For the past few weeks all eyes have been fixed on the FIFA World Cup and the on-pitch conflicts between major nations in Russia. The world's two largest economies, China and the United States, have been notable by their absence from the competition: They are instead involved in a conflict of an altogether different kind.
After U.S. President Donald Trump fired the first shot of the trade war on July 6 by imposing 25-percent tariffs on Chinese goods worth $34 billion, China was forced into retaliation. But China isn’t Trump’s only target.
The U.S. president has taken his game on the road, taking aim at Canada, Mexico and even the European Union—once its closest partner—with the list likely to keep growing.
But what is Trump trying to achieve?
Maybe he has a secret game plan up his sleeve after doing away with several multilateral trade arrangements including those of TPP, NAFTA and the WTO?
In the late 19th and early 20th centuries, the U.S. was the factory of the world and had the power to write the rules of almost every international organization it was involved in. At this time, the country was also plagued by pollution resulting from rapid industrialization, which threatened both the environment and people’s lives.
After decades of development, the U.S. has since left all that messy stuff behind and successfully moved up the industrial value chain, leading the world in hi-tech industries.
However, by claiming that trade takes away American jobs and hurts U.S. interests, Trump is trying to exaggerate a foul to secure a penalty kick. Yet his antics are likely to be overlooked by international referees, because the truth is that the U.S. benefits from the current system of international trade, which is clear if we take a look at how U.S. products are secretly taking the Chinese market by storm: Intel and AMD take up nearly 100 percent in China’s CPU market; Android and iOS account for 99.8 percent in China’s mobile operating system market; Microsoft 97 percent.
Trump has been accusing China of taking advantage of the U.S. in trade. However, the share of Chinese exports to the U.S. from foreign-invested enterprises was 60 percent in 2014, of which many were U.S.-invested companies according to the Peterson Institute for International Economics.
That means U.S. companies are making profits from exactly which Trump is up in arms about.
Considering this reality, Trump’s measures are even more confusing.
Rather than damaging free trade, Trump should get off the pitch and let the U.S. focus on what it does best: innovate, research and design the cutting-edge products and services of the future.
But, if he wants to bring rust-belt jobs back from China and other countries around the world, then no problem, as long as the U.S. is prepared to deal with the same air and water pollution issues that it once suffered.
China agrees with Trump’s claim that the system of world trade needs to be altered. Yet any changes must reflect the different dynamics of the international trade order.
In the past, when its national economy accounted for more than 40 percent of global GDP, the U.S. could call the shots and create institutions to suit its own interests.
But in the 21st century, when this share has dropped to around 24 percent, the interests of other players on the field can no longer be ignored.
Although China didn’t choose this battle, it is determined to pick itself up, dust itself off and continue to play ball.