China in Transition

Why Has the U.S. Waged A Trade War Against China?
—Protracted Confrontation Inevitable

Chi Hung KWAN
Consulting Fellow, RIETI

The announcement of the imposition of sanctions against China based on Section 301 of the U.S. Trade Act in March 2018 triggered an escalation of the U.S.-China trade friction. As symbolized by the subsequent tit-for-tat exchange of tariff hikes, the situation has now developed into a trade war. Previously, although the U.S.-China relationship was beset by various problems, the friction was limited to specific fields, with the two countries avoiding a full-blown trade war like the one that has now broken out. A trade war could cause significant damage to the side that starts the war as well as the opponent. As to why the United States has waged a trade war against China while being aware of the risk of paying a high price, there is apparently a clash of arguments between the U.S. side, which views China as the odd man out in the international community, and the Chinese side, which is criticizing the U.S. assessment of China as a threat. Each side's argument appears to have some grains of truth.

Against the backdrop of China rising as an economic superpower while maintaining political and economic systems different from those of the West (the so-called China model), the United States has shifted its China policy from engagement to deterrence. In order to maintain its supremacy over China, the United States has increased the pressure on China to open its market, strengthened the control of technology transfer to China, and aimed to reform the international trading system centered on the World Trade Organization (WTO).

In China, the opinion on how to respond to the trade war waged by the United States is divided between the hawkish camp, which is calling for outright resistance, and the dovish camp, which is hoping to resolve the dispute early by accepting the U.S. demands as much as possible. The hawkish camp strongly believes in the fundamental strength of China, particularly its economy, and is confident about defeating the United States in the trade war. Meanwhile, the dovish camp argues that China should accept and use the U.S. demands as leverage to accelerate its reform and opening-up initiative based on the recognition that the Chinese economy is still far inferior in fundamental economic strength to the U.S. economy.

With no prospect in sight of how a compromise can be reached after the outbreak of the U.S.-China trade war, the Chinese government on September 24 announced a set of principles addressing many of the U.S. demands, including enhancing the protection of intellectual property rights and foreign companies' lawful interests in China and deepening the reform and opening-up initiative, as a step toward resolving the dispute. However, implementing these policies could at best weaken to some degree the view of China as the odd man out, which will remain influential. Thus the U.S.-China friction is likely to drag on for a long time while extending beyond the field of trade into the realm of technology.

View of China as the Odd Man Out—"China Model" is the Focus of Criticism

Attributing the cause of the U.S.-China trade friction and the ensuing trade war to China's failure to comply with the principles set by the WTO—openness and the leading role of the market—the United States is propagating the view of China as the odd man out (Note 1). Based on this view, U.S. Ambassador to the WTO Dennis Shea criticized China as follows and called for improvements (Shea, Dennis, "Ambassador Shea: China's Trade-Disruptive Economic Model and Implications for the WTO," WTO General Council, Geneva, July 26, 2018):

