Introduction
The US and the People's Republic of China have been, for over a century, two imperfect political actors with an optimism born n the 1970s that promised a better configuration of relations between the two shores of the Pacific. This came with a change of vision from China in the Deng Xiaoping era and an opening that brought a spectacular economic growth that was following a paradigm shift from the US when president Nixon made his first visit to Beijing to meet with Communist leader Mao Zedong, which set the agenda for Jimmy Carter's normalization of diplomatic relations with PRC[1]. However this optimism was not to be forever, as China and the US have moved from aligning common interests to China's labeling, for the first time, as a ''strategic competitor''[2] by presidential candidate George W. Bush, and from economic co-operation to the so-called trade war began shortly after the installation of President Donald Trump at the White House.
The Chinese economic growth occurred largely due to the economic relations with the United States, two economies that were more complementary than in opposition. Today, the situation is different, China is no longer the conscientious but rebellious student of the 1980s and 1990s. China recognizes that it has reached a political and economic maturity and its position can no longer be marginalized. In short, China considers itself worthy to stand at the table of the great ones and no one can deny this right, not even the United States. On the other hand, the US considers that China has taken advantage of Washington's goodwill to establish clear priorities, most in contradiction with the WTO's international rules. Thus, Washington has publicly accused Beijing of suppressing the competitiveness in the business environment, forced transfer of technology in order to access the huge market in China, commercial mercantilist practices, offering subsidies for both production and export at the expense of establishing import barriers through quotas and tariffs. These are just a few of the US accusations, but all of them combined led to a serious trade war between the two main economies of the world, with a possible settlement coming after a long period of economic instability in global markets. The effects of this instability can already be seen and not only in the US and China.
This research aims to analyze all the main demands coming from Washington, their importance for both China to take into consideration and the US to address. Through the theories developed by Wing Thye Woo on reasons behind China`s recent economic outburst and the underlying factors of said ascendance proposed by Wendy Wu, questions like "Are the US and China in an economic war or a technological war?" or "Is the trade deficit with China a problem for the American economy or just a pretext to provoke China in the Indo-Pacific region?'', will be transposed in a single, carefully chosen query: ''To what extent are the US and the People's Republic of China in a cold war?''
China: opposing the status quo
If one wants to represent relations between China and the United States, one may observe that they can be described as "volatile" in order to present the ups and downs of these two states that are perceived as structurally opposed. Why is this happening? At this moment China has contempt for the current status quo. After the Second World War, the US used its advantageous position (the healthiest economy and the highest military power) to develop a postwar order after its preferences. China, on the other hand, milled by a long war with Japan and then divided by a civil war, considered that its own interests were not taken into account in the construction of this order so demanded by Washington. It is important to mention that the People's Republic of China was excluded from the UN between 1949 and 1971, and this reinforced Beijing's assertion that the new world order has worked against continental China.[3]
[1] Paul J. Smith, ''What Happens After the Trump-Xi G20 Summit?'', The National Interest, December 4, 2018
[2] Thomas W. Lippman, ''Bush Makes Clinton's China Policy an Issue'', The Washington Post, August 20, 1999
[3] Abigail Grace, “China Doesn't Want to Play by the World's Rules”, Foreign Policy, August 8, 2018, doi:10.3897/bdj.4.e7720.figure2f
