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A lookback at the US-China trade war

  • 1 May 2019

As Beijing and Washington head for another - and probably final - round of trade talks, here’s a recap of what has already happened.

Chinese Vice Premier Liu He meets US Treasury Secretary Steven Mnuchin in Beijing on May 1, 2019, as the two sides start another round of talks to end a protracted trade war. ( AP )

Top American and Chinese officials are meeting this week and next in what is apparently a final push to settle a year-long dispute over bilateral trade. 

The US Trade Representative Robert Lighthizer and China’s Vice Premier Liu He are meeting in Beijing on Wednesday and will follow it up with another round of talks starting on May 8 in Washington. 

The world’s two largest economies differ over import duties, subsidies, currency control, intellectual property and cybersecurity. 

But the differences also stem from China’s bid to become a global power by projecting its military and financial might. 

US Treasury Secretary Steven Mnuchin, who is also part of the American delegation, told The New York Times earlier this week that both sides are looking to reach an agreement. 

“We’ve made a lot of progress,” he said. 

The fear of a full blown trade war has receded in recent weeks as both sides have made concessions. 

Early last month, Beijing banned the production of the synthetic opioid fentanyl, which has fuelled the drug overdose crisis in the US. 

Now the US administration is reportedly dropping its key demand from the talks - that China stops the alleged cyber theft of trade secrets, a charge Chinese officials deny.

How it started? 

In June 2018, US President Donald Trump slapped tariffs on $50 billion worth of imports from China, saying Beijing’s economic policies resulted in the loss of American jobs. 

Trump has long complained about the growing trade deficit, the difference between the import and export of goods, between the two countries. 

The US trade gap with China rose to more than $419 billion in 2018, meaning Americans use more Chinese products than vice versa. 

 Later in the year, Trump imposed a 10 percent levy on another $200 billion worth of Chinese imports. He also threatened to increase that tax to 25 percent if  an agreement favourable to the US wasn’t reached soon. 

China retaliated by imposing a set of taxes on American cars and politically sensitive agricultural produce such as soybeans. 

Even though the US economy remains healthy, the trade war has cast a shadow over the global economy and rattled financial markets. 

What are the sticking points? 

The two sides agreed to kick start talks after Trump and his Chinese counterpart, Xi Jinping, met in Buenos Aires on December 1 last year. 

Trump postponed his threat to increase duties on Chinese imports and gave negotiators up till March 1 to strike a deal. The deadline was later extended. 

But back and forth visits by trade delegates to the US and China have yet to produce a breakthrough because of the many technical matters that need to be sorted out. 

For years, the US has accused Beijing of keeping its currency, the renminbi, artificially depreciated against the greenback to support its exports. China denies the allegation.

China has become a dominant player in key industries and has been automating production at its factories.(Getty Images)

The Chinese government also faces criticism for subsidising state-run companies and forcing multinationals to share patents and technology against access to its vast market. 

The dominance of Chinese manufacturers in sectors such as solar panels and high-speed rail, once the domain of Western firms, has further heightened the tensions. 

The US wants Beijing to make it easier for American farm products to be imported, to remove trade barriers, stop subsidies, and provide a level playing field to foreign firms. 

One product, US soybeans, which Chinese farmers use as feed for pigs and poultry, has taken a particular hit because of the dispute. 

In retaliation for taxes on its exports, China cut the importation of US soybeans, which dropped to 341,000 tonnes between September 1 and mid December 2018, compared with 18 million tonnes in same period the previous year. 

The rise of Chinese tech firms such as Huawei and its dominance of the upcoming 5G networks have also become a sticking point in the talks. 

Washington and its allies say that Beijing can use Chinese telecom infrastructure to spy on customers. 

What’s at stake? 

The International Monetary Fund (IMF) recently warned any escalation in the trade war will hurt both parties as manufacturing jobs move to other countries and further hurt an already slowing global economy. 

The dispute has already had an effect on multinational companies as they rely on cross-border trade to make modern gadgets and products. 

Chinese tech giant Huawei has come under scrutiny in the US and Europe over fears that its equipment could be used to spy on customers.(Reuters Archive)

For instance, iPhone maker Apple has reported a drop in sales primarily due to a slowdown in China, the world’s largest market for smartphones. 

The trade dispute has also hit various companies that source parts and components from China and then target Chinese consumers with the final product. The US electric car maker Tesla is one example. 

Its Model S and Model X cars, built in California, depend on Chinese components. The cars are then shipped to China. Additional tariffs have negatively impacted its business. 

A slowdown in China, perpetuated by the trade dispute, could spell trouble for more companies in the US, especially in the high-stakes technology sector. 

Semiconductor makers such as Qualcomm and Intel could see a decline in exports to China. 

Besides unnerving markets, the trade war could lead to a wave of protectionist policies, undermining the easy exchange of goods and services. 

By holding talks directly and agreeing on a mechanism to settle bilateral disputes, Washington and Beijing have sidelined the World Trade Organisation, a body that was established to settle such differences. 

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