In 2020, the world witnessed a serious aggravation of relations between the two largest economies in the world – the United States and China. The article published by Swanson (2021) in The New York Times further discusses the dilemma that Biden’s administration faces in the context of enforcing protectionist trade policies imposed by the previous government. Fears that the gap between the parties in the trade, technological, scientific, and political spheres will become one of the most important factors determining the development trends of the world economy in the coming years have been regularly confirmed earlier. The symptoms of confrontation were most clearly manifested during the crisis caused by the COVID-19 pandemic, which superimposed on the electoral situation in the United States. Resonant cases were the proposals of individual senators to submit to the US Congress bills to vest the US President with the necessary powers to recognize Tibet and Hong Kong as independent states, as well as to impose sanctions against those responsible for violating several China’s obligations to Hong Kong. US pressure has increased on Chinese companies in tech and other sectors. Individual sanctions were introduced against individual officials, restrictive measures affected education, business, and extended to the main “pain points” in Sino-American interaction. In the United States, during a sharp pre-election confrontation, a bipartisan consensus was formed on the need for a tougher policy towards the PRC. Such geopolitical changes are behind the reasons why the economic presence of the government grown recently. An increased role of the government significantly affects the economy of the USA both domestically and in the context of international arena.
The Role of the US Government in the Trade War
The trade war began with the introduction by the United States of tariffs on the import of steel, aluminum and solar panels from China and reciprocal tariffs of the PRC on agricultural products and several engineering products from the United States in early 2018 (Lin and Xin 580). Subsequently, the list of goods subject to restrictions gradually expanded and by the end of 2019 (Zhong and Myers n. p.). The temporary ceasefire – the first phase trade deal, concluded in 2020, in terms of trade only guaranteed the maintenance of the status quo at the end of 2019 without introducing new tariffs and imposed obligations on China to purchase US products in the amount of $200 billion over two years (Zhong and Myers n. p.).
Officially, the US accuses China of unfair trade practices, but the specific claims in the report of the US Trade Representative are mainly in the closedness of the Chinese market to foreign investors, forcing US companies to transfer technology and accusations of unauthorized entry and theft of information from US computer networks. It also criticizes China’s foreign investment policy related to the systematic acquisition of American high-tech assets and intellectual property, which creates risks for the United States of losing technological leadership. Thus, the trade war is weakly motivated by the actual problem of the US trade deficit, but has primarily strategic grounds, which is also evidenced by the graph 1, which shows zero impact of protectionist trade policies on the net exports (see graph below). During the two years of the trade war, the overall US trade deficit continued to grow, but there was a decline in mutual trade between China and the United States and the replacement of Chinese suppliers by other countries.
It is the technological component of the confrontation that seems to be the most significant in terms of the consequences for China, the United States, and the world economy. As economic development progresses, all countries are gradually moving from borrowing technology to their own innovations. In recent years, China has just entered the phase of such a transition in a number of industries: in terms of R&D expenditures, it has almost caught up with the United States and is likely to surpass them in the next decade. This cannot but worry the United States as the world’s largest technology leader. Currently, the electronic industry (which includes telecommunications, the semiconductor industry, computer technology, all consumer electronics) is the main target of sanctions.
China is a key global manufacturer and exporter of electronic products, but is critically dependent on the United States for semiconductors, which are used in all products in the industry. The confrontation in this area began with accusations of violation of US sanctions laws and intellectual property rights by Chinese companies. Since 2018, Washington has imposed a ban on the use of products of a number of Chinese telecommunications companies (ZTE, Huawei, etc.) by US government organizations (Zhong and Myers n. p.). The US administration also urged its own citizens and other countries to stop using China’s equipment and technologies in 5G networks. The restrictions continued to expand in 2019 (Zhong and Myers n. p.). In parallel, restrictions were imposed on Chinese investments in the United States, primarily affecting critical, developing and foundational technologies important to the national security of the United States.
Thus, if the sanctions affecting telecommunications companies were justified by the US administration mainly on issues of national security in terms of the safety of personal data, and trade restrictions were justified by the need to compel China to comply with intellectual property rights and the rules for access of American investors to the Chinese market, then the subsequent expansion of sanctions on the technology sector and a much wider range of areas and industries clearly indicates the transition to a strategic containment of China’s development.
