Back from the brink: US-China trade talks on a knife-edge

Dr. Rebecca Harding

CEO Coriolis Technologies

As US-China trade talks move into their second week, the spectre of global trade disintegration on nationalistic grounds looms ever larger. There is one month to strike a deal between the two countries before the 90-day ceasefire in tit-for-tat rhetoric expires. At stake is $200bn of Chinese exports to the US which will have tariffs of 25% imposed on them, as opposed to the 15% now. While rumours abound that there may be an extension to the deadline, US negotiators argue there is “still a long way to go.”

China exports nearly four times the value of goods to the US as the US exports to China. China’s exports are dominated by electronics and machinery which represent some $140bn and £120bn respectively. The largest sectors after that are what might be expected from an emerging economy: furniture, clothing, toys and automotive components. The two largest US export sectors to China are aerospace and soya (at over $14bn each) with electronics and automotives close behind.

Less well-known, but equally as important, is the US trade surplus in services with China. Of the top ten dominant sectors, four are in areas where Intellectual Property dominates: government services, information and communications, research and development and IP licencing and two are in areas where knowledge dominates: advertising, and market research. The values are lower so they make little impact on the overall US deficit with China, but the fact remains that the process of globalisation leads to the free movement of technology, knowledge and ideas as much as it does to the free movement of people and capital.

But all of this is a side-show. This is less about trade than it is about economic systems. The Trump administration’s demands are that China buys more US goods, makes its financial markets more open to global investors, ends its “intellectual property abuses” and, perhaps most importantly of all, puts a stop to its “Made in China 2025” programme. Why is this most important? Because it is a state-sponsored programme to promote China’s role in the global manufacturing, technology and digital economy — not for parity with other countries, but for dominance.

Globalisation presents a challenge to the Nation State generally and to the US in particular as a result. If everything flows easily across borders, then all countries have access to the same pool of resources. Only a few years ago this was a good thing — it was creating access to global markets for countries which had hitherto been excluded. Now it presents a challenge of Multi-Polarity: with new entrants like China presenting a geo-strategic, even existential, threat to the US because the success of their economy is based on a different political system.

At the risk of simplification, the growth of China, and to a lesser extent India, has exacerbated the sense of exclusion felt by many of Trump’s core supporters in the US. If US businesses are outsourcing to China, or India, the jobs and the rising middle classes are also outsourced. The result is the populism that has created the nationalistic agenda of which trade is the core narrative: China is the enemy because it trades more. The logic is zero sum: “I export more, you export less. I win, you lose”; it has an intrinsic appeal to a disenchanted voter.

The result of a multipolar world is a changed role for the US, and indeed all nations around the world. It is tempting to use the zero-sum language of trade wars that supports the nationalist language as it speaks to a domestic audience, and does this far more effectively than looser promises about jobs, security and welfare. Implicitly, a nation can still be proud of itself if it is exporting more. Yet under this rhetoric is a Realpolitikas well: that technology and ideas have already transferred across borders and that any attempt at reigning this in appears to be shutting the stable door a long time after the horse has bolted.

If negotiators on both sides acknowledge their interdependence, then the concerns become ones of ensuring global security through shared economic interests. This was always the base premise of globalisation. This is not a message that globalisation has managed to deliver. Now, because trade and foreign policy have become so inter-twined, it is multilateralism that must prevail if starting a trade war is not to become the economic equivalent of pushing the nuclear button.