Will China-US trade ties worsen in 2018?

US President Donald Trump and China's President Xi Jinping at the Great Hall of the People in Beijing Photo: Reuters

The United States would decide by the end of this month on whether to slap trade sanctions on China to reduce its massive trade deficit with the world's second-largest economy, Japan's Nikkei Asian Review reported recently, amid a deterioration in the two countries' trade ties over the past year.

In his first state of the union address in late-January, Donald Trump is believed to put highlight on trade with China. News provider Politico previously quoted three US officials familiar with the matter as saying that Trump would talk with several cabinet ministers and advisers to take punitive tariff measures for the countries which have unfair trade practices.

The US trade deficit with China grew 0.6 percent to $35.4 billion in November 2017, with the goods trade deficit reaching a record high since September 2015, the US Department of Commerce said in early January.

In November 2017, Trump made much-anticipated trips to Japan, South Korea and China, during which he conveyed deep concerns over the enlarged trade deficits with the three Asian countries.

In Japan, Trump called for a more open, fair trade environment needed to reduce US trade deficit with Japan. In South Korea, the president touted the American-made weapons, saying that arms sales would be helpful in cutting US trade deficit with South Korea. And after his China visit, the president tweeted that he blamed past US administrations "for allowing this trade deficit (with China) to take place and to grow", instead of pointing the finger at Beijing for exacerbating trade disputes.

The year 2017 has seen a toughening of US trade policy toward China.

In April, the US launched an investigation on imports of steel and aluminum from China, invoking Section 232 of a national security law passed in 1962 during the Cold War. Section 232 authorizes US presidents to limit related imports which are considered to cause damage to the national security. China is the world's largest steel producer.

In August, US Trade Representative Robert Lighthizer officially started a probe into China's policies and practices about intellectual property and technology transfer under Section 301 of the Trade Act of 1974. Section 301 is dubbed as a "nuclear weapon" that grants US presidents the right to set restrictions on imports that might pose threat to American businesses. The result of the investigation is set to be released in August 2018.

In November right after Trump wrapped up his China visit, the US Department of Commerce self-initiated the anti-subsidy and anti-dumping investigations on imports of Chinese aluminum alloy sheet.

2018 to be worse trade ties?

When it entered 2018, the Trump administration gave a heavy blow to the Chinese firms dreaming of investing in the United States by rejecting the application of Ant Financial, the financial arm of China's e-commerce giant Alibaba Group, to acquire American money transfer company MoneyGram. It shot down the lip-deep affinity between Alibaba Founder Jack Ma and Trump, which was reflected in a meeting last January when Ma promised to bring one million jobs to the United States.

The blocking of MoneyGram's sale to Ant Financial came just weeks after Trump unveiled a national security strategy plan, which sees China and Russia as the biggest rivals of the United States and the challengers of American geopolitical and economic interests. Some analysts said that the new national security strategy means the United States is returning to old-fashioned realpolitik. Meanwhile, the new national security strategy plan for the first time recognizes economic security as a kind of national security, which should be protected by the resources from the US private sector and the American allies.

Following the release of the new national security strategy plan, Trump admitted in an interview with the New York Times that the reason why he had "been soft" on China on trade issues was that he wanted China to give a big hand in resolving the North Korean nuclear crisis. Trump also said in the interview that he would connect his trade policy toward China to the Chinese perceived cooperation in curbing North Korea's nuclear ambition. Trump's comments were made when Chinese ships were spotted by American reconnaissance satellites selling oil to North Korea.

All these developments have given rise to international concerns about a trade war in 2018 between the world's two largest economies.

The Nikkei Asian Review report cited some analysts as saying that a harsh stance on China's trade would likely impact other economies and American industries as well. Trade protectionism would not only impact imports from China, but also from American allies, as reflected in the fact that Section 301 also targets American allies within its investigation scope although some officials at the US Department of Defense reportedly wanted to exclude American allies from trade penalties. The European Union had threatened to take retaliatory measures in response to any trade sanctions by the United States.

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