Aggravation of Political Rhetoric and Trade Relations
The prevailing opinion among the expert community was that the Covid-19 pandemic that swept the world in 2020 was not the cause of the aggravation of Sino-American relations, but only served as a trigger for the manifestation of accumulated contradictions. While acknowledging the correctness of this assessment, however, it is difficult not to notice that this period was accompanied by an unprecedented surge in rivalry between the two states. One of its most striking manifestations was the disruption of the trade deal between the PRC and the United States, which had been discussed for almost two years before, and in early January 2020, before the pandemic was announced, the parties managed to sign the first phase of the agreement. An additional destabilizing factor was the fact that the confrontation developed against the background of the presidential election campaign in the United States – a traditionally turbulent period for American politics. The deterioration in relations was noticeably reflected in the political rhetoric. The United States accused the PRC of spreading Covid-19 and hiding information about this disease, China’s actions aimed at fighting the infection were interpreted as seeking to gain advantages in a changing international environment and secure leadership.
Since the beginning of the pandemic, an unprecedented number of restrictive measures have been put forward against the PRC, both in terms of covering the areas of Sino-American interaction (trade, technological cooperation, education) and its participants (companies, universities, individuals, officials). De facto, the steps taken were mainly aimed at restricting access to foreign components, equipment, or technologies, as well as closing foreign markets for Chinese manufacturers. In addition to expanding sanctions for traditional areas, American restrictions have extended to a wider range of industries. Thus, sanctions were introduced against corporations working in the field of infrastructure, construction, and administration. The restrictions also affected Chinese mobile communication systems such as WeChat and TikTok (Zhong and Myers n. p.). The story of the sale of the US TikTok also received international resonance.
An important point of divergence between Beijing and Washington has become a different attitude towards participation in international organizations and involvement in international cooperation in general. During the Trump administration, the United States began to take a more pragmatic approach both to its allies, demanding from them an equal contribution to relations, and to its own role on multilateral world platforms (Lin and Xin 582). Despite the formal return of some of the previous approaches to cooperation under J. Biden, the American administration is still unlikely to be able to fully return to the pre-Trump era (Zhong and Myers n. p.). China continues to maintain an open position and in every possible way emphasizes its readiness for multilateral cooperation.
Although the Sino-American contradictions continue to be amortized by the accumulated potential of cooperation, during the pandemic, the tendencies of divergence increased significantly and moved to a qualitatively new level, serving as a catalyst for internal reforms and restructuring of external relations for both states. Thus, the range of areas covered by the sanctions has significantly expanded, which, in turn, have received additional institutional and regulatory legal framework, political rhetoric has become tougher, the quality of diplomatic relations has deteriorated, companies and individuals have suffered. In this sense, the factor of the pandemic and the accompanying political and socio-economic crisis has significantly accelerated the previously outlined trends of divergence between the United States and China.
Overall, the aggravation of competition is not a consequence of the crisis, but the result of unresolved contradictions accumulated over the years of cooperation associated with fundamental changes in the economy of the PRC, the world economy as a whole. Despite the still high degree of interdependence between China and the United States, the model of cooperation that has developed over the years has exhausted itself. The process of divergence of the economies of the two countries is determined by fundamental factors – the exhaustion of the model of codependency of economies, profound changes in the Chinese economy, as well as the transition of countries to strategic competition. It was these factors that served as the main reason for the separation, which was only catalyzed in 2020 against the backdrop of the pandemic and the presidential elections in the United States. The fact that the imposed sanctions in the United States are enshrined at the legislative level suggests that the elements of the divergence policy are institutionalized and take on a long-term character. For the United States, the pandemic may become just the trigger that will affect the change in the persistently low level of domestic savings and will correct the hypertrophied consumption volumes, which are not provided by real income growth. The lack of clarity on the prospects for the gap and its scale creates additional risks for building international cooperation. In this sense, tracking the directions and rates of divergence between the economies of the PRC and the United States as a separate phenomenon makes it possible to seriously comprehend it and develop mechanisms for coping with the emerging structural risks, which will have consequences not only for the PRC and the United States, but also for the world economy.
Lin, Justin Yifu, and Xin Wang. “Trump economics and China–US trade imbalances.” Journal of Policy Modeling, vol. 40, no. 3, 2018, pp. 579-600.
Mankiw, Gregory. Macroeconomics, 10th ed. Worth Publishers, 2019.
Swanson, Ana. ” Biden’s China dilemma: How to enforce Trump’s trade deal.” The New York Times, 2021. https://www.nytimes.com/2021/12/15/business/economy/china-trump-trade-deal-biden.html
Zhong, Raymond, and Steven Myers. “Taiwan, trade, tech and more: A tense era in U.S.-China ties.” The New York Times, 2021. https://www.nytimes.com/article/us-china-tensions-explained.html
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