  • Despite China's repeated portrayal of itself as a staunch defender of free trade and the global trading system, China is in fact the most protectionist, mercantilist economy in the world. Contrary to Members' expectations, China has not been moving toward a fuller embrace of market-based policies and practices since it joined the WTO in 2001. The state's role in China's economy has been increasing.
  • The Chinese government and the Chinese Communist Party have a constitutional mandate, echoed in China's broader legal framework, to develop a "socialist market economy." To this end, the government and the Communist Party continue to exercise control directly and indirectly over the allocation of resources through instruments such as government ownership and control of key economic actors and government directives. As a result, the means of production are not sufficiently allocated or priced according to market principles. Instead, the government and the Communist Party continue to control or otherwise influence the prices of key factors of production, including land, labor, energy and capital.
  • Just as when China acceded to the WTO in 2001, state-owned enterprises continue to play an outsized role in China's economy. Moreover, the government and the Communist Party have for decades exercised control over these enterprises through the appointment of key executives and the provision of preferential access to land, energy and capital and other important inputs. Recently, the Communist Party also has taken steps to increase the strength and presence of the Communist Party within all business organizations in China.
  • China's system also treats law as an instrument of the state, in the sense that it is used to facilitate the government's industrial policy goals and to secure discrete economic outcomes. In addition, key legal institutions, such as the courts, are structured to respond to the Communist Party's direction. This type of system makes it very difficult for enterprises to act independently of approved industrial policies on a systemic or consistent basis.
  • China's five-year plan is a "hallmark of a planned economy." Various institutions participate in formulation and execution of industrial policy plans, including central government agencies with legislative and regulatory authority, thousands of local government authorities, various organs of the Communist Party and Chinese enterprises.
  • A key focus of China's industrial policies is technology development, which China views as integral to its economic development. In order to attain domestic market dominance and global leadership in the high-tech field, China has issued a large number of industrial policies, including, for example, the "Made in China 2025" industrial plan.
  • China is providing massive subsidies to targeted domestic industries through its industrial policies. The subsidies may cause market distortions and severe excess capacity. Excess capacity hurts the global economy not only through direct exports from China, but also because lower global prices and a glut of supply make it difficult for even the most competitive producers to remain viable, as has been observed in the steel, aluminum and solar sectors. China has pursued a variety of unreasonable policies and practices that harm U.S. intellectual property rights, innovation and technology development.
  • Meanwhile, China continues to benefit tremendously from its WTO membership. China now is the world's largest automotive market, the world's largest oil importer, the world's largest steel manufacturer and the world's largest meat consumer. China also hosts the largest number of super-computers in the world. China is claiming that it should be exempt from contributing to progressive liberalization of global trade rules, as other developing countries are, on the grounds that it struggles with poverty-related challenges in some areas of its economy. However, this claim is simply not sustainable when measured against numerous indicators of China's rapid development and accumulation of wealth.
  • Since joining the WTO, China has repeatedly signaled that it is pursuing economic reform. Unfortunately, China's use of the term "reform" differs from the type of reform that a country would be pursuing if it were embracing market-oriented principles. For China, economic reform means perfecting the government's and the Communist Party's management of the economy and strengthening the state sector, particularly state-owned enterprises. As long as China remains on this path, the implications for the WTO are decidedly negative.
  • China often describes its approach as "win-win," but that is not accurate. China is pursuing industrial policies which go well beyond the traditional approach of guiding and supporting domestic industries and is seeking to keep out foreign competitors. In other words, China's approach seems to be based on the view that trade is a "zero-sum game," rather than the view that free, fair and reciprocal trade is mutually beneficial.

Based on the above recognition of the situation, Ambassador Shea called on China to "fully and effectively embrace open, market-oriented policies."

Assessment of China as a Threat—Fearing China's Rise as a Superpower

Responding to the criticism from the U.S. side, China retorted that the real motive of the United States in waging a trade war is to contain China as a challenger to the U.S. hegemony and asserted that the view of China as the odd man out is groundless and is nothing more than an excuse ("The Fundamental Reason Why the U.S. Waged a Trade War"; The People's Daily, August 9, 2018).

  • In the past, the United States started what came to be known as the Cold War against the Soviet Union, a powerful country with an entirely different ideology, and contained and attacked it at every level. As a result, the Soviet Union collapsed and the United States congratulated itself for winning "the end of history" (Note 2). In the 1980s, the United States forced Japan, a rapidly rising economic power, to accept "voluntary export restrictions" and the "Plaza Accord," which was accompanied by the yen's appreciation, thereby causing Japan to be trapped in a prolonged period of stagnation known as the "lost two decades."
  • Therefore, the U.S. trade war against China can in no way be interpreted in terms of stress in the U.S.-China relationship caused by China's aggressive diplomacy or ideological differences. Since becoming the global No. 1 in GDP size in 1894, the United States has always viewed the number-two country as a rival that threatens its supremacy.
  • Specifically, U.S. foreign policy follows a "60% rule," which dictates that whenever a foreign country reaches 60% of the United States in economic size and continues to grow fast, threatening to overtake the U.S. economy, the United States should view it as a rival and vanquish it by all means. China is now the target, as Japan was in the past (Figure).
Figure: Change in the Economic Size of China and Japan Relative to the United States in Terms of GDP
Figure: Change in the Economic Size of China and Japan Relative to the United States in Terms of GDP
Source: Compiled by the author based on IMF, World Economic Outlook Database, April 2018 data.
  • For the United States, China has become a threat to the "America First" principle. China is now the world second largest economy, with GDP surpassing 60% that of the U.S., and equivalent to that of Japan, Germany and the United Kingdom combined. China is also the global No. 1 in terms of the value of trade in goods and the amount of foreign exchange reserves. China accounts for a quarter of global industrial production capacity, and it is rapidly approaching the United States in terms of technological innovation capability as well. As its economic and trade relationships with countries around the world are becoming closer, China has become a very attractive country for the outside world. As a result of more than a century of hard work since the Opium War, China has returned to the center of the world stage at long last. Being an economic elephant, China cannot make itself invisible even if it keeps a low profile.
  • For the United States, China is an unprecedented rival that is achieving faster economic growth and is richer in potential than either of its previous rivals—the Soviet Union or Japan—was. The United States has adopted two ways of countering this new rival. One is mobilizing the American people's political support through the "Make America great again" slogan. The other is containing China at every level. The real motive of the United States in waging a trade war is not merely reducing the U.S. trade deficit but to curb China's development in a broad range of fields.

