The US-Chinese Trade War: Is There a Red Line?

Relations between China and the USA have always been problematic. In fact, diplomatic relations between the two superpowers did not commence until 1st January, 1979, after months of secret negotiations and a process which had begun with U.S. President Richard Nixon’s visit to China in 1972.

The only real surprise about the current trade war is that it took so long to start. Donald Trump had been vocal about tariffs and unfair trade deals since the 1980s, and those disparities were a major part of his 2016 presidential campaign. Yet the ‘war’ did not begin in earnest until March of 2018 when the President announced his first round of so called ‘protectionist’ measures and said, in his own inimitable style: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”

One of the factors behind the start of World War 2

Yet that view is one not shared by most economists who see tariff conflict as damaging, not only to the principal ‘combatants’ but also to those countries’ allies and trading partners around the world. With trade wars and tariffs, there also comes currency manipulations as one side looks to offset the effects of increased tariffs. And students of 20th century history will be quick to point out that currency wars can lead to armed conflict. Herbert Hoover’s Smoot-Hawley Tariff Act of 1930 intensified the global currency war then happening as well as increasing the effects of the Great Depression. Those trade and currency wars of the 1930s stoked nationalism and were one of the factors behind the start of World War 2.

Over 200 years ago, Napoleon said, “Let China sleep; when she wakes, she will shake the world.” China is certainly awake now, and she is shaking parts of the world to its very foundations. But is armed conflict the red line neither leader will cross?

Trump and Xi Jinping want to see their country ‘great again’

In his book, ‘Destined for War’, renowned Harvard professor, Graham T. Allison, puts forward his modern version of ‘Thucydides’s Trap’, that says when an established power is threatened by an emerging giant, war is inevitable, whether both countries intend that outcome or not. Allison argues that war is not inevitable yet he worries that some form of armed conflict is likely.

Allison also argues that the problem with this ongoing conflict is not the differences between the two leaders, but the similarities. Both Trump and Xi Jinping want to see their country ‘great again’, they both see the other as an obstacle to that aim, they both see themselves as unique – and great – leaders, they both are driving very challenging domestic agendas to drive change, and they both thrive in nationalistic populism.

With no end in sight to the current economic hostility, we can only hope that in this case, Thucydides’s Trap is proven wrong.