During the election campaign that led Donald Trump to the White House in 2016, he promised to put “America first.” In that context, Trump said he would reduce the United State’s
trade deficit with all its trade partners and protect local investments and jobs. In the midst of his protectionist policy, he also attacked immigration.
The U.S. trade deficit with China reached about US$ 372 billion in 2017, considered unacceptable by Trump. In September he ordered 10% tariffs on US$ 200 billion worth of Chinese products. That offensive triggered a war that has begun to affect the world economy. China responded with tariffs on US$60 billion of U.S. products.
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Trump upped the offensive with the application of tariffs on Chinese automobiles, hard drives and aircraft components, to compensate for what the U.S. considers the “theft” of intellectual property and technologies by the People’s Republic. Washington accuses Beijing of having appropriated state-of-the-art technology patents by obliging U.S. companies to operate in the Chinese market or simply through theft.
China reacted immediately, stating that it was ” forced to take the necessary countermeasures to defend the fundamental interests of the country and its people.” It applied tariffs of the same value on U.S. agricultural products such as soybeans, fish, pork, beef and dairy products. China targeted Trump’s electorate in rural areas. It will also increase tariffs on automobiles.
Economists believe that this conflict can lead to an out-of-control trade war with effects on markets, such as uncertainty, or an escalation of the conflict. There have already been protests by industrial corporations in the U.S. over tariffs that make steel and aluminum more expensive.
Some economists believe that global growth could be reduced to 0.5% in the 2019-20 period. The IMF itself predicts a one point drop in the Chinese economy next year (from 6.2% to 5%) and an equivalent reduction in the U.S.
In addition to reducing the U.S. deficit, Trump seeks to curb China’s technological supremacy. In reality that seems to have always been the main focus because the U.S. has rejected Chinese proposals to reduce deficits. The U.S. has denounced that the People’s Republic seeks to reorient its economy towards high value-added industrial and technological products, as part of the strategy of the “Made in China 2025” agenda. Critics in the West argue that Beijing could lead in fields of robotics, artificial intelligence and scientific discoveries in a few years. For Washington, this implies a threat to its security.
The effects of this war on the economy, however, should be reviewed. China has been inclined to reduce the effects of the controversial 2025 agenda and alleviate the trade deficit, as well as open up its economy and expand patent protection, satisfying U.S. demands. Those policies, which also serve Beijing, would allow Washington to reach a truce without a political cost. Thus, this Saturday’s summit emerged as the concrete birth of a truly executive G2 within the framework of a limited G20.