War and peace in USA-China trade

Abstract

Conceptually, the Trump administration’s mercantilist trade policy, which narrowly focuses on the balance of trade in goods, is deeply flawed, ignoring the deeper macroeconomic fundamentals of the structural deficit, namely America’s broad savings-investment gap. If macroeconomic conditions remain unchanged, tariff protection vis-a-vis China will not significantly reduce the overall US trade deficit, it will only alter its geographical structure. In terms of broader economic relations, the US has no deficit but a surplus with China. America is paying a high price for the trade war it has started. Damages extend to the world trading system through disruption of global value chains, disregarding WTO rules, and the proliferation of unilateral and discriminatory trade policies. The United States, through trade, investment and technology strategy, has set about to contain China’s rise. Therefore, lasting trade peace between Washington and Beijing should not be expected anytime soon.