The US-China Trade War Heats Up

In a sharp escalation of a trade war that began with his predecessor Donald Trump, US President Joe Biden’s administration recently unveiled a new set of tariffs on Chinese goods, including a quadrupling of the tariff on electric vehicles (EVs) that brings the rate to 100%. It did not take long for China to retaliate by launching an anti-dumping probe into chemical imports from the United States, the European Union, Japan, and Taiwan. Have US-China economic relations reached the point of no return?

For Yale’s Pinelopi Koujianou Goldberg, the answer is yes: the US and China are now in a “full-blown economic war,” which will have “far-reaching geopolitical consequences.” But that’s not all. The latest tariffs also amount to an admission by the Biden administration that past measures have failed to prevent China from “galloping ahead,” and, by targeting EVs, they “undermine the broader climate-change agenda.”

Carl Bildt of the European Council on Foreign Relations offers a similarly negative assessment. The new measures have no “economically redeeming features” and cannot even be “justified on national-security grounds,” as past protectionist policies were. All they will do is “prevent cheaper, often better, green technologies from reaching US consumers,” while accelerating the destruction of an “international economic order that delivered enormous gains over many decades through trade integration and globalization.”

The Biden administration claims the new tariffs will counteract the unfair advantage that government subsidies give to Chinese firms. But according to Harvard’s Dani Rodrik, the “case for subsidizing green industries, as China has done, is impeccable.” In fact, China’s green industrial policies deserve credit for “some of the most important wins to date against climate change.” While trade rules allow countries to impose “countervailing tariffs on imports” – say, if they think other countries’ green subsidies will undermine “jobs and innovative capacity at home” – it would be “better for the world overall” if they didn’t.

In any case, argues Qiyuan Xu of the Chinese Academy of Social Sciences, China’s government subsidies are not the driving force behind the country’s soaring exports, reflected in a near-doubling of China’s trade surplus since 2017. The main factor is the “significantly undervalued renminbi,” caused partly by US restrictions on investment in China. Given this, “as long as Sino-American relations continue to be rocky,” the Biden administration’s “complaints will become ever more difficult to resolve.”

But Arvind Subramanian of the Peterson Institute for International Economics points out that something is often missing from the debate about the escalating US-China rivalry: the perspective of other countries, especially larger developing economies like India, which may well benefit from current US trade policy. If today’s trade war escalates into a “full-scale geopolitical conflict,” however, “everyone would lose.”