China Trade War with No End in Sight

Presidents Donald Trump of the U.S. and Xi Jinping of China once professed close friendship;
now both feel jilted. The two countries are said to be “consciously uncoupling”.
The world’s two largest economies, still heavily interdependent, are systematically chopping
away at the ties that bind them. There is less trade, less investment, fewer students crossing
borders to study, and fewer contacts between militaries.
The only question now is how much more contentious the relationship is likely to get. In a worst-
case scenario, the U.S. and China split the world economy in two, each tugging a group of
trading partners into its own orbit.
A deepening division between the U.S. and China would further disrupt trade, investment, and
movement of people, which together are a source of innovation and prosperity. “The result of
forcing Europe and the rest of the world to choose between the United States and China cannot
yet be discerned, but it will be costly for all involved,” Jacob Kirkegaard, a senior fellow at the
Peterson Institute for International Economics.
The consequences for global safety and security are potentially even greater. True, there’s no
guarantee that countries with a dense web of contacts will be friends. But countries that wall
themselves off from each other are invariably rivalrous, if not outright hostile. The main reason
for thinking things might get worse is that trust, once broken, is hard to repair.
Another reason to expect worse to come is that a trade war tends to feed on itself. Each act of
retaliation by one side is taken as a fresh affront by the other. Trump’s tariffs began small in
January 2018, with levies on washing machines and solar panels imported from all countries, not
just China. By this December, according to each side’s stated plans, there will be punitive tariffs
on almost all products sold by each country to the other.
https://www.bloomberg.com/news/articles/2019-09-13/nobody-benefits-from-a-u-s-china-trade-
war-with-no-end-in-sight

In A Newly Bipolar World, Europe is Caught in the Middle

The trade war between the United States and China is increasingly creating a bipolar world. As
U.S. President Donald Trump and Chinese President Xi Jinping prepare to meet at the upcoming
G-20 summit, Europe is facing an increasingly tense dilemma: Which side should it choose?
Because the two leaders represent something that hasn't existed since the end of the Cold War: an
increasingly polarized world that is being split into two political and economic spheres. It comes
as little surprise that the rivalry between the established and the rising superpower will be so
openly displayed at a G-20 meeting for the first time. Its consequences won't only affect the two
rivals, but all the participating nations -- countries that make up about 80 percent of the global
economic output, two-thirds of global trade and two-thirds of the world's population.
Unlike the U.S.' conflict with the Soviet Union, however, its showdown with China didn't spark
from an ideological or military rivalry, but an economic one. Washington believes it is being
challenged by Beijing and, under President Trump, is pushing the two biggest national
economies to de-couple from one another. It is gradually capping global production and delivery
chains connected to China, chains on which almost all other countries depend.
The Europeans are noticing that China is yielding under pressure -- in part because it wants to
avoid a two-front war against Washington and Brussels. At the EU-China summit in April, the
Europeans threatened not to sign the final joint statement, a strategy that proved successful.
Ultimately, the Chinese agreed to clearer formulations that not only meant better access to the
Chinese market, but allowed a political mechanism to monitor progress in establishing "fair
competition" and a "level playing field" in trade. Many G-20 countries share Trump's
reservations about China, but are concerned that a trade war could destroy a world economic
order that America played a large role in building.
Europe is stuck in the middle of the conflict. On one side, EU Trade Commissioner Cecilia
Malmström has emphasized her commitment to multilateralism. "We expressly do not share
Trump's approach. China is an economic rival for us, but not a political enemy," she said in an
interview with DER SPIEGEL.
On the other hand, the EU has declared China a "systemic rival." European hardliners like former
NATO Secretary General Anders Fogh Rasmussen argue that the trans-Atlantic alliance should
be bound more tightly together in an effort to counter Beijing. France, an EU member, and the
United Kingdom, an EU member for now, are also providing military support to the U.S. by
having their navy ships conduct sea patrols in the western Pacific.
https://www.spiegel.de/international/world/europe-caught-in-tensions-between-china-and-u-s-a-
1273640.html
 A lose-lose trade war is not only harming the main contenders, it also compromises the stability
of the global economy and future growth. We hope a potential trade agreement between the US
and China can de-escalate trade tensions.

International effect
While China loses, other economies gain. US tariffs on China have made other players more
competitive in the US market and led to a trade diversion effect. Of the $35 billion Chinese
export losses in the US market, about $21 billion (or 63%) was diverted to other countries, while
the remainder of $14 billion was either lost or captured by US producers. According to the
report, US tariffs on China resulted in Taiwan (province of China) gaining $4.2 billion in
additional exports to the US in the first half of 2019 by selling more office machinery and
communication equipment. Mexico increased its exports to the US by $3.5 billion, mostly in the
agri-food, transport equipment and electrical machinery sectors. The European Union gained
about $2.7 billion due to increased exports, largely in the machineries sectors. Viet Nam’s
exports to the US swelled by $2.6 billion, driven by trade in communication equipment and
furniture. Trade diversion benefits to Korea, Canada and India were smaller but still substantial,
ranging from $0.9 billion to $1.5 billion. The remainder of the benefits were largely to the
advantage of other South East Asian countries. Trade diversion effects favouring African
countries have been minimal.
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