The U.S. Treasury Secretary Janet Yellen visited China in April, saying that China and the United States will not decouple. However, before her words had even settled, the discussion of when the U.S.-China trade war would resume became a hot topic.
Why is this the case? The reason is simple. While Yellen’s meeting in Beijing may have been cordial, on crucial issues, both sides remained uncompromising. Moreover, even if a trade war were to erupt, it does not necessarily mean a decoupling between China and the United States. Therefore, Yellen’s assertion of no decoupling between China and the U.S. is not contradictory to the possibility of a trade war resuming.
Yellen emphasized in Beijing that China faces a contradiction between declining household consumption and excessive industrial investment, especially with the massive productive capacities that China has developed in three major industries – electric vehicles, lithium-ion batteries, and solar energy, under government policy support, posing a threat to the economies of various countries worldwide.
Yet, even as Yellen was still in Beijing, the People’s Bank of China announced on April 7 the establishment of a 500 billion yuan fund for technological innovation and technological transformation loans to stimulate financial support for technology-oriented small and medium-sized enterprises and key areas of technological transformation and equipment upgrades.
The attitude of Beijing towards Yellen is clear: You do your thing, and we will continue to do what we want to do.
As a result, the resumption of the U.S.-China trade war is only a matter of time. Looking at the situations in China, the U.S., and Europe, the likelihood of the trade war reigniting is very high before this coming October.
Following the bursting of the real estate bubble in China, the Chinese Communist Party urgently needs new engines of economic growth for revitalization. And the so-called “new quality productivity,” which has been hyped up by the Chinese state media, is viewed by the Chinese Communist Party as the key to solving their economic problems.
The term “new quality productivity” stems from Chinese Communist Party leader Xi Jinping’s speech in September last year during an inspection visit in Heilongjiang where he first mentioned the concept.
The recent focus on “new quality productivity” reflects the change in the fundamental principles of U.S. economic policy towards China over the past half-century.
Former President Bill Clinton urged the U.S. Congress to grant China Permanent Normal Trade Relations (PNTR) on March 8, 2000, as preparation for the federal government’s approval for China to join the World Trade Organization (WTO). The theme of Clinton’s speech was that with Western help, a prosperous China would eventually lead to demands for greater empowerment from the Chinese middle class, potentially driving reform within the Chinese Communist Party system.
On April 20, 2023, Janet Yellen, then the U.S. Treasury Secretary, spoke on U.S.-China economic and trade relations at the same university as Clinton’s speech. Her speech focused on the notion that in U.S. policy towards China, economic interests should be subordinate to security considerations.
If Clinton’s policy aimed to leverage economic interests to change the Chinese Communist Party, then Biden and Yellen’s policy mandates that even at the expense of economic interests, the security of the U.S. and the West must be safeguarded.
The key factor here is that the success of the Chinese Communist Party in occupying international markets through unfair competition largely stems from the tolerance of Western countries towards China’s unfair practices. However, the international landscape has undergone a significant transformation today, with the Chinese Communist Party now perceived as the biggest threat to the international order by the Western world. Democratic nations will no longer tolerate China’s nefarious actions.
Therefore, China’s plan to replicate the success of the “old three items” with the “new three items” strategy in the international market is fundamentally implausible. Abandoning previous visions of the Chinese Communist Party, the Western world will not allow China to exploit their markets as a stepping stone for global hegemony.
China’s attempt to dominate the international market through the export of “new three items” while the West refusing to grant China that opportunity sets the stage for an inevitable trade war between the two sides. In this trade dispute, China plays the role of the seller while the West is the buyer, and with insufficient power to compel concessions from the West, the outcome of the dispute is quite evident. The only remaining question is when will the trade war commence?
With this year being an election year in the U.S., where the President, all seats in the House of Representatives, and one-third of the Senate seats are up for election. The outbreak of the trade war will undoubtedly have a significant impact on the ongoing election campaign. Therefore, the timing of the trade war’s initiation will be a critical consideration for President Biden.
In the last four years of Biden’s presidency, his left-leaning policies have led to nearly 9 million illegal immigrants entering the U.S., high inflation rates, and rising crime rates in major cities, resulting in a decline in Biden’s approval ratings.
The outcome of the 2020 presidential election was largely determined by the performance of both candidates in seven crucial swing states. Similarly, this year’s situation mirrors this scenario. However, Biden’s popularity currently lags behind Trump’s in most of these key states. Therefore, Biden must present a compelling strategy to reverse the disadvantageous position he currently finds himself in.
A crucial segment of voters that Biden cannot afford to lose is the American auto workers’ union vote. According to the U.S. Bureau of Labor Statistics, the American automotive industry employed over 4.35 million people in 2022. The influence of these workers, along with their families and relatives, amounts to over 10 million individuals. How the issue of unfair competition from Chinese electric vehicles is addressed will significantly impact the voting inclination of this demographic.
In states like Michigan, where the automotive industry employs 20% of the statewide workforce, the impact of this issue cannot be overstated. In 2020, Trump lost Michigan to Biden by a narrow margin of less than 3%. The state of Michigan has a significant population of blue-collar workers who are increasingly dissatisfied due to high inflation pressures. Therefore, if Biden shows weakness in tackling the issue of Chinese electric vehicles, his chances of winning Michigan once again seem low.
Hence, if Biden chooses to engage in a trade war regarding electric vehicles, it is highly likely that this action will not be delayed beyond September. Otherwise, the impact on the voting outcome on November 5th will be minimal.
On the other hand, in Europe, the European Union initiated an anti-dumping investigation into China’s electric vehicle exports to Europe in October last year, with a predetermined investigation period of 13 months. Consequently, the investigation is anticipated to conclude in November this year, post the U.S. presidential election. Whether this timing is intentional or incidental, it unquestionably will have a substantial impact on the EU’s trade policies towards China, regardless of the next U.S. president’s identity.
Overall, considering the situations in China, the U.S., and Europe, there is a high likelihood that the U.S.-China trade war will reignite before October this year.