US and Chinese Trade War: The Clash of Eurasia and the Euro-Atlantic

29.11.2018

For a long time, the economies of China and the United States went "hand in hand", complementing each other: Americans, for reasons of economy, transferred their production to the PRC, the Chinese used a huge American market. Years of such coexistence led to a certain result: Beijing became the largest holder of US public debt, gradually pushing the United States from the position of the leader of the world economy. States are sounding the alarm: the trade war with China is an attempt by Donald Trump to at least a little rectify the situation. However, in fact, it can lead to a result that America does not want.

When Donald Trump congratulated the Democratic Party on winning the election, many of its voters asked themselves the same question. The answer to it clarifies a lot in the politics of the American state. It also clarifies how the US-Chinese trade war will develop, what Washington’s chances are now and what US firms in China will do under these conditions.

How could this happen that "our president" congratulated the Democrats and they won the election? Is it just their campaigning, or has Trump actually abandoned the fight for Congress? In 2017-2018 Trump made a choice: he did not raise the conservative masses to fight and was left without his party, but he was ready to accept and offer compromises within American politics.

Trump made a deal on many foreign policy issues. He retained and strengthened the line for the European Union. In exchange, he was given the opportunity to expand the protectionist measures of the United States, having also partly adopted a strategy of external protectionism. That was the salt of his European policy. The US lobbied for liquefied gas and privileges for its firms while groping for weaknesses in the EU and trying to split and destroy it. In exchange for these “services to the Democrats,” Trump received more freedom of action on the Chinese issue. And this question is the most important. The only trouble for the United States is that it cannot be finally resolved without a complete change in their economic policies. And it is precisely this that Trump cannot do. Therefore, it periodically causes crises in trade relations immediately after seemingly successful negotiations with the PRC. With this, he seeks to swing American politics, in essence, having expanded the corridor of his own capabilities.

(Un)fair deal

In one of the last speeches, Trump told: the United States is approaching the conclusion of a trade agreement with China, which will be beneficial for the American economy. At the same time, it was funny that his conclusion was that the deal would be fair. Trump remembered about honesty and the “reset” of relations, probably as soon as his country imposed a duty on a large amount of Chinese goods at a rate of 25%. At about the same time, the Ministry of Commerce of the People’s Republic of China, as if for warning purposes, announced an increase in import duties on ethanolamine from the United States, Saudi Arabia, Thailand and Malaysia. The term of duty is five years, and the size is from 10% to 97%. The reason was considered dumping, that is, simply the low price of the imported substance. China and the USA are accused of dumping. The problem is that the production of almost any industrial goods in the Middle Kingdom is cheap, and in the United States - is expensive.

In the election campaign of 2016, Trump said that he was not afraid of a weaker dollar. He saw such a prospect and understood that the high rate of American currency was unprofitable for US manufacturers. It is not by chance that in recent years, the United States has been striving to export more liquefied gas and oil, while no one seems to be stopping them from consuming them at home, expanding the production of industrial goods. But this does not work out, because for many years American companies have been carrying production outside the country for good reason. It is also logical that China’s desire to buy less and less industrial goods in the US, buying soybeans and other agricultural products. But selling in the US is profitable.

Trump would like to remove the shortcomings of the American economy. But he is only able to cut them off with customs duties, and not immediately, but with restrictions, under the guise of a "fair deal."

If the US president was willing to rely on the working class of his country or the working class itself was ready to storm the committees of the Republican party, then the balance of power would be different. However, this would not cancel the dominant positions of the main American "producers" - the financial business. As a result, in Beijing they cannot fail to notice that the American partners, under the guise of a final solution of the issue, are striving to snatch concessions in order to demand new ones, since the agreement was not “fair”, as they allegedly expected. And this is the logic of the conflict.

American companies in China

The mere threat of new American restrictions on Chinese goods, which should follow in early 2019, caused a surge in supplies to the US market in the fall. The expectation of the complications of purchases in the PRC is justified since the American strategy was unraveled in Beijing. There was information about the likely departure of American business from the southern provinces of the Middle Kingdom. This departure began little by little, even when Barack Obama called on businesses to look for benefits elsewhere, for example, in Vietnam. However, now, according to a survey of the American Chamber of Commerce, 70% of firms are ready or are preparing to leave China and move their business to other places.

Such an outcome can hardly be seen as a consequence of Trump’s plan. Rather, it can be called the result of the work of all previous years, including the democratic team. The new president only increased pressure.

Now the loss of profit has grown, but there are unchanged loopholes for their preservation - deliveries through Vietnam or other countries, where products made in China become officially local goods and go to the USA. Trump cannot block these vines. Only over time, the situation may change, and the loss of US firms in China will increase. Then, nothing remains but to sell or close a business in the PRC, which facilitates its interception by a Chinese business but does not guarantee China the sale of goods to the United States. In the meantime, this process is in its infancy.

Despite the loopholes, the fact remains: there is a separation of two economies - Chinese and American, which will give rise to many more problems for individual companies.

Decoupling is logical and necessary, since the Celestial Empire is too strong economically, and the United States cannot afford to further strengthen this economy while increasing its debt and deficit.

The contradiction between the USA and the PRC is based on the fact that supporting the American market since 2008 has become increasingly costly. GDP grew along with debt, which recently exceeded $ 21.5 trillion. China has benefited from the ill health of the American economy. Trump only raised the question of stopping this situation more acutely than before. He determined that China is an enemy that needs to be replayed on the basis of its dependence on the American sales market. What the US cannot understand is that China does not have much dependence on American goods. It crowns the American industrial equipment, as in the United States is extremely expensive production.

The fate of the confrontation
As a result, China will be gently separated from the US market. Losses will be less than they could be, and China will desperately develop trade with other countries. Russia and China are already increasing trade. It cannot be ruled out that China will go for greater encouragement of production in Central Asia, although even so local markets have benefited from Beijing recognizing the need to replace raw materials imported by sea. This is the basis of the “Silk Road”, and not at all the desire to get to Europe. Although the land route in the EU is important, it can be useful in the naval blockade.

China’s conflict with the United States is still in its infancy. In essence, this is a conflict of all the economies of Eurasia, where the development of national capitalism requires strengthening ties with each other, while simultaneously accumulating and investing from the old centers of capitalism.

It was not by chance that Beijing began to relate more calmly to the EAEU, although the first reaction was painful. All due to the fact that the Eurasian capitalist centers (Russia and China) have a common enemy. There is only one private question in this whole story. It is a question of whether China will have a deal with the United States. Trump's deal is impossible, but a temporary agreement is possible. At the same time, Beijing can also press where Trump is politically inconvenient, in matters that concern financiers.

Beijing may make concessions, but in fact no concessions will be made.

Contradictions will intensify, the struggle will stretch for many years, and American companies will leave, cutting losses. Over time, Chinese goods in the United States will be replaced. And there is only one problem: Trump is forced to dose the blows, and Beijing can be firm and gain time without changing the final result of the case. In Eurasia, mutual understanding and trade will grow. Even if at some point the US stock market collapses, and the Third Wave of Crisis sweeps around the world, it will only suspend the process so that it accelerates again. And for all this, we have to thank Trump. The new economic reality is due to him, his only problem is that this is  not beneficial for the USA.

 

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