As the trade war between the United States and China approaches its third anniversary, there is little sign of resolution despite the fact that the conflict is damaging China’s economy, an American trade consultant said this week.
Speaking Tuesday during a webinar hosted by the Petroleum Packaging Council, James Eggenschwiler said the conflict has actually hardened in some ways and that some businesses are leaving China because of conditions there.
The current fight began in January 2018 when U.S. President Donald Trump’s administration announced the first in a series of tariffs on Chinese imports, attempting to penalize China for several long held grievances. U.S. officials contend that China fails to protect American companies from theft of intellectual property; that it forces U.S. companies doing business in China to transfer technology; and that it manipulates China’s currency. Trump said he also wanted to reduce China’s massive trade surplus with the U.S.
In succeeding months, China imposed its own series of tariffs on U.S. imports. The trade battle bled into disagreements over other issues, including China’s treatment of Uighur minorities; expansionist policies in the South China Sea; changes in Beijing’s governance of Hong Kong; U.S. treatment of Chinese companies such as Huawei and TikTok.
At the start of 2020, the governments announced the first phase of what was intended to be a resolution to the conflict, but Eggenschwiler said there has been no further movement since the sides initially took short steps back on their tariffs. The first phase also set expectations concerning intellectual property protections and technology transfer, but China has since proceeded to implement a 2019 data security law that, in Eggenschwiler’s words, imposes an affirmative obligation on every Chinese business to share all confidential business information and intellectual property with the central government. The law also dictates that business databases be easy to probe.
“They don’t have to gain access to servers,” Eggenschwiler said. “They have protocols that they are imposing that will automatically give them access to the servers, and they can monitor them 24/7.” He added that there have already been cases of the government using the law to steal information from outside of China, for example from U.S. and Canadian businesses with subsidiaries in China.
Washington has already responded with some punitive measures, so that front of the trade war could very well flare up again.
Eggenschwiler said China is giving little ground in the conflict, even though its economy has been hurt by it. The country’s economy contracted in 2018 and 2019 and has shrunk a bit more this year, he said. That contraction does not stem solely from the trade war; other factors include, for example, a government crackdown on shadow lending practices, a common practice of businesses obtaining financing from sources outside of China.
But Eggenschwiler said the trade battle has clearly played a role. Chinese businesses, like American counterparts, are have lost sales or had profits squeezed by the cost of tariffs. A bigger factor has been delay or cancellation of investment due to uncertainty caused by the conflict.
China’s economy has also been hurt by Chinese businesses leaving the country in order to escape tariffs charged either on imports from the U.S. or exports to it. Some of these businesses look to relocate closer to the U.S., for example in Mexico, but Eggenschwiler said others are being lured elsewhere in Asia – to Taiwan, Thailand, Indonesia or Vietnam.
Vietnam in particular has been aggressive about implementing policies to attract business – establishing special zones where regulations are looser, offering discounts on long-term leases, ending requirements for foreign businesses to divulge trade secrets and streamlining import and export processes.
“It is still a communist country,” Eggenschwiler said. “But by the same token, they are Westernizing their approach at least to bringing companies in. It is difficult to say if this approach is going to continue and whether it could even lead to changing the style of government at some point.”
Economists say the U.S. economy has also been negatively impacted by the trade war.