For the United States, the isolation of communist China could no longer be possible and, with the normalization of diplomatic relations, Beijing embarked on a long road towards full integration into that world order so repellent in the eyes of communist leaders. Attracting Beijing into international institutions such as the UN aimed to change China's contemptuous behavior, and its integration into the WTO envisioned strengthening China's economy and its transformation into a market economy through reforms.[1] [2]Unfortunately, both strategies have failed; China is by no means today a state that fully respects human rights, freedom of speech and religious liberty, not to mention China as a market economy, taking into account its practices in the fields of trade and finance.[3]
But if something has changed, not China's internal structure but its vision of the world has gained a new meaning. China is no longer waiting to be offered what it considers to be truly worthwhile, a new world order in which China really counts, with international institutions where again Beijing has a growing influence. It has been remarked in many ways that the 21st century will be the century of Asia, analyzing this deeper assertion, there is not much suspicion that this century will undoubtedly be China's century.[4]
The rise of China in the era of Xi
One of the core objectives of President Xi Jinping is China's transformation into a modern socialist state by 2035 and into even stronger and more influential on the global stage until 2049. This can be achieved after China will obtain the status of market economy, open up new markets for Chinese products, and, perhaps most importantly for Xi, turning China into a global dominating production force in the new hi-tech sectors, such as artificial intelligence, robotics, advanced microchips, aerospace, etc. Beijing's leadership believes that touching technological supremacy today will allow it to write tomorrow's rules. Moreover, China believes that the next technological revolution will provide the opportunity to gain time in addressing international affairs.[5]
This plan for transforming Chinese society has brought major concerns to both the hi-tech business community and other national governments, especially the US. This is because China has used industrial policy instruments (not sanctioned by the WTO) to reach its technological level. The United States was thus most concerned about China's plans because, according to the American decision makers, but also the public opinion, they were produced at American cost. Washington has criticized China's inappropriate behavior and how Beijing perceives 'reciprocity'. Now, with clear priorities on President Trump's agenda, the US has shifted from past threats to action.[6]
[1] Andy Rothman, ''China’s accession to WTO has been a boon, not an error'', Financial Times, February 16, 2018
[2] Ross Garnaut, ''40 years of Chinese economic reform and development and the challenge of 50'' in China’s 40 Years of Reform and Development, ed. Ross Garnaut, Ligang Song, Cai Fang, (ANU Press. 2018), 38
[3] "Human Rights under Xi 'worst since Tiananmen Crackdown': Amnesty." South China Morning Post. November 17, 2017
[4] Hal Brands, ''The Chinese Century?'', The National Interest, February 19, 2018
[5] Abigail Grace, “China Doesn't Want to Play by the World's Rules”, Foreign Policy, August 8, 2018, doi:10.3897/bdj.4.e7720.figure2f
[6] Oriana Skylar Mastro, n.d. “The Stealth Superpower”, Foreign Affairs, no. January/February 2019, Accessed January 23, 2019
How did the trade war begin?
The war began with the historical division between US trade unions under AFL-CIO (American Federation of Labor and the Congress of Industrial Organizations), and Chinese trade unions under ACFTU (All-China Federation of Trade Unions). Increased mistrust, amplified by steady attempts by US trade unions to isolate ACFTU during the Cold War and beyond, along with China's frequency of allegedly unfair policies, have led to the current economic crisis across the Pacific.[1] The US-China trade conflict had its departure with president Trump's investigation into whether China had used what Washington considered as ‘unfair trade policies’. This investigation took place under Section 301 of the Trade Act of 1974.[2] The White House uses such legislation to act unilaterally without being constrained by international treaties or WTO norms. US Trade Representative, Robert Lighthizer, a month before the official launch of the trade war, published a report in which China was severely criticized. Known as the 'general of the trade war', Robert Lighthizer points out through the document that the US business environment has been heavily weakened by the policies of the Chinese Communist Party, which has constantly sought to undermine the US economy and US technological advantages. The report also outlined the reason why Trump has launched a series of tariffs on Chinese imports in the US (currently 10%, about $ 200 billion worth of Chinese goods).[3]
What are the characteristics of the trade war?
