The U.S. government of President Donald Trump has imposed punitive tariffs on over 3 trillion yen worth of Chinese products on the grounds that U.S. companies' intellectual property rights, including those on cutting-edge technologies, are being infringed on by China. Beijing responded by taking retaliatory measures, and the two countries have plunged into a full-scale trade war.
- 【Related】How the trade war is changing minds in a US Senate battleground
- 【Related】US-China trade war elevates the risks to the global economy
- 【Related】Trump's trade war divides his own base with problems for soy, but perks for steel
- 【Related】Editorial: US proposal to restrict steel imports could spark trade war
In response to the retaliation, President Trump suggested that the U.S. government will impose a massive amount of additional tariffs on Chinese products. It is an irrational situation in which the world's largest and second largest economies are playing tit for tat with tariffs.
The move represents a crucial turning point in the free trade system that the United States established after World War II.
In his memoir, Cordell Hull, who served as U.S. secretary of state during the war, regretted the country's prewar protectionism, stating that high tariffs would not bring prosperity to the United States but invite grudge actions from other countries.
Hull is known for the "Hull note" that triggered the outbreak of war between Japan and the United States, but he was also instrumental in working out a postwar free trade system. He believed that the United States' imposition of high tariffs on foreign products to protect the domestic economy after the Great Depression intensified its conflict with other countries, triggering World War II.
The United States has taken the initiative in promoting free trade and supported the world economy in the postwar period based on the principle that lowering tariffs as much as possible will spur trade and that if the world becomes affluent as a result, each country becomes richer.
What is most worrisome is that Washington's hard-line protectionism could spread confusion to the world.
The ongoing conflict between the United States and China reflects friction between major economies, just like Japan-U.S. trade friction in the postwar period, but this time the situation is more serious.
Japan, which relies on the United States for its own security, has complied with almost all U.S demands, thereby limiting the dispute to a matter just between the two countries. In contrast, the U.S.-China trade war could lead to endless confusion. Since the scale of the two countries' combined economies account for nearly 40 percent of that of the world economy, their conflict could deal a serious global blow.
Moreover, the international division of labor is further progressing as a result of the globalization of the economy.
China hosts many Japanese, U.S. and European factories. In many cases, Japanese parts are exported to China where they are assembled into products and exported to the United States. If exports become stagnant because of high tariffs, the international division of labor would be hindered and its impact would be widespread, affecting Japan.
On top of punitive tariffs, the Trump administration has imposed high tariffs on Chinese, Japanese and European steel products, and is considering raising its tariffs on automobiles. If this were to cause other countries to take protectionist policies, it would rock the foundations of the free trade system.
As the reason for imposing high tariffs on steel products and automobiles, Washington only cited the potential threat to U.S. security. This could lead other countries to impose high import tariffs citing their own security, which could result in a vicious circle in which a slowing world economy spreads protectionism, further cooling off the global market.
The United States is responsible for the stable growth of the world economy as an economic superpower. If a trade dispute is to emerge, it should be settled in accordance with World Trade Organization (WTO) rules. This is the basic principle of the free trade system established by Washington. It is self-centered for the United States to be pursuing its "America First" policy and triggering tit for tat to be played with punitive tariffs.
Looking back on recent U.S.-China relations highlights the Trump administration's irrational behavior. Previous U.S. governments had called into question the U.S. trade deficit with China and the closed nature of the Chinese market. Fundamental differences with the Trump administration are that the previous administrations had urged Beijing to reform its domestic market and trade policy through a multilateral framework led by Washington.
The United States also supported China's membership in the WTO to encourage the country to open up its market and abide by international trade rules. Washington also promoted the Trans-Pacific Partnership (TPP) free trade pact. These moves were aimed at setting common regional rules, including those governing the protection of intellectual property rights, and urging Beijing, which is not a member of the TPP, to abide by these rules.
However, there are numerous problems in China's efforts to abide by these rules. When it joined the WTO, Beijing promised to beef up intellectual property rights protection, but Japan and European countries are criticizing China's efforts as not effective enough. Still, the response to the matter by the Trump government, which has unilaterally pulled the United States out of the TPP accord, is far from convincing.
Behind President Trump's hard-line policy is the struggle between the United States and China over supremacy in the high-tech sector. The United States fears that its cutting-edge technologies that it claims fall illicitly into the hands of Chinese firms could be used by China for its development of new industries. China is rapidly catching up with the United States in terms of its economic power and Washington appears to be wary that U.S. cutting-edge technologies could be eventually threatened by Chinese technologies.
However, protectionism would only undermine U.S. national strength. High import tariffs would initially save inefficient domestic industries, but eventually cause the United States to lose its international competitiveness. Instead of resorting to protectionism, Washington should utilize multilateral frameworks to settle its trade disputes.
China should also refrain from implementing retaliatory measures against the United States. Beijing criticizes U.S. protectionist policy, but whenever China was urged to reform its market and trade policy, it fended off such pressure with large-scale business deals. The country should fulfill its responsibility to match its economic might.
Japan, as a major economic power, should also play a part in maintaining free trade. The government should urge Washington to retract its protectionist policy.