U.S.-China Trade War: Where’s It Going, and Who Will Win?

U.S.-China economic tensions are escalating, raising serious questions. What are the prospects of these tit-for-tat tariff measures escalating into a full-blown trade war? How likely is it that China will make serious concessions, including rolling back some of its most egregious “Made in China 2025” practices? What will be the potential impact on supply chains and U.S. producers? What alternatives to tariffs should the Trump administration use to gain leverage over China? Can we expect our allies to help, or are those bridges already burned?

On July 12, 2018, the Information Technology and Innovation Foundation (ITIF) hosted a panel of China trade experts for a lively and informative discussion about these questions and related issues. The conversation was moderated by ITIF president Robert D. Atkinson and included Michael Pillsbury, director of the Center on Chinese Strategy at the Hudson Institute; Claire Reade, senior counsel at Arnold & Porter Kaye Scholer; Derek Scissors, resident scholar at the American Enterprise Institute; and Jeremie Waterman, vice president for greater China at the U.S. Chamber of Commerce.

To begin, Pillsbury, Scissors, and Waterman noted President Trump’s desire to reduce the trade deficit—an issue he has emphasized since the 1980s. Since this was a key message of then-candidate Trump’s campaign in 2016, the panel agreed that he likely will take personal leadership in negotiating and decisionmaking. According to Scissors, the issue then becomes whether China will fully honor whatever deal is made.

Reade, on the other hand, expressed uncertainty over President Trump’s goals. In fact, she identified two questions the United States has not fully grappled with yet. The first is whether America’s goal is to eliminate China’s trade-distorting practices. The second is whether the United States is interested in helping China create a more efficient, market-oriented economy that will actually make it a stronger competitor with Western economies. However, she asserted China will want to maintain its control and its ability to “leapfrog” technologies.

The panel also discussed the “Made in China 2025” strategy, which the country unveiled in 2015. Atkinson said that the United States should not tell China to cancel its plan, since it has “every right to advance technologically.” Rather, the United States can demand that China eliminate the strategy’s unfair, mercantilist components, such as forced technology transfer. Waterman agreed with this notion, adding that the American business community does not want to prevent China from becoming an innovative, competitive country—it just wants to make sure that it does so in a fair way.

Pillsbury believes that the United States should reach out to Chinese reformers to help influence change. Scissors, on the other hand, does not think reformers will succeed at changing the Chinese economic model. Rather, he believes that China needs to suffer some economic harm before it will be compelled to change. Thus, he suggested that tariffs should be higher in order to get their attention and inhibit their bad practices.

Reade noted that China will only agree to a trade deal if it gets what it wants—even if there are tariffs involved. She also claimed that there is a “changed environment in America,” which has resulted in a deep distrust of China. Lastly, she perceives that the administration may be pulling up the roots of multinational corporations, perhaps redirecting them out of China.

Atkinson closed the panel with the assertion that the United States is not currently in a good place to win against China. Rather, he thinks America should start “throwing road blocks in [China’s] way” to slow its rapid growth.

Follow the discussion on Twitter using the hashtag #ITIFtrade.