The United States declared an economic war on China in early 2018, initially placing tariffs on solar panels and washing machines, and eventually having a proper economic war declaration after “FINDINGS OF THE INVESTIGATION INTO CHINA’S ACTS, POLICIES, AND PRACTICES RELATED TO TECHNOLOGY TRANSFER, INTELLECTUAL PROPERTY, AND INNOVATION UNDER SECTION 301 OF THE TRADE ACT OF 1974” was made public in March 2018.
It is clear that the US has had a massive trade deficit since the 1970’s, and that it has had a significant fiscal deficit ever since. Both of these deficits have grown after the 2008 crisis. What we would like to argue is that the economic problems of the United States are structural. The US has a long-run productivity problem, in spite of Jorgensen’s findings; it has wages out of line with economic growth, and consumer credit at remarkable levels. None of these have served to push the economy forwards, but rather to increase the external and fiscal deficits.
Secondly, the industrial base seems to be lagging behind technological innovations. What appears to be happening is that the US patents new goods, while others turn them into products and place them in the market faster than any US firm. It happened with Japan and Korea before and now it is happening with China. The issue here is that Chinese technology, based on patented knowledge and advanced from there, is better and cheaper than its similar American counterpart. In many cases there is no American counterpart. China leads the new technological wave in telecommunications, electric cars, cell phones, and guides the way into an energy transition from Fossil fuels into a clean renewable energy grid. The war, then, is not about import substitution and industrialisation policies based on tariffs to protect declining industries, but — more importantly — to keep the leadership in energy and car production, the control of telecommunications, and the overall hegemony.
Since the trade war began, the deficits have grown and the US is not importing less. The real investment rate in the US has a downward long-run trend since the 1960’s that is not being reversed. Reduced tax and interest rates should have moved it upwards, but it did not. Why? The frustration with massive deficits led to the war together with the speed with which the opponent puts its goods in the market using the US technology. Why can’t it be done in the States? This is a recurring problem since the trade war against Japan in the 1980’s, blamed on the same things: plagiarism, currency manipulation. Then, the war was won by the US, particularly after the Tokyo stock market bubble burst in 1990. That did not mean the US deficits improved or that the capacity to bring new products into the market with speed got better. There is a new war that resembles that older one.
Thirdly, over the past three years’ unilateralism appears to have returned to stay as an American strategy. The US Government seems to be determining the future of its country and the world against all others who are trying to damage its global position. The liquidation of multilateralism is a reversal of the policies installed by the US between 1919 and 1944, with the creation of the League of Nations and the United Nations, when the US was triumphant. What is left now is the mirror image of the lack of alliances and the loss of world leadership. US protectionism has returned and will remain, until the American economy feels the pain of the transfer of hegemony. The economic war is meant to defeat the enemy, not to reach any agreement.
Economic warfare is a unilateral action that questions the existence of multilateralism and poses the question of what regimen we are about to enter after the weakening of the existing multilateral trade agencies. Will free trade still be promoted strongly through IFI policies? Can any multilateral agency take retaliation against any country that goes against the spirit of existing free trade agreements? The US trade policy opens the door for new relationships between emerging market economies and IFIs on issues of liberalisation, but mostly it ends a period of unregulated international trade started in the 1980’s and opens a new one.
The solution to the structural economic problems of the US, similar to those of Britain in the 1960’s, is not tariffs and trade restrictions. The profit squeeze in the US comes at the same time as the US technological leadership is at stake. How much is at stake? Can China actually replace the US as the economic leader in the world? If not, what will prevent it? If so, what is required for …? How can the US prevent this shift from happening? The trade war is above all a war that will be won by one side at some point. Does the winner keep the hegemony as its prize? Or are we in a new situation of shared/partial hegemonies?