China–US Trade Disputes in 2018: An Overview

• DOI: http://doi.org/10.1111/cwe.12257
• Published date: 01 September 2018
• Author: Feng Lu
• Date: 01 September 2018

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 83–103, Vol. 26, No. 5, 2018

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*Feng Lu, Professor, National School of Development, Peking University, China. Email: fenglu@nsd.pku.edu.cn.

China–US Trade Disputes in 2018: An Overview

Feng Lu*

Abstract

The paper provides an overview of changes in the US policy stance toward China that

have resulted in the currently unstable economic and trade relationship between the two

countries. It reviews the trade and economic relationship between China and the US

during the rst year of the Trump Administration, summarizes the systematic changes in

trade and external economic policies adopted by the Trump Administration in general,

and particularly toward China, and observes the implementation of a hawkish trade

policy that ignited dispute between the US and China. The main factors shaping the

current situation are examined, including structural difficulties in the US economy,

the characteristics of the Chinese institutional setting and policies that have become

increasingly unacceptable to the US, the specific personal beliefs and positions of

President Trump and his main aides in the economic and trade team, and short-term

factors in the US internal political arena.

Key words: China, dispute, trade, US

JEL codes: F02, F51, O24, O51

I. Introduction

When President Trump signed a memorandum targeting China’s so-called “economic

aggression” on 22 March 2018, the Chinese general public was surprised. President

Trump’s November 2017 visit to China, at which time he was received with “state

visit plus” treatment, remained in the recent memory of Chinese citizens. The two

countries signed numerous bilateral contracts totaling approximately US$250bn, mainly

consisting of China’s purchase of goods from and outbound investment to the US. When

the US Government announced a tariff list of a total of US$50bn on imports from China

on 4 April 2018 and the Chinese responded with a retaliatory tariff list of the same

amount, a tipping point for a possible trade war between the two countries was initiated.

The dispute further escalated when on 16 April 2018 the US Commerce Department

activated a suspended denial order on TZE, the second largest Chinese IT equipment

company – a measure that stimulated unprecedented debate over industrial policies

Feng Lu / 83–103, Vol. 26, No. 5, 2018

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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in the high-technology sectors within China. When concern was expressed over the

possible further deterioration of the situation, senior economic officials from the two

countries held a talk in Beijing in early May 2018. Although the consultation did not

produce concrete results, the two countries secured a framework agreement, issuing a

joint statement after two days of talks in Washington DC in mid-May 2018. However,

the relief of the joint statement did not last long, and the situation once more became

confrontational after the US suddenly announced on 29 May 2018 that it would publish

a new tariff list of US$50bn against Chinese imports.

The drastic change in China–US economic relations and the risk of a possible trade

war has caused concern both within China and in the international community. In mid-

April 2018, the International Monetary Fund (IMF) indicated that global economic

growth could be damaged by possible US–China trade conflict (e.g. Giles, 2018;

Obstfeld, 2018). This paper provides an overview of the reasons behind changes in the

US policy stance toward China and discusses the current unstable economic and trade

relationship between the two countries.

The paper is organized as follows. Section II discusses the background of the

situation in several steps: (i) it briefly reviews the trade and economic relationship

between China and the US during the first year of the Trump Administration; (ii) it

summarizes the systematic changes in trade and external economic policies adopted by

the Trump Administration in general, and particularly toward China; and (iii) it observes

the implementation of the trade policy and the subsequent development of disputes

between the US and China up to the end of June 2018. Section III examines the factors

shaping the current situation from four perspectives: structural difficulties in the US

economy, the characteristics of the Chinese institutional setting and the policies that

have become increasingly unacceptable to the US, the personal beliefs and position of

President Trump and his main aides in the economic and trade team toward globalization

and trade issues, and short-term factors in the US internal political arena. Section IV

provides brief concluding remarks.

II. What Happened?

1. The Trade and Economic Relationship between China and the US in 2017

As a prominent candidate in the 2016 presidential campaign, Mr. Trump expressed

strong opinions regarding the trade and economic relationship between China and the

US. He once threatened to impose a 45 percent tariff on imported goods from China.

He also accused China of closing thousands of factories, leaving millions of workers

unemployed (Time, 2016), and suggested that the US should declare China as a currency