In such situations, it is important to analyze the history of China's trade surplus as well as the causes that have led to this trade imbalance. Since the 1990s, China has had a continuous commercial surplus, 2% of GDP in 1996, over 5% in 2005-2008 and peaked in 2007 where it recorded a surplus of 8.6% of GDP. Two aspects are important to note here, namely that in the last 20 years China's trade surplus has been constant and, secondly, it has always been high (an average of 4% of GDP). This has created concern among many governments in the West.[4]
Concerning the US trade policy, Washington's trade deficit increased from 1.52% of GDP in 1992 to a peak of about 6% in 2006. Thus, the US trade deficit average over the period 2013-2017 was 4% of GDP. This is because the post-2008 US government continued to borrow from abroad, spending more than saving. This is also visible today when massive expenditures are allocated to the military sector and, at the same time, taxes are cut to satisfy a certain part of the electorate. In relation to Beijing, the US trade deficit has increased significantly since the US's global trade deficit after 2006 has steadily diminished, which has even more strongly underlined the US deficit with China, now a much larger part of the global deficit. Thus, the US trade deficit with China increased from 17% of the total US total deficit in 1993-1994, to about 46% in 2016-2017.[5]
It is important to understand the nature of China's trade surplus and how real these imbalances are. To achieve this, there are two theories which analyze the problem: the dysfunctional financial market theory and the aggressive industrial policy theory. Both of them present a practical and theoretical view of the factors and phenomena behind China's internal structure.
This theory is based on the inability of the Chinese financial system to turn all savings into investment. It takes the position of the Chinese government into account, as well as the decisions of state-controlled companies on savings and investment. Thus, China's surplus with other states is due to the fact that the savings made in the private sector and within the state-controlled companies exceed the amount of investments. In short, they save more than they invest. This could change if China's financial system managed to turn savings into investment. This situation now in China has been different since the early 1990s when the absorption of bank credits by Chinese state-owned companies kept the negative trade balance due to ineffective loans. This course changed when the government applied stricter controls on state-owned banks. Along with this, the financial sector dominated by state-owned companies did not use the savings to finance private sector investment, creating a surplus. Thus, excess savings have gone abroad as a trade surplus.
This theory considers that the trade imbalance is caused by excessive promotion of exports and the suppression of imports. The Chinese government has taken measures to promote exports and reduce imports, accelerating the increase in the number of export firms and competition among import firms. Commercial balance thus recorded a major surplus.[6]
Washington has repeatedly questioned China's policy of keeping its currency (renminbi) undervalued against the US dollar. Consequently, the Chinese government wants to maintain the renminbi-dollar exchange rate below the equilibrium rate.
The equilibrium price is very important in international economy because it balances the offer for a product with the demand for the same product, adjusting the market in the absence of central bank intervention. In the case of China, although its national currency, renminbi, has appreciated in relation to the dollar since the 1990s, China's Central Bank foreign exchange reserves have grown over the same period. This would be clear evidence that China's Central Bank has prevented its renminbi from rising to a balanced value. The US is aware of this, but what is not yet certain within governmental talks in Washington is how much the renminbi has purposefully devaluated.[7]
The US report under Section 301 also highlights the restrictions the Chinese authorities impose when it comes to licensing and the subsequent laws that the US considers unfair. These include the Technology Imports and Exports Regulations (TIER), as well as the Law on Contracts. TIER imposes a series of procedural requirements that are not present in the contract law. Thus, the regulation places restrictions on US companies to negotiate entry into China in exchange for technology transfer in the same country. It also mentions that all technological import contracts must be notified to Beijing and that failure to meet these requirements will result in a fine.[8] With these conditions, technology entities wishing to import technology into China, including US licensors, will have to accept these conditions that are not imposed on their Chinese competitors.
