Ring of Fire: Tremors & Eruptions in US-China Trade War

https://thediplomat.com/2018/04/ring-of-fire-tremors-and-eruptions-in-the-u-s-china-trade-war/ Ring of Fire: Tremors and Eruptions in the US-China Trade War Threats and counter-threats may well produce losers all around. By  HYPERLINK "https://thediplomat.com/authors/roncevert-ganan-almond/" Roncevert Ganan Almond April 12, 2018 On April 5, 1815, Mount Tambora erupted on the island of Sumbawa in the Dutch East Indies, present day Indonesia. Located along the “Ring of Fire” – the seismic belt surrounding the Pacific Ocean – the volcano’s blast was one of the most severe in recorded history. Nearly 800 miles away in Java, Thomas Stamford Raffles, the lieutenant-governor of British Java and founder of colonial Singapore, mistook the thunderous bang for cannon fire. The eruption’s ash plume was so vast that it literally changed the world’s climate, lowering global temperatures for years. The following year, 1816, became known as the “Year without Summer” as the persistent chill from the sun-blocking ash cloud killed crops and disrupted commerce across the globe, from China to America. This foreboding environment inspired Mary Shelley to pen her masterpiece Frankenstein, a tale drawing upon human ambivalence and fear in the face of technology and industrialization. Perhaps it was timely, then, that just over two hundred years later, on April 5, 2018, U.S. President Donald Trump likewise erupted in fury, announcing a new salvo in the U.S.-China trade war that threatens to cast a choking cloud over the global economy. This round in the dispute between Washington and Beijing should be distinguished from and elevated above prior iterations, which include the solar panel-sorghum episode and the tit-for-tat tiff involving U.S. steel and aluminum tariffs and corresponding Chinese tariffs on $3 billion of U.S. exports like pork and fruit. Instead, this fight more clearly represents the essential struggle between the United States and China over strategic technological breakthroughs and competing stations within the global economy. As set forth in Trump’s National Security Strategy, the United States claims that in order to compensate for its “own systemic weakness” stemming from a “state-driven economic model,” China steals proprietary technology and early-stage ideas from the U.S. private sector, thereby undercutting American prosperity and hijacking the “innovation of free societies.” In Beijing’s version, as articulated by President Xi Jinping, China faces a unique set of challenges and has successfully adopted a strategy of “socialist modernization” to speed its development while preserving its independence. To the extent Western companies transfer technology to Chinese partners, Beijing’s narrative goes, they do so voluntarily in pursuit of enrichment within Chinese borders. The truth may lie somewhere in between and may otherwise be irrelevant in this context. But before tackling the broader geostrategic issues at play, we should review the remarkable unfolding of events in the U.S.-China trade clash and specific grievances underlying the United States’ recent actions. Trading Barbs At first glance, the speed and timing of events seem surprising and haphazard, but this flashpoint in the U.S.-China trade war flared following a deliberate and calculated process initiated by the Trump administration under a Cold War era legal remedy. On August 14, 2017, Trump issued a memorandum instructing the U.S. Trade Representative, Robert Lighthizer, to determine whether to investigate China under Section 301 of the Trade Act of 1974 (Trade Act) (19 U.S.C. 2411). Following inter-governmental deliberation, on August 18, 2017, the Office of the U.S. Trade Representative (USTR) initiated the Section 301 investigation into actions by the Government of China that “may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technology development.” As part of its investigation, the USTR solicited feedback from the public and industry, including in a public hearing on October 10, 2017, and through receipt of over 70 written submissions, many from trade associations representing U.S. companies doing business in China. During the investigation, the Trump administration also requested consultations with the Government of China pursuant to Section 303 of the Trade Act (19 U.S.C. 2413). Matters came to a head on March 22, 2018, when the USTR concluded the Section 301 investigation and issued its 215-page report. On this basis, Trump issued another memorandum ordering three separate actions: (1) directing the USTR to develop a list of Chinese products to be subject to proposed tariffs; (2) instructing the USTR to pursue dispute settlement before the World Trade Organization (WTO) to address China’s discriminatory technology licensing practices; and (3) ordering U.S. Treasury Secretary Steven Mnuchin to take actions to address concerns related to Chinese investments in strategically important sectors of the U.S. economy. In response, China’s Ministry of Commerce issued a stern warning: “China does not want to fight a trade war, but it is absolutely not afraid of that. We are confident and capable of meeting any challenge.” The U.S. challenge emerged on April 3, 2018, when the USTR published a proposed list of Chinese products, covering 1,300 separate tariff lines targeting industries ranging from aerospace to pharmaceuticals to robotics. Under the proposal, these products valued at nearly $50 billion, or approximately 20 percent of Chinese exports to the United States would be subject to an additional 25 percent duty. Before becoming effective, proposed tariffs are subject to an extensive notice-and-comment period and further discretionary review. Nevertheless, within hours China had pushed back forcefully with a reciprocal $50 billion tariff threat aimed at high-profile U.S. exports involving politically-sensitive constituencies. On April 4, 2018, China proposed a duty rate of 25 percent on 106 items within 14 categories of commodities originating from the United States, including automobiles, soybeans, and aircraft – representing a respective $10 billion, $12.4 billion, and $16.3 billion in U.S. exports to China, according to the Peterson Institute for International Economics. In developing this list, China seemed to signal both strength – by targeting American agricultural products and the farming belt, a key constituency in Trump’s political base – and moderation – by not including heavy wide-bodied U.S. aircraft, like the newer models of the B-737 fleet or the B-787 Dreamliner. Such determined restraint was quickly met by bombast. The following day, at an event in West Virginia, Trump declared China’s response unacceptable and instructed U.S. trade officials to consider a new $100 billion round of tariffs on Chinese products. In reaction to this provocation, on April 6, 2018, Beijing issued a stark threat that China would fight back “at any cost” with fresh tariffs. Even so, Beijing appeared stunned that Trump failed to share China’s sentiment that the “U.S. has ignored the economic and trade cooperation with mutual benefit and win-win results which has been lasting for 40 years.” It may be more...