolitical disputes with nations including India, Canada and Australia, while drawing widespread condemnation from a series of Western governments for rolling out a sweeping national security law on Hong Kong, seen by many as an erosion of the city’s autonomy.

Fully 62 per cent of Chinese academics polled in a recent survey by Renmin University thought the US had “launched a new cold war against China”, while a growing chorus of officials in Beijing have warned that China could face isolation from US dollar markets, as Washington prepares sanctions in response to the Hong Kong national security law.

The cold war terminology, used frequently in the US for years, has grown more common in Chinese policy circles in recent months as relations have deteriorated.

What is alarming is that the Sino-US relationship is one of the most important bilateral relations in the world, but is facing the most serious challenges since the establishment of diplomatic relations

Wang Yi

“What is alarming is that the Sino-US relationship is one of the most important bilateral relations in the world, but is facing the most serious challenges since the establishment of diplomatic relations [in 1979],” said Foreign Minister Wang Yi, in a speech in Beijing on Thursday.

As the US moves closer to November’s general election, even more uncertainty lies ahead for the geopolitical and economic relationship, analysts said.

“In the short term, the rapidly changing political landscape in the US could shift trade war calculations. President Trump’s declining political prospects means that China might be content to ‘wait out’ the Trump presidency in anticipation of dealing with a more conventional Biden administration in January,” said Stephen Olson, senior fellow at the Hinrich Foundation and former US trade negotiator.

“Over the longer term, however, the fundamental issues remain the same. Given how profoundly different the US and Chinese economic systems are, the degree of trade and investment integration that has taken place over the past two decades was probably unrealistic. Although an across-the-board economic decoupling is impossible and in neither country’s interest, some degree of decoupling is inevitable.”

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For now, China has picked up its purchases of US goods, perhaps in an effort to stop things from collapsing altogether. This saw the US trade deficit with China ease to US$26.96 billion in May, compared to US$33.71 billion in June 2018, the month before the trade war began, the latest US Census Bureau data showed.

Economic analysis firm Panjiva found that Chinese imports of the 548 products covered by the phase one deal rose 11.5 per cent in May from a year earlier and 11 per cent from May 2017, the baseline for the deal.

“The growth has been driven by a surge in commodities. Exports of agricultural products jumped 39.8 per cent higher in May 2020 vs May 2017 on the strength of a 468 per cent surge in shipments of meat,” according to Panjiva’s analysis, with China having loosened import restrictions on poultry, pork and beef in line with another requirement contained within the phase one trade deal.

But China has only bought 45 per cent of the amount of goods required by the deal in the first five months of the year, research from the Peterson Institute of International Economics showed.

There have been disruptions from the coronavirus pandemic, with shutdowns on both sides hampering trade and logistics, however, most analysts considered the trade deal’s targets to be unrealistic in the first place.

“Phase one itself, no matter if we had Covid-19 or not, was very difficult to achieve. It was overly ambitious,” said Chenjun Pan, a commodity trade analyst at Rabobank, who added that while China has “strengthened inspections at ports and required extra documents” for meat imports due to coronavirus outbreaks at foreign slaughterhouses, these have not specifically been targeted at US firms.

If anything, analysts have remarked on the strength of US meat sales to China despite the viral outbreaks.

“It was notable that US exports of meat to China kept growing even during the height of shortages of supplies in the US earlier in the Covid-19 crisis. I’d expect a continuation of exports,” said Chris Rogers, Panjiva research analyst.

“The bigger issue is whether stricter Chinese rules on Covid-19 inspections of incoming meat dent imports from all suppliers.”

This article appeared in the South China Morning Post print edition as: Relations at lowest ebb, two years on from first tariffs

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