'Made in China 2025', Xi Jinping's pilot initiative was launched alongside the Belt and Road Initiative (BRI). To support the MiC-2025, China, in many sectors that they consider important, urges companies wishing to enter the Chinese market to use joint ventures with Chinese state entities. The Section 301 report highlights that, according to a survey conducted by the US-China Business Council, 19% of the investigated companies were directly asked to transfer their technology to China.[9] Although the report focuses on this survey, it omits to highlight who most frequently requests these transfers: Chinese partners or entities linked to the government. Experts report on this issue that there is no national policy in China on these technology-intensive transfer practices, but it is likely that Chinese partners may inappropriately demand this from their foreign partners.[10]
There are voices who say, with concern, that China's cyber-attacks have become more and more sophisticated and frequent. Using these practices, the Beijing government is accused of forcing access to commercial secrets, technical data, classified positions in negotiation and classified information on key areas (petroleum, shale gas technology, high-quality steel production), feeding it further to Chinese state-owned enterprises.[11] Along with the US, Australia, Germany, France, Japan and South Korea have joined criticism of Beijing's practices. Moreover, Japan and Australia even considered banning hi-tech giants (ZTE, Huawei) on their territory.[12]
Conclusions
The main objective of the paper was to illustrate and analyze the primary causes of the current crisis between the main two economies of the world. The argument that we live in an era of another cold war, this time across the Pacific, is determined by a series of conflicts that are based mainly on China's desire to stand at the table of great powers, at America's expense.
To link it all back to the main question of the paper: ''To what extent are the US and the people`s Republic of China in a cold war'', given the economic insight offered so far, one may argue that the conflict is not so much a cold war as it is an economic contest, not just commercial, but also technological.[13] However, other questions that may arise with regards to the way in which Sino-American relations have deteriorated are ''Why has it happened right now? '' and ''Why has the US not acted since the 1990s when these practices have become more and more obvious?''. From the US sentiment of guilt towards poverty in China, as well as the Western historical behavior against China, Washington has come to the feeling that China should no longer be treated as an emerging economy, given that it has recently become the largest donor for countries in Africa and many Asian regions, recognized more as a competitor than a potential strategic partner.
Therefore, all previous queries may lead to a simple, worrying, conclusive question: ''What comes next for the global economy?''
[1] Katie Quan, ''Prospects for US-China Union Relations in the Era of Xi and Trump'' in Gilded Age, ed. Ivan Franceschini, Nicholas Loubere, (ANU Press, 2018), 96-97
[2] ''Trade Act of 1974 [Public Law 93–618, as amended]'', House Office of the Legislative Counsel, accessed January 20, 2019, https://legcounsel.house.gov/Comps/93-618.pdf
[3] Wendy Wu, '' Why the US-China dispute is about so much more than a trade imbalance'', South China Morning Post, January 13, 2019
[4] Wing Thye Woo, ''A US perspective on China’s external economic disputes in the past 40 years and in the coming 40 years'' in China’s 40 Years of Reform and Development, ed. Ross Garnaut, Ligang Song, Cai Fang, (ANU Press. 2018), 640
[5] Wing Thye Woo, ''A US perspective on China’s external economic disputes in the past 40 years and in the coming 40 years'' in China’s 40 Years of Reform and Development, ed. Ross Garnaut, Ligang Song, Cai Fang, (ANU Press. 2018), 641
[6] Wing Thye Woo, ''A US perspective on China’s external economic disputes in the past 40 years and in the coming 40 years'' in China’s 40 Years of Reform and Development, ed. Ross Garnaut, Ligang Song, Cai Fang, (ANU Press. 2018), 644-646
[7] Ibidem, 642
[8] Wendy Wu, ''Why the US-China dispute is about so much more than a trade imbalance'', South China Morning Post, January 13, 2019
[9] Wendy Wu, ''Why the US-China dispute is about so much more than a trade imbalance'', South China Morning Post, January 13, 2019
[10] Ibidem
[11] Lorand Laskai, Adam Segal, ''A New Old Threat'', Council on Foreign Relations, December 6, 2018
[12] Wendy Wu, ''Why the US-China dispute is about so much more than a trade imbalance'', South China Morning Post, January 13, 2019
[13] Yan Xuetong, “The Age of Uneasy Peace”, Foreign Affairs, no. January/February 2019, (January 2019)
Bibliography:
I.Chapter or other part of an edited book:
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