Trump Has Lost the Plot on the U.S.-China Trade War
Trade friction between the U.S. and China hasn’t led to the end of globalization. Instead, it has changed the flow of goods and services around the world, to the great benefit of some countries and the disadvantage of others. The key factor in determining the effects of the U.S.-China decoupling on other countries lies in whether those countries are able to produce goods that can substitute for the goods made in the two dueling giants. That has been the case for Mexico, South Korea and Thailand, which have all benefited from the competition between Washington and Beijing by substituting goods previously made in China for the U.S. market.
For this reason, to prevail in the bilateral trade war, the incoming administration of U.S. President-elect Donald Trump will need to consider how its policies affect Washington’s allies, partners and neighbors. Victory will go to the side that is best at persuading other countries that its version of globalization is the most attractive and alluring. In the past few months, however, China has been much smarter and more strategic in dealing with both the standoff with the U.S. and the effort at persuasion among third countries.
To begin with, it has retaliated against the U.S. for already imposed trade restrictions, while also announcing a raft of measures to better insulate the Chinese economy against new tariffs, in anticipation of even more conflict under Trump. In December, China announced an anti-trust investigation into chip company Nvidia and banned the export of some rare earth minerals crucial to the production of advanced semiconductor chips and other products. Just last week, Beijing announced new export controls targeting 28 U.S. companies, most in the defense sector. And Chinese media reported that Beijing may also restrict the export of lithium battery technologies, which would hurt plans for China’s automotive industry to expand globally but might keep manufacturing and key processing of needed inputs in China, at a time when the domestic economy is struggling.
At the same time, over the past year, Beijing has sought to cultivate better relations in many parts of the world. In June, China lifted coercive trade sanctions against Australia. In November, Chinese President Xi Jinping visited Latin America for the APEC and G20 summits as part of Beijing’s broader overtures to the region. While there, Xi tried to position China as the leader and defender of globalization against an isolationist and selfish United States, as he did at Davos in 2017 days before Trump first took office.
China’s efforts to split alliances and reduce resistance to Chinese imports and investment will be made all the easier if Washington takes a combative approach to all countries in a bid to boost U.S. manufacturing at their expense.
China has certain advantages in this battle for the rest of the world’s sympathy on trade and globalization. First, Xi does not need to worry about a domestic political backlash over his strong support for globalization. While some economists in China have worried about the outsourcing of Chinese manufacturing to other countries, either to avoid tariffs or to build more political support for Chinese investment in important markets, Xi does not need to deal with trade unions in the event of domestic job losses or plant closures. Contrast this to the recent decision by the administration of outgoing U.S. President Joe Biden to reject Nippon Steel’s proposed acquisition of U.S. Steel, which was in large part driven by concerns over the support of the U.S. labor movement. Second, Xi can much more easily rally the state sector around new infrastructure and investment projects that curry favor in places like Latin America and Africa, where governments are still eager to attract investment in new rail, roads and ports.
The incoming Trump administration, on the other hand, has announced plans for punitive measures against close trading partners, floated the idea of taking back the Panama Canal and engaged in a very public internal squabble over the future of the H1-B visa program, which provides the U.S. economy with highly skilled international workers.
This all bodes ill for the United States for two reasons. First, Trump’s use of bombastic displays of pique to gain leverage over other countries alienates many world leaders and casts Washington as a bully. China was severely punished in global public opinion polls for similar attempts to punish countries for perceived transgressions, from South Korea’s deployment of U.S.-made THAAD missile defense systems to Australia’s request for an open investigation into the origins of the COVID-19 pandemic. In this latest round of the U.S.-China trade war, Xi has learned from those lessons, using more carrots than sticks in recent trips to Latin America and Europe.
Second, the early fight over H1-B workers in the U.S. reveals a Trumpist MAGA movement that is internally divided on globalization and the U.S. role in the global economy. Trump’s advisers and appointees include isolationists and protectionists, but there are also influential advisers, such as Elon Musk, and influential CEOs, such as Apple’s Tim Cook, whose companies are highly dependent on manufacturing abroad, including in China. Musk and Cook do not want to see Trump wielding tariffs against countries they see as new destinations for their manufacturing, but they also do not want to be the target of Beijing’s retaliation against U.S. companies—particularly their own—that have been successful in China. This internal fight will further delay any clarity on the impact that the second Trump presidency will have on the global economy.
As the world waits to see exactly how Trump’s love of tariffs will be deployed, recent reporting regarding his intention to use a universal tariff of 10 percent to 20 percent on all imported goods in certain key sectors exemplifies the difference in the strategies pursued by him and Xi. Even if it is restricted to some sectors, rather than applied to all imported goods, a universal tariff on all countries will punish the ones that have so far benefited from the relocation of manufacturing out of China, including Mexico, Thailand and Vietnam. This represents a rejection of Biden’s attempts at “friendshoring,” aimed at winning sympathy in the strategic competition with China, in the hopes of bringing manufacturing back to the United States. But in doing so, Trump risks making enemies all around.
Xi, on the other hand, will continue trying to divide and rule. Chinese companies will make bids to open new manufacturing sites in key countries, such as Mexico and Spain, that should be Washington’s natural partners. Battery technologies will be licensed to some countries, but not others. And China’s efforts to split alliances and reduce resistance to Chinese imports and investment will be made all the easier if Washington takes a combative approach to all countries in a bid to boost U.S. manufacturing at their expense.
This in turn highlights the limitations of Trump’s approach to trade and international relations more generally. He still doesn’t seem to grasp that, to win the U.S.-China trade war and the broader competition for global leadership, how he treats other countries will be just as important as how he treats Beijing.
Mary Gallagher is the Marilyn Keough Dean of the Keough School of Global Affairs at the University of Notre Dame.