Friday, October 19, 2018

Trade Bullying - China's Viewpoint on the Growing U.S.- China Trade War

Updated March 2019

With Donald Trump's trade war with China and the current ongoing trade discussions between the two nations progressing, a white paper published by China's Information Office of the State Council entitled "The Facts and China's Position on China-US Trade Friction" provides us with interesting insights into the nation's stance on U.S.-China economic and trade relations.  Let's look at some of the more interesting details from the white paper, trade bullyism practices of Washington.  Like any other issue, it is always prudent to see both sides of an issue rather than focussing on the viewpoints of one side over another, a problem for those of us who live in the West and are rarely exposed to the Chinese viewpoint on key issues.

Let's open by looking at some key background data on trade between China and the United States from the perspective of China.  Here is a table which shows the major Chinese imports from and exports to the United States and the share in exports to the United States:

Here is a graphic showing U.S. services imports from and exports to China in US$100 million:

According to U.S. statistics, two-way trade in services between China and the United States rose from $24.94 billion in 2007 to $75.05 billion in 2017 with the United States becoming the biggest source of China's deficit in services trade.  In fact, U.S. service exports to China grew from $13.14 billion in 2007 to $57.63 billion in 2017, an increase of 340 percent.  This compares to an average increase of 180 percent to other nations and regions around the world. 

Here is a graphic showing how the regional components of the U.S. foreign trade deficit have changed since 1990:

The big increase in the trade deficit with China occurred in the new millennium when China accede to the World Trade Organization, a deal that was very heavily promoted by President Bill Clinton.  According to China Customs, in 2017, 59 percent of China's trade surplus with the United States was a result of operations by foreign-invested enterprises (i.e. factories that have been established in China by multinational and American companies).

Let's close this backgrounder with a selection of current tariffs imposed by both the United States and China on each others imports/exports:

Here is a trade weighted average tariff rate for China and other key trading partners of the United States:

As you can see, China's current tariff rates are similar to or less than tariffs imposed on imported items by America's other major tSince China has fulfilled its WTO obligations, it has substantially reduced import tariffs on 1449 daily necessities from an average of 15.7 percent to 6.9 percent and its orading partners.  Overall tariff level on goods from 15.3 percent in 2001 to its current level of 9.8 percent.  This has meant that Chinese consumers are increasingly likely to consume imported goods rather than domestically produced goods, a move that should be considered as positive by Washington.

Now, let's look at why China believes that the current administration in Washington is acting as a "trade bully".  The authors of the White Paper note that Washington's viewpoint on trade has changed markedly since 2017 largely because of its "America First" agenda, a key part of its unilateral and economic hegemony:

1.) Unilaterally provoking trade friction under the pretext of United States domestic law: The current administration circumvents the WTO's trade dispute mechanism using American laws regarding industrial injuries and intellectual property rights instead, undermining the authority of the World Trade Organization and its membership.  Under Section 232, the current administration has cited "national security" as a justification for the imposition of tariffs on steel and aluminum imports from China and other nations as well as imported automobiles and auto parts.  The current administration has also initiated Section 201 actions under the Trade Act of 1974 which allows the President to grant temporary import relief by raising duties against products that have either injured or threatened to injure domestic industries which led to the imposition of 50 percent tariffs on imported washing machines and 30 percent tariffs on photovoltaic cells.  The administration has also initiated Section 301 actions related to the forced transfer of U.S. technology and intellectual property which affects $50 billion worth of Chinese imports.

2.) Baseless accusations against other nations' industrial policies: Industrial policies adopted by the United States which range from technological innovation incentives and government procurement through subsidies on specific sectors of the economy which enhance the competitive strength of American industries.  Here is a partial list of these policies:

Framework for Revitalizing American Manufacturing (2009)

United States Manufacturing Enhancement Act of 2010

Advanced Manufacturing Partnership (2011), A Manufacturing Renaissance: Four Goals for Economic Growth (2011)

National Strategic Plan for Advanced Manufacturing (2012)

A Strategy for American Innovation (2011) 

National Network of Manufacturing Innovation: A Preliminary Design (2013)

Clean Energy Manufacturing Initiative (2013), A Roadmap for U.S. Robotics – From Internet to Robotics (2013)

Measurement Science Roadmap for Metal-Based Additive Manufacturing (2013)

National Artificial Intelligence Research and Development Strategic Plan (2016)

While formulating and enacting its own plans to increase America's competitiveness with government intervention, Washington has accused other nations of unbalancing the trade playing field when they enact their own industrial policies.

3.) Long-Arm Jurisdiction and sanctions against other nations based on American laws:  In recent years, the United States has attempted to exercise jurisdiction over foreign entities based on its own domestic laws, forcing entities and individuals from other nations to obey U.S. domestic laws or face civil, criminal or trade sanctions.  Here is a quote from the white paper:

"The US is also vigorously reviewing and revising its export control legislation to strengthen its “long-arm jurisdiction”. On August 13, 2018, the US President signed the National Defense Authorization Act 2019, an important part of which is the Export Control Reform Act (ECRA). The ECRA further tightened restrictions on foreign-holding companies, intensified controls on “emerging and basic technologies”, and mandated an inter-agency process to boost law enforcement capabilities. Recently, the Bureau of Industry and Security of the US Department of Commerce added 44 Chinese entities to its Entity List for “acting contrary to the national security or foreign policy interests of the United States”. Such measures create obstacles for Chinese businesses to conduct normal trade and are in fact an extension and upgrading of “long-arm jurisdiction”.

4.) Internationalizing domestic issues and politicizing economic and trade issues:  The current mantra from Washington is that other nations, particularly China, are stealing American jobs.  In fact, even though U.S. imports from China grew substantially after 2009, U.S unemployment dropped as shown on this graphic from the paper:

While the movement of manufacturing jobs to China is often cited as a reason for America's manufacturing sector problems,  in fact, between 2010 and 2015, the number of U.S. manufacturing jobs rose by 6.8 percent while U.S. imports from China's manufacturing sector rose by 32.4 percent.

Here is another quote from the paper:

"The current US administration’s attempt to blame international trade and exporting countries for domestic unemployment is not supported by facts; it aims to deflect public attention in the face of intractable domestic political problems. Without truly resolving its own deep-seated structural problems, the US attempt to bring the manufacturing sector back home through protectionist measures is a completely counter-productive move. This beggar-thy-neighbor and lose-lose approach runs counter to economic rules and will only make the world economy less efficient and trigger opposition from countries around the globe. The US will do as much damage to itself as it will to others."

Let's close this posting with one final quote from the white paper:

"Faced with a host of grave challenges to human progress, all countries, particularly major countries, need to shoulder the obligation and responsibility of guiding and promoting international cooperation. Countries should respect each other, engage in discussions as equals, and resolutely reject the Cold War mentality and power politics. Countries should not engage in a zero-sum game that puts one’s self-interest first and sees others’ gains as one’s losses, nor should they follow a hegemonic approach that advocates beggar-thy-neighbor policies and believes in the strong bullying the weak."  (my bold)

Perhaps, as China suggests, nations should work together to build a common prosperity, a notion that seems beyond Washington.  A win-win situation is far better for global stability than the current win-lose mantra proclaimed by the United States.


  1. Talk about cherry picking. Nothing here about China's open theft of intellectual property or its own national economic and industrial policy whose goal is to become the source country for all manufactured products and "the" global leader in next generation technology, through any means possible. The Big Hack:

  2. @SK
    Come on. You are just confirming the Chinese article. Talking in zero sum games.
    "china used a tiny chip and we were crying".