What’s driving US-China trade tensions?

The threats and counter-threats over trade have little to do with defending worker interests in the US or China.

In early April, US President Donald Trump announced that his administration was considering levying US$100 billion of additional tariffs on Chinese exports. The announcement came after the Chinese government responded to a previously proposed US tariff hike on Chinese goods of $50 billion by announcing its own equivalent tariff hikes on US exports.

The Chinese government has made it clear it will again respond in kind if these new tariffs are actually imposed.

So, what is it all about?

To this point, it is worth emphasising that no new tariffs have in fact been levied, by either the US or Chinese governments. The first round of announced US tariffs on Chinese goods is still subject to a public comment period before becoming effective. The content of the second round has yet to be formally decided upon.

Thus, both countries have time to back away from their threats.

Also significant is the fact that both countries are being careful about the products they are threatening to tax. For example, the Trump administration has carefully avoided talking about placing tariffs on computers or cell phones, two of the biggest US imports from China.

The US has also refrained from putting tariffs on clothing, shoes and furniture, also major Chinese imports.

Multinational networks

It is not hard to guess the reason why: these goods are produced as part of multinational production and marketing networks that operate under the direction of leading US corporations such as Dell, Apple and Walmart. Taxing these goods would threaten corporate profitability.

Former commissioner of the US International Trade Commission Dean Pinkert pointed out: “It seems that the US trade representative was very much aware of the global value chains in keeping some of these items off the list.”

The Chinese government, for its part, has been equally careful. For example, it put smaller planes on its proposed tariff list, while exempting the larger planes made by Boeing.

The media largely echoes Trump’s claim that his tariff threats directed at China are all about trying to cut the large US trade deficit with China to save high-paying manufacturing jobs and revitalise US manufacturing.

However, the president really has a far narrower aim — to protect the monopoly position and profits of dominant US corporations.

The shorthand phrase for this is the protection of “intellectual property rights”. As Trump tweeted in March: “The U.S. is acting swiftly on Intellectual Property theft. We cannot allow this to happen as it has for many years!”

Bloomberg News offers a more detailed explanation of the connection between the tariff threats and the goal of defending corporate intellectual property: “The White House is considering imposing tariffs on a broad range of consumer goods to punish China for its IP [intellectual property] practices…

“The US alleges … that China has been stealing US trade secrets, forcing American companies to hand over proprietary technology as a condition of doing business on the mainland, and providing state support for Chinese firms to acquire critical technology abroad.

“A consensus is growing that these policies, designed to establish China as a dominant player in key technologies of the future, from semiconductors to electric cars, threaten to erode America’s technological edge, both commercial and military.”

In other words, US tariff threats are, in reality, a bargaining chip to get the Chinese government to accept stronger protections for the intellectual property rights and technology of leading US firms in industries such as pharmaceuticals, aerospace, telecommunications and autos.

If Trump succeeds, US multinational corporations will become more profitable. But there will be little gain for US workers.

Jobs for US workers?

The auto industry offers a good case in point. Trump has repeatedly said that forcing China to lower its tariffs on imported US cars will help the US auto industry.

As he correctly points out, there is a 2.5% tariff on cars shipped from China to the US and a 25% tariff on cars shipped from the US to China. Trump claims that lowering the Chinese tariff would allow US automakers to export more cars to China and boost auto employment in the US.

However, GM, Ford and other automakers have already established joint ventures with Chinese firms and the great majority of the cars they sell in China are made in China. This allows them to avoid the tariff.

China is GM’s biggest market and has been for six years straight. The company has 10 joint ventures and two wholly owned foreign enterprises with more than 58,000 employees in China. It sells about 4 million cars a year in China, almost all made there.

The two largest automobile exporters from the US to China are actually German. BMW shipped 106,971 vehicles from the US to China in 2017; Mercedes sent 71,198. Ford was the leading US-owned auto exporter and in third place with total yearly exports of 45,145 vehicles. Fiat Chrysler was fourth with 16,545.

In short, lowering tariffs on auto imports from the US will do little to boost auto production or employment in the US, or even corporate profits. The leading US automakers have already globalised their production networks.

But changes to the joint venture law, or a toughening of intellectual property rights in China, could mean a substantial boost to US automaker profits.

For its part, the Chinese government is trying to use its large state-owned enterprises, control over finance, investment restrictions on foreign investment, licensing powers, government procurement policies, and trade restrictions to build its own strong companies. These are reasonable development policies, very similar to those used by Japan, South Korea and Taiwan.

It is short-sighted for progressives in the US to criticise the use of such policies. In fact, we should be advocating the development of similar state capacities in the US to rebuild and revitalise the US economy.

That does not mean we should uncritically embrace the Chinese position. The Chinese government is using these policies to promote highly exploitative companies that are themselves increasingly export-oriented and globalising.

In other words, the Chinese state seeks only a rebalancing of power and wealth for the benefit of its own elites, not a progressive restructuring of its own or the global economy.

In sum, these threats and counter-threats over trade have little to do with defending worker interests in the US or China. Unfortunately, this fact has been lost in the media frenzy over how to interpret Trump’s grandstanding and ever-changing policies.

Moreover, the willingness of progressive analysts to join with the Trump administration in criticising China for its use of state industrial policies ends up blurring the important distinction between the capacities and the way those capacities are being used. That will only make it harder to build the kind of movement we need to reshape the US economy.

[Martin Hart-Landsberg is Professor Emeritus of Economics at Lewis and Clark College, Portland, Oregon. He maintains a blog Reports from the Economic Front, from where this is reprinted.]

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