Trade War Between World’s Largest Economies Escalates


  • The economic war between the US and China morphs into a rapidly escalating political dispute, threatening their phase-one trade deal reached in January.
  • The close ties the two countries have built up since the 1970s are unravelling.
  • This is creating opportunities for some commercial interests on both sides, but also risks for others.
  • Rising costs in China, increased automation and anger at Beijing’s appropriation of intellectual property in exchange for access to its markets made companies to shift base.
  • As a matter of fact, the US-China trade war has forced many firms to move quickly.

A recent news published in Aljazeera written by Azhar Sukri reveals the stiff conflict that takes place between the U.S. and China at political and economic level.

What made the two superpowers to fall apart?

These include punitive tariffs placed by the US on about $370bn worth of Chinese imported goods, and retaliatory levies by China.

The US’s accusations that Chinese telecommunications equipment maker Huawei Technologies helps Beijing snoop on its enemies.

The coronavirus; a row over Beijing’s move to impose a security law on Hong Kong; US sanctions on some Chinese individuals linked to alleged human rights abuses against Uighurs and other minority Muslim groups.

The territorial disputes in the South China Sea; and most recently, the tit-for-tat closures of each other’s consulates in Houston and Chengdu.

Net loss

The US Federal Reserve estimates the conflict (PDF) has resulted in a net loss of employment among US manufacturers in the first half of 2019.

While the Federal Reserve Bank of New York says the trade war wiped $1.7 trillion off the value of US-listed firms over the two years since it began.

Meanwhile, the United Nations Conference on Trade and Development says higher US tariffs on Chinese goods resulted in a 25 percent drop in Chinese exports to the US, and tens of billions of dollars of losses for Chinese firms.


Due to trade war, many US companies have decided to move back home, a process known as “reshoring”.  

“Trade tensions between mainland China and the US appear to have raised, not lowered, the reliance of third markets on inputs from mainland China,” according to research by global banking giant HSBC.

“Mainland China continues to raise its global market share as a component supplier in electronics, pharmaceuticals, and autos,” HSBC said in a July research note sent to Al Jazeera.

Economically disadvantaged countries affected

Modern manufacturers farm out the production of components to other companies, which might in turn hire others to make the bits that go into those parts, and so on down the value chain.

Thus, moving one part of such a supply chain somewhere else would require a complex – and costly – rearrangement of capital and labour, affecting countless numbers of people, many in economically disadvantaged countries.

And the difficulty of moving highly interdependent production lines appears to be playing into China’s hands.

Winners and losers

“For most economies in Asia, China has already eclipsed the US not just as a trading partner, but as a source of final demand,” wrote Frederic Neumann, HSBC’s co-head of Asian economics research, in a note to clients.

For instance, HSBC says, Malaysia, Singapore, Vietnam, Japan, New Zealand and South Korea could see significant gains in income by 2030 from their membership of two major regional free trade agreements.

China is a big player in one of them, while the US is not a part of either.

US-China divorce awkard

After Beijing enacted its Hong Kong security law, London-based banks HSBC and Standard Chartered publicly supported the move, breaking their silence on political matters despite intense opposition to the legislation by many in the territory.

Both lenders count Hong Kong as their biggest market. Even before the security law controversy, pro-democracy protesters had attacked HSBC’s iconic bronze lions – named Stephen and Stitt – outside its Hong Kong office in January over its perceived ties to Beijing.

Trump accuses its TikTok’s owner, ByteDance, of allowing the Chinese government to gather the data of TikTok’s users, something TikTok has denied.

That controversy has drawn in US tech giant Microsoft, which is now trying to buy TikTok and sever all the social media platform’s links with Beijing.

If the deal succeeds, it would be a prime example of how a successful US-Chinese commercial relationship – most of the funds that ByteDance raised came from the US – has unravelled.

Huawei loses business

The Trump administration has banned American telecommunications firms from doing business with Huawei.

The US claims Beijing can use Huawei’s equipment to gain access to confidential data, something Huawei has long denied.

Owing to the pressure from the U.S. last month, the UK also banned Huawei from its 5G roll-out.

And following that decision, the European Commission said member countries must take urgent action to diversify their 5G suppliers, without mentioning Huawei by name.

Nokia and Ericssion make merry

The winners of such a diversification could be Finland’s Nokia and Sweden’s Ericsson, direct competitors to Huawei.

They scored one such victory last month, when Singapore – a small trade-dependent Asian nation with deep economic, political and cultural ties to China – announced that it would choose the two European firms for its 5G network over Huawei.

But Nokia and Ericsson are themselves reliant on China for many of the components that go into their network equipment. They operate factories employing thousands of people in the country.

Relocation of manufacturing plants

Nokia and Ericsson could relocate their Chinese manufacturing plants, perhaps to another part of Asia, but at a significant cost. And for countries forced to use competing firms, the costs of building 5G networks without Huawei could be much higher.

China and the United States should be behaving like confident great powers, not like insecure and tragically flawed players in an ancient Greek drama.

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Source: Aljazeera


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