The Strategist

China and the US are looking for allies in the trade war

04/20/2018 - 15:03

Everybody, including Beijing and Washington, realizes that the longer the trade war between China and America lasts, the more damage will be done to the world economy. Nevertheless, the conflict will apparently linger for a long time, because no one is going to concede, at least now.

CDC Global via flickr
CDC Global via flickr
Chief financiers will the trade war unfolding between America and China at a meeting, which will be held this week in Washington by the IMF. The meeting’s participants, including finance ministers and chairmen of the G20 central banks, will certainly try to persuade the rivals to make peace. As for the belligerents themselves, they will try to befriend as many countries as possible to feel more confident in the negotiations.

By the way, vigorous attempts to gather more allies prove that neither Beijing, nor Washington do not expect an early settlement of the conflict.

"There is a struggle between the two largest economies of the planet now and for who will attract more allies to their side," David Dollar, a former representative of the US Treasury in China and now an employee of the Brookings Institution, explained to Bloomberg.

For example, the parties are vigorously fighting for India and Japan. Recently, there was a rumor about trade negotiations between Beijing and Tokyo, the first in eight years, and Beijing and Delhi. India and Japan suffered badly together with China because of the American tariffs on steel supplied to the US.

Of course, Washington does not intend to give up India and Japan without a fight. The main topic of the talks, between Donald Trump and Japanese Prime Minister Shinzo Abe, was trade.

"The growing economic power of China coupled with the fact that the US is increasingly becoming an unreliable partner, is pushing countries from different continents into Beijing's economic embrace," says Esvar Prasage, a former head of the IMF office in China, and now a professor at Cornell University.

Naturally, despite Washington's "unreliability", the US too has many trump cards in the race for the allies. Americans, for example, enlisted the support of European countries and Japan in the WTO's December statement. The statement contained harsh criticism of China over overproduction in a number of branches of the Chinese economy and Chinese companies stealing ideas and technologies. The EU and Tokyo also supported America in the WTO dispute on the issue of technology licenses in China.

"I call this the trade coalition at will," Larry Kudlow, the head of the US National Economic Council, told reporters.

At the meeting of the G20 held in Buenos Aires on March 19-20, the organization decided to adhere to neutrality in the conflict between the US and China, stressing only that trade and investment are "important drivers" for the growth of the global economy.

According to the former IMF staff member Thomas A. Bernes, some countries that have grounds to criticize the US are not doing this now, because they are seeking exceptions to the tariffs for steel and aluminum declared by the Americans. This point is clearly seen in the negotiations between Abe and Trump. The situation looks similar in the case of Angela Merkel, who is going to Washington on a visit in late April.

The conflict between the two leading economic powers of the planet puts the IMF in an awkward position.

"The widening gap of contradictions in trade between the US and China will complicate life for many countries," explains Tim Summers, senior partner of the Chatham House Asia Program in Hong Kong. "It is in the interests of third countries to avoid siding with one of their rivals in the trade war, but none of them has enough strength to make Washington take a more conciliatory position."