The US-China Clash, Part 2: A Trade War vs. a Non-Market Economy

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The Trade War between the United States (U.S.) and the People’s Republic of China (China) is sometimes misunderstood and the relation between it and technological conflicts, in which, for example, Huawei and Tik Tok are involved, are not clear. So, it is important to define what is a “trade war”, why there is one between the two main economies and how it developed. Also, we should identify which tools have been used for it and what is the role of other actors, such as transnational telecom enterprises, in this dispute which is, in fact, not new.

WHAT IS A TRADE WAR?

A trade war is a category of intense international conflict where states and other actors in the international society, such as large transnational corporations, interact, bargain, and retaliate primarily over economic objectives directly related to the trade goods or service sectors (John Conybeare 1987, 1). The means and tools used in this type of conflict are diverse and have evolved in accordance with international changes and technological advances.

Trade wars are different from two other types of conflict: (1) wars where economic means are used to support political or military ends, and (2) wars where political (including military) means are used for the achievement of economic ends. In a trade war, economic means are used for economic ends (Ídem). 

THE TRADE WAR BETWEEN THE U.S. AND CHINA

One of the battle-fronts in the hegemonic competition between the United States and China has been the economy, triggering a trade war that became more pronounced in 2018, but, in fact, is not new. Since around 2005 the danger of a trade war has been latent, because of the constant threats of the imposition of tariffs on U.S. imports from China, unless the Chinese currency was revalued substantially. Since then, it was a mere (but serious) threat, something that resembled a cold trade war, until Donald Trump made it a reality.

During the COVID-19 pandemic not only the U.S., but also other countries, such as Australia and the United Kingdom, have demanded that China take responsibility for the origin and damage of the coronavirus – openly called “the Chinese virus” by Trump. This situation has been arousing the discomfort of Beijing in an already tense environment. The main economic tools that have been used to carry out this conflict are:

Tariffs 

Trump started the trade war imposing tariffs in March 2018 on steel (25%) and aluminum (10%) from countries that included U.S.’s main trade partners (Mexico, Canada, the European Union (EU) and, of course, China). The US has kept threatening to impose tariffs on Chinese imports in self-defense (against Chinese currency manipulation) (Imad Moosa 2012, 1-2). 

Currencies 

The U.S. accuses China of initiating a “currency war” involving currency manipulation and mercantilism, claiming that these policies have created  the U.S.’s economic deficit and destroyed its manufacturing industry, while China accuses the US of engaging in a currency war through quantitative easing (Íbidem, 1). 

Blockades 

In May 2018, Trump signed an executive order to block transactions of information or telecoms that pose an “unacceptable risk” to U.S. national security. Consequently, Huawei was put on a blacklist in 2019. This year, the apps TikTok and WeChat were blacklisted, too. In response, last September China created its own blacklist of foreign companies seen as threatening its national security or acting against its business interests (Bradsher and Zhong 2020), just as the U.S. did.

Free Trade Agreements 

The new United States, Mexico, Canada Agreement (USMCA)’s Article 32.10 contains provisions in the event that one of its signing members intends to negotiate a free trade agreement (FTA) with a Non-Market Economy (NME). It resumes national trade policies to determine which countries will be considered as a NME under USMCA’s dispositions, and since the US’s definition was the standard bearer, it is possible to affirm that Beijing is the main target. Since agreements between the U.S., the EU and Japan are on the table, it will be essential for them to take into account the North American experience.

IS A CYBER ATTACK A TRADE WAR TOOL? 

Nowadays, the pattern of growing tensions in the physical world has transferred to cyberspace also, with cyber-attacks involving social, political, economic, and cultural (SPEC) conflicts (Gandhi, et al. 2011). The disagreements between the U.S. and China over cyberspace tend to cluster around five areas: 

  1. The legitimacy of the use of cyberspace for economic or industrial espionage; 
  2. National security uses cyberspace for more-traditional forms of espionage and intelligence gathering; 
  3. The prospective use of cyberspace for military operations; 
  4. The putative rights of states to control information access within their borders (referred to by China as cyber sovereignty); and 
  5. The issue of how international norms, rules, and the physical architecture of the Internet should be governed (Harold, Scott Warren, et al. 2016).

The scope of the conflicts in this dimension has been such that there is even talk of a “telecoms trade war”. Related to blockades, the U.S. has blamed China for using cyberspace for economic and industrial espionage. “From the U.S. perspective, the primary complaint with China has been its multiple and repeated intrusions into corporate networks to steal intellectual property or proprietary business information” (Ídem). Since cyberspace is a multifaceted medium, and cyber attacks have been carried out with economic ends, we can consider them as an economic tool in the current trade war. 

CHINA AS A NON-MARKET ECONOMY (NME)

For the U.S., China is still an NME – an economy in which the government has a complete or substantially complete monopoly on its trade and where the state sets all internal prices (WTO n.d.), a status that has and will continue contributing to a persistence in the latent trade disputes that have developed since the start of China’s economic opening in 1978, and which has been exacerbated since this Asian country joined the World Trade Organization (WTO) in 2001.

Although the Chinese government argues that this status for its country expired on December 11, 2016 –in compliance with the provisions of the paragraph 15(d) of China’s Protocol of Accession to the WTO– the U.S. and the EU have refused to grant China the condition of a Market-Economy (ME), because they affirm that the Communist Party of China (CPC) gives subsidies to Chinese companies and continues managing its markets, thus promoting dumpinga situation of international price discrimination where the price of a product when sold in the importing country is less than its price in the market of the exporting country (Ídem) – and other unfair practices that lead to trade disputes.

THE ROLE OF TRANSNATIONAL TELECOM ENTERPRISES

Technology is part of these realities and has been key in the blur of the line between the State and the free market, since in addition to the improvement of the production and supply model, widespread accessibility to the internet has transcended geographical borders, and has become a very profitable soft power tool. Consequently, the role of transnational telecom enterprises is crucial since their products could be instrumental both for their own private economic goals as well as for state goals. So there is competition between enterprises, but also they can be involved in disputes between states, as it is the case of the U.S. and China. 

DON’T FORGET THAT… 

Even though there are similarities between a trade war and a military war (such as the accusations as to who started offensive action and possible ‘preemptive strikes’), taking up the traditional concept of “war” to study events in other fields reflects the persistence of the rhetoric of power struggles to explain international relations. However, nowadays the use of this concept implies recognizing that states are no longer the main actors in the increasingly complex international system and the conception of “power” has changed. This is evidenced in the US-China trade war.

SOURCES OF INFORMATION

Books

  • John Conybeare. 1987. Trade Wars. The Theory and Practice of International Commercial Rivalry. New York: Columbia University Press. 
  • Imad Moosa. 2012. The US–China Trade Dispute: Facts, Figures and Myths. Australia: Edward Elgar Publishing, Inc.

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