[Huanqiu.com] Cui Shoujun: China should “Hit the Needle” in Countering the U.S. Trade War

On March 22, U.S. President Donald Trump signed a memorandum, announcing that he will impose high tariffs unilaterally on more than 1,300 kinds of goods imported from China. This involves up to 60 billion U.S. dollars worth of goods and fires the “first shot” to start a trade war against China. This move by the U.S. has a strong “hegemonic maintenance” nature, which shows that the fundamentals of Sino-U.S. economic and trade relations are undergoing subversive changes. The U.S. sees China as its most threatening and challenging competitor.

As the world's second-largest economy and the largest developing country, China, together with the U.S., Germany and other developed countries, has become a leader in the “Industrial Revolution 4.0.” In the face of China’s rising trend, the U.S. groundlessly accused China of “infringing upon” America’s technological superiority through “mandatory technology transfer” or even “theft.” The U.S. government quoted the Section 301 of the U.S. Trade Act of 1974 and imposed unilateral trade retaliation measures against China, which appears to be aimed at trade imbalances between the two countries but in reality, is pointed at the high-tech industries delineated in "Made in China 2025," clearly revealing its intentions. Seen from nature, the U.S. bypassed multilateral agencies such as the WTO and intends to take unilateral punitive actions against China, which undermines the rules of the WTO and damages the global economy.

At the current time node, the U.S. launching a trade war is not without reasons. If we trace the source, the direct motives are: Firstly, diluting domestic conflicts such as the “sexual scandal” and the White House infighting, shifting the focus of public opinion, and dispelling public doubts over his leadership skills; secondly, fulfilling the campaign promise so as to please primary Republican voters and cater to “public opinions,” building up the momentum for the 2018 mid-term elections; and thirdly, reversing the U.S. trade deficit with China, limiting China’s ability to invest in U.S. science and technology industries, and safeguarding the U.S. economy. 
China's older generation of generals and diplomats once left behind a famous saying, "what one can't get on the battlefield can neither be taken from the negotiating table." In the face of the danger signal sent by the U.S., China can only get the best gaming result if it is prepared for the worst. Trump, who has been immersed in business for decades, knows well "the art of transaction." For him, the trade war is nothing but a disguise. To press China to step by step and achieve a "transaction" that is beneficial to the U.S. is the ultimate destination. Under the current situation, China should actively come up with countermeasures with a proper tempo and intensity to force the U.S. back to the negotiating table.

In this “diamond cut diamond” situation, only by implementing the “precision strike” strategy can China crush the tactical demands of the U.S. Details as follows:
First of all, regarding the target of the strike, China shall aim at the Republican “vote bank." Midwest farmers in the U.S. are one of Trump's main support groups. In the 2016 presidential election, Trump defeated Hillary in 10 soybean producing states. Agricultural production in Midwestern states accounts for half of the country's agricultural output and is also the main source of China's imports of soybeans and sorghum from the U.S. Take soybeans, for example, one-third of U.S. soybean production is exported to China. In 2017, the export value reached 14 billion U.S. dollars. Unlike other industries, farms bring a trade surplus to the U.S. Once the war starts, China’s trade retaliation measures on agricultural products will directly affect the returns of American farmers, which may make this part of the “die-hard vote bank” change its banner. For China, Latin American countries have become its main source of imports of soybeans and other agricultural products. Last year, China imported nearly 51 million tons of soybeans from Brazil. Increasing imports of agricultural products from Latin America will not result in large fluctuations in the prices of agricultural products in China, but it can seriously hit Trump’s “vote bank.”

Secondly, regarding the timing of the strike, China shall closely watch the mid-term congressional elections in November. For the U.S. government, controlling the U.S. Congress is an important prerequisite for starting a trade war. Only through the adoption of relevant bills by the Congress can a steady flow of "bullets" be supplied. The significance of the mid-term elections in 2018 is extraordinary. The results will not only affect the political authority of the U.S. government but also reshape the political structure for many years to come. At present, the Republican Party holds the majority of seats in both the Senate and the House of Representatives and has a dominant position. Due to restrictions imposed by the elites of the establishment, the U.S. government has suffered constant setbacks for more than a year. In the future, if they and Republican leaders want to continue passing bills related to trade and tariffs in the Congress, they must manage to maintain the status of the majority party in the two houses. For Democrats who are eager to turn the scale, only by regaining the majority of seats in the Congress can bills in favor of the Democratic Party be adopted. In this regard, China should pay attention to the intensity and tempo of the strike at the time node when retaliation measures are issued. Only by hitting the needle can problems be radically solved.

Thirdly, regarding the area of the strike, China shall pay attention to the industries in which business elites support trade regulations. In the U.S., the political ecology in the country today also shows the trait of “polarization.” American elites believe that the U.S. government has misunderstood the operation logic of the global trade. The loss of China is not the gain of the U.S. In fact, on March 18, 45 trade organizations representing U.S. conglomerates submitted a “petition letter” urging the White House not to implement its high-tariff plan against China, since they believe that this short-sighted behavior will increase the prices of American goods and production factors along with threatening the growth of employment in the country. The signing organizations of this letter include the American Chamber of Commerce that has 300,000 members and represents multinational corporations such as Exxon Mobil, Boeing and General Electric, and the American Small Business Association that represents 65,000 small business owners. Only three trade organizations publicly support U.S. tariff measures, including a total of 150 enterprises. According to the statistics from the British magazine “The Economist,” the ratio between enterprises that support and oppose protectionist measures is as high as 3000:1, showing clearly the will of the people. One can imagine that if China takes retaliation measures against U.S. conglomerates, this part of the population will increase the pressure on the U.S. government through the domestic political operation mechanism, which will help change the direction of the scale of power.

In the age of globalization, trade is not a zero-sum game. A trade war will shake the confidence of businesses and consumers and cause American exports to slump, which impacts economic growth. At present, many U.S. enterprises rely on low trade barriers to create a global supply chain to cut costs and increase efficiency. Under a high-tariff scenario, these advantages may just collapse. This is not without precedent. In the 1930s when the U.S. imposed high tariffs, it got backfired at the cost of prolonged and worsened Great Depression.

Cooperation benefits both while fighting hurts both. Today's China is very different from the one in the 1980s. China's economic aggregate is already close to two-thirds of that of the U.S. By strengthening the internal recycling capacity of China’s economy and its interdependence with other economies, China has the ability to implement “tit-for-tat” counter-retaliation measures against the U.S. The U.S. should recognize that the solution to the trade imbalance between China and the U.S. is not to launch an extreme trade war, but rational economic dialogues and trade negotiations.