Donald Trump. Picture: REUTERS
Donald Trump. Picture: REUTERS

If US President Donald Trump’s tweets are taken at face value, the US-China trade war is a “beautiful thing” combating Beijing’s sharp practics while helping to attract “massive amounts of money” into the US. However, key data tell the opposite story.

Trump threatened to impose a 10% tariff on an additional $300bn of Chinese exports to the US from September 1. Washington also formally designated Beijing a “currency manipulator”.

But Beijing shows little sign of buckling. Hua Chunying, Beijing’s foreign ministry spokesperson, called Washington “irresponsible” over its approach to negotiations, noting: “The Chinese economy grew by 6.2% in the second quarter of this year, while for the US the number is 2.1%.”

One reason for Beijing’s defiance is that China’s economy is not hurting as badly as many in Beijing feared, analysts say. “One year into the trade war the casualty numbers are in,” said Shan Weijian, chair and CEO of PAG, an investment firm. “And by these numbers, the US is not winning.”

Between July 2018, when the US first imposed its tariffs, and the end of June this year, US exports to China slumped by $33bn, or 21% of the total. In contrast, Chinese exports to the US grew by $4bn, or 1%, according to Shan.

All of this has created the exact outcome Trump was determined to avoid. Far from contracting, the China trade surplus with the US lambasted by Trump as “out of control” has swollen to even greater proportions. In 2019’s first seven months, the surplus stood at $168bn in China’s favour.

The first reason for this is that US consumers are loath to switch away from Chinese-made goods, particularly those manufactured by US companies, such as Apple, that have outsourced production to China, Shan says. The surplus also suggests that US manufacturers in China have been slow to return home.

Meanwhile, China is preferring US competitors. While the average tariff Beijing imposes on US goods has risen by 12.4 percentage points since May 2018, the average tariff it applies to Europe, Japan and elsewhere has decreased, according to research by Chad Brown, Eujin Jung and Eva Zhang at the Peterson Institute.

“While Trump shows other countries nothing but his tariff stick, China has been offering carrots,” the US think-tank said. “Beijing has repeatedly cut its duties on imports from America’s commercial rivals, including Canada, Japan and Germany.”

Nevertheless, the trade war is not just about trade. A broader type of economic decoupling that embraces security and competition concerns is also under way.  Among the actions taken was a ban issued last week on US government agencies, from the Pentagon to Nasa, against buying equipment from Huawei, the world’s largest telecoms equipment company. The ban also covers ZTE, a telecoms company; Hikvision and Dahua, manufacturers of surveillance cameras; and Hytera, which produces two-way radios.

These measures are affecting the companies concerned in the US market. Less obvious, though, is the ability of US sanctions to have the type of global influence that will force Chinese companies to toe Washington’s line. 

The business of Huawei, for instance, has been virtually shut down in the US, but it is leading the race to install base stations for 5G telecoms, the next generation of superfast connectivity, around the world.

Huawei has also managed — in spite of being included on the prohibitive US “entity list” in May — to gain global market share for its smartphones in the second quarter of 2019. It posted a near one percentage point increase in share, compared with a decline for Apple in the same period. Most of the increase came from rapid sales in China, where Huawei rode a patriotic backlash against US sanctions on the company.

None of these signals is conclusive. Competition between the US and China appears set to run for years to come. But so far it is not the “beautiful thing” Trump has described.

© The Financial Times 2019

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