Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Archive for May, 2018

The Art of Trade War

Posted by butalidnl on 28 May 2018

Donald Trump has declared a trade war between the United States and China, sort of. First, he increased tariffs on steel and aluminum imports (initially for all countries, but most other countries got waivers). Then, he declared a second round of measures that targetted China’s high-tech sector. China, for its part, unveiled counter-tariffs on an equivalent set of imports from the US, including on its exports of soy beans.

However, so much trade war kletter are only threats, so far. There is no trade war yet. After a second round of talks, both countries agreed on a ‘ceasefire’, meaning that no tariffs will be imposed while talks continue.

The US is at a disadvantage. China is a communist-run state. It is able to better control (and alleviate) any pain that a trade war can bring. Also, it is not so transparent; its leadership has better control over its trade war instruments, and can do so with stealth. And, perhaps best of all, Chinese leaders are students of the two millenia-old work by Sun Tzu, ‘The Art of War’.  Recent moves by the Chinese government show that they are heeding advice from this ancient book.

A trade war is just another form of war. ‘The Art of War’ could also serve as a general guide for conducting a trade war.

Sun Tzu said that it is best if a war is won without having to be fought. Political maneuvers should be able to achieve the aims of war, without the need to wage one. This seems to be what the Chinese government is trying to do.

Some quotations from ‘The Art of War’:

“Those whose words are strong, and who advance aggressively are going to retreat.”
This seems to be a general prediction of how the war will go.

“Use humility to make them haughty”
The Chinese have been projecting a conciliatory stance towards the US, enough to make the US haughty. US Trade officials have gone so far as saying that they are confident that China will agree to import an additional US$200 Billion worth of agricultural and energy products. To which the Chinese calmly replied that was not what they had agreed to.

“Those who know when to fight, and when not to fight are victorious”
Timing is important. The Chinese know that the US will have a less favorable negotiating position as its mid-term elections approaches. So, they are stretching talks to get maximum advantage.

“Those who know when to use many or few troops are victorious.”
The key to victory is to have a wide range of weapons and capabilities, and to know how and when to use them.  In the second round of US measures, it hit the Chinese telecommunications giant ZTE with sanctions. In response, Chinese regulators blocked the merger of US company Qualcomm with the Dutch company NXP (worth US$ 44 billion).  After a telephone call between Xi JinPing and Trump, sanctions against ZTE have been softened, and the Chinese regulators are no longer opposing the merger.

“The next best is to attack alliances.”
China does not even have to do that, the US has already alienated its staunches allies in a possible trade war. They will not come to the side of the US in a trade conflict with China.

“Those who skillfully move opponents make formations that they are sure to follow, give what opponents are sure to take. They move opponents with the prospect of gain, waiting for them in ambush.”
The Chinese have changed the negotiating ‘terrain’ with little US opposition by dangling ‘gains’ on agricultural imports to entice the US to take the path of demanding an increase in Chinese imports of US products, instead of decreasing Chinese exports. Then, the Chinese suddenly announces reductions in the tariff on all imported automobiles (a step which they were going to do anyway).
Now, the Chinese are ready to ambush the US negotiators.

Trump said that “winning a trade war is easy.” Foolish words from a man who has not experienced war of any kind. The Chinese would not say that winning the trade war would be easy; but they would work very hard to win it. And win it, they will.




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