Forecast of 4 development steps of the US-China trade war

Forecast of 4 development steps of the US-China trade war

First step: Trade war

From March 2018, President of the United States (US) D. Trump announced plans to impose tariffs on goods from China into the US, up to 60 billion USD per year. The purpose is to combat trade imbalances between the two countries. So far, the US has taxed 10%, 25% for more than 6000 Chinese products exported to the US, with the tax amount up to 250 billion USD. In response, China has also set tariffs on 110 billion USD worth of 5000 US export products to China. Thus, the US taxed nearly 50% of Chinese goods exported to the US and China has taxed 85% of the amount of US goods exported to China. The ball is on the Chinese side. If China does not find radical solutions, it is feared that the US will continue its trade war with China.

Second step: Technology war

To prove that he will keep the promise when running for election, which was to curb the rise of the Chinese industry, President D. Trump’s first job is to strike “surgical attacks through tax increases” for products targeted in the “Made in China 2025” plan. The first list of 818 imported products with value of 34 billion USD will incur an additional fee of 25% from July 6^th, 2018. The second list includes 284 products, with a not yet decided tax increase. In this list, there are no consumer goods.

For technology items, the US goal is far from a punitive measure. It is to limit China’s progress by preventing technology transfer for this country. The Chinese market has always been a dream destination because it is profitable and Beijing allows foreign enterprises to approach its market with the requirement to cede technology. Since President Trump came to power, he has resolutely enforced a policy against China’s violation, acquiring and buying technology rights, especially American high technology. As a result, for the past two years, American enterprises have been more hesitant when deciding to do business with China. Regarding Chinese enterprises, they invest abroad to reach the world’s resources and high technology, including the US. From 2014-2016, Chinese businesses invested more in the US than US businesses invest in China, followed by China’ spy activities to steal high technology. Hence, the US was the first country in the West to make a strong attack on the “Made in China 2025” plan.

The third step: war in the monetary and financial sectors

Right in the presidential campaign statement (2016), Mr. D. Trump especially criticized China’s “monetary manipulation” policy. He said that: “China poses three major threats to the United States through its excessive currency manipulation… with the aim of boosting its exports and destroying American industries. With the manipulation of the RMB and its low valuation, China can sell goods to other countries at very much lower prices than an American company”.  Therefore, Mr. D. Trump’s responsibility is to “end the Chinese manipulation of currency”.

It is very likely that the US will have a war on exchange rates, currencies, and finance with China. If that happens, the scenario of a deep economic crisis for China is possible because the implications of a war on money and finance will be huge.

Fourth step: The total economic war

After conducting wars on trade, technology, exchange rates, the US will launch its fourth war, a “total war” against China’s entire economy after over 40 years of China’s open door reform policy, when all of their economic and political sectors relied on the US, but with wisdom, China enriched “on the back” of the US.

The consequences of a trade war have made the Chinese economy of 2018 worse. China’s economic growth in 2018 was the lowest in nearly 30 years, reaching only 6.6% GDP growth. The level of public debt is up to 28,000 billion USD. Due to inefficient investment, overproduction, backlog goods, foreign investors in China have moved to neighboring countries around China. The situation of large budget deficit and increasing unemployment rate indicates that China’s economy is showing signs of “hard landing”. Forecast of 2019, China’s economic growth will continue to decline.

The economic decline as a consequence of the economic war with the US has forced China to change its growth model, accept growth to “soft landing”, sustainable growth, shift from large investment, export to reduce investment, boost domestic consumption and change quality … That is the only option of China in the new period.

By launching an economic war called “making America great again”, President D. Trump broke the structure of the world order that the US had built since the end of World War II, and replaced with a new order, of which the US, like the nineteenth-century England, would have no ally or permanent enemy, but only the benefits above all. And the US economic war will last up to 20 years as predicted by Jack Ma, president of Alibaba Group? The answer probably still relies on China’s “concessions” and America’s next response plans. All happenings are still in hope./.

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