China – USA: A New Trade War?

The five-year-long trade war between the USA and China seems to have no end in sight. Even after the recent visit of the US Secretary of the Treasury, Janet Yellen, to China and the emergence of some signs of improvement in the relations between the two countries, new tensions may arise.

Who will emerge victorious in this standoff? The answer to this question is of great importance to the entire world.

There Are No Winners Yet

Neither side emerged as a winner in the trade war between the USA and China, which began five years ago when Donald Trump came to power and directly accused Chinese authorities. “China is raping our country,” said the former American president, expressing outrage over the massive trade deficit between the USA and China. Under his leadership, the United States imposed tariffs on hundreds of billions of dollars worth of Chinese goods, including solar panels and household appliances. Additionally, at the beginning of the confrontation, China was accused of intellectual property theft, which harmed American trade. This led to the imposition of restrictions, with tariffs being imposed on approximately 1300 goods imported from China.

Initially, Beijing expressed only “strong disappointment” with America’s new policy, but later retaliated by imposing additional tariffs on imported products from the USA, including apples and aluminum scrap.

“Peace Envoy”

The United States, who initiated the trade war, appears to be somewhat inclined to be the first ones to put an end to them. This interpretation can be drawn from the second visit made by a U.S. Cabinet representative to the Chinese capital within the last month. First, Secretary of State Antony Blinken visited Beijing, and then Treasury Secretary Janet Yellen followed suit. The Treasury Secretary herself stated that she had “productive” discussions with China’s new economic leadership, including Premier Li Keqiang and Pan Gongsheng, the recently appointed head of the People’s Bank of China, representing the Communist Party.

“No single visit will resolve our issues overnight. However, I anticipate that this trip will help establish a stable and productive channel of communication. Overall, I believe the bilateral meetings, which lasted for about 10 hours over two days, have been a step forward in our efforts to strengthen U.S.-China relations,” Yellen said at a press conference in Beijing, emphasizing that disputes between the leading economic powers would have a “destabilizing” effect on the entire world.

She also proposed a way for China to mitigate the damage caused to both countries’ economies by the escalating rivalry. In particular, the Secretary emphasized that the USA is not seeking “economic advantage” over China. Additionally, she stated that Washington wants to open channels of communication so that Chinese partners can express concerns about the actions of the USA. “We will be able to explain and, in some cases, respond to unintended consequences of our actions,” explained Yellen, adding that the USA will now potentially take into account feedback from Beijing when implementing or developing measures against China.

“There is an important distinction between disengagement on the one hand, and diversifying critical supply chains or taking targeted actions in the realm of national security on the other,” Yellen also noted, confirming that the United States will continue to take targeted actions to protect its interests and the interests of allies in the field of national security, promising that these actions will be “transparent, narrow in scope, and focused on achieving clear objectives.”

In response to Yellen’s statement, China’s Deputy Finance Minister Liao Min acknowledged that both sides had engaged in “lengthy and candid” negotiations and will “maintain communication” in the future. Premier Li Keqiang also emphasized that “excessive expansion of the concept of security is not conducive to the economic development of both countries and the world as a whole.”

Meanwhile, Yellen’s remarks were highly praised by experts in China. “Yellen’s statements in Beijing sent a very strong signal to businesses, the international community, and the rest of the world that the USA and China should work together,” noted Henry Wang, the founder of the China and Globalization Center, as cited by Bloomberg agency.

Faint Hopes

It seemed that a fragile peace had been achieved thanks to Washington’s efforts to bring relations with Beijing back on track, as Yellen herself indicated that the measures taken by the USA were solely aimed at ensuring national security. However, the “barriers” she attempted to construct during her trip to China still need to withstand testing. And it won’t take long before they do, as export control issues remain unresolved. In the coming weeks, the administration of U.S. President Joe Biden plans to announce his executive order that will entail reviewing and ultimately limiting American investments in China’s semiconductor, artificial intelligence, and quantum computing sectors.

If there were genuine rapprochement between the two countries, they would have to roll back several of the trade tariff increases introduced during the Trump administration. However, this has not happened yet, as any significant tariff reduction could pose a political risk for Biden, who will be seeking re-election in November 2024. Additionally, as Bloomberg points out, Republican Party candidates continue to take a firm anti-China stance and are likely to face strong criticism if they return to normal business dealings with China.

“It’s unrealistic to think that the economy can be separated from national security issues. Therefore, Yellen’s trip is unlikely to change the fundamental dynamics of economic relations,” quoted the agency Mark Sobel, a former senior official at the Treasury Department who currently chairs the Official Monetary and Financial Institutions Forum in the USA.

What To Expect?

The long-standing conflict between China and the USA continues, but trade between them remains active. In 2022, their trade volume increased for the third consecutive year. China exported goods worth over $536 billion to the USA, while goods worth $154 billion were sent in the opposite direction.However, it is not advisable to rely solely on this positive statistic, especially for investors putting their money into shares of Chinese companies traded on US stock markets.

The US government previously initiated additional audits of the financial activities of major Chinese companies in the USA. These firms have been criticized for the weakness of their financial reports, which did not fully reflect the true state of their affairs. This creates a risk of delisting for some Chinese companies on US stock markets, affecting even major companies like Alibaba.

Additionally, the high-tech sector of the USA and Taiwan’s semiconductor manufacturing company TSMC are also facing difficulties due to their dependence on gallium and germanium supplies from China. The absence of these rare metals may lead to price increases for the products of these companies and have a negative impact on their stocks. Moreover, China, being a leading producer of many goods, may continue using quotas on rare earth metals in its favor, which could affect the global market for electronics and other industries.

Thus, while trade between China and the USA continues, mutual restrictions and complexities in economic relations leave uncertainty and caution among investors and businesses.