Indeed, Steven Bannon, while serving as White House Chief Strategist, said in an interview with The American Prospect, a U.S. news site: "One of us (the United States or China) is going to be a hegemon in 25 or 30 years and it's gonna be them if we go down this path." He went on to predict: "If we continue to lose it, we're five years away, I think, ten years at the most, of hitting an inflection point from which we'll never be able to recover." (Robert Kuttner, "Steve Bannon, Unrepentant," The American Prospect, August 16, 2017). This assessment of China as a threat appears to epitomize the Trump administration's perception of the country, rather than reflecting Mr. Bannon's personal opinion.

Under the mechanism of the rise and decline of superpowers, an emerging superpower always challenges the existing one, and as a result of the existing superpower's response, war often breaks out. This situation is well-known as the Thucydides Trap. It is natural for China under the Xi Jinping administration—which has made a major shift from the policy of "hiding your strength and biding your time" that was set by Deng Xiaoping in the early 1990s to the policy of seeking to realize the "Chinese Dream" of achieving the "great renaissance of the Chinese nation"—to clash with the Trump administration, which has pledged to "make America great again" under the "America First" principle.

United States' China Policy Shifts from Engagement to Deterrence

Indeed, against the backdrop of China rising as an economic superpower while maintaining political and economic systems different from those of the West, the United States has shifted its China policy from engagement to deterrence. The United States characterized its relationship with China as a "strategic partnership" under the Clinton administration, as a relationship with a "responsible stakeholder" under the Bush (junior) administration, and as a "partnership based on mutual respect and win-win cooperation" under the Obama administration. However, in the National Security Strategy Report published in December 2017, the Trump administration emphasized that economic security is the foundation of national security and labeled China and Russia "strategic competitors." The report offered the following observations concerning the geopolitical situation:

  • "The United States will respond to the growing political, economic, and military competitions we face around the world."
  • "China and Russia challenge American power, influence, and interests, attempting to erode American security and prosperity."
  • "They (China and Russia) are determined to make economies less free and less fair, to grow their militaries, and to control information and data to repress their societies and expand their influence."

Based on these judgments, the Trump administration has shifted its China policy from engagement to deterrence. At the core of the previous policy of engagement was fully accepting China as a member of the international community and encouraging the country to become a stakeholder responsible for fulfilling some of the international responsibilities performed by the United States. In contrast, at the core of the policy of deterrence is preventing China from threatening the U.S. leadership in the world by constraining China's behavior and economic growth.

The U.S. policy of deterrence against China is comprised of three pillars—cracking open China's market, curbing technology transfer to China and reforming the international trading system (Zhang Yuyan and Feng Weijiang, "From Engagement to Deterrence: Motive of the United States' China Strategy and Four Scenarios of China-U.S. Gamesmanship," Tsinghua Financial Commentary, seventh period of 2018).

  1. (i) Cracking open China's market
    Citing the trade imbalance as a reason, the United States has proposed "fair trade" and is urging China to further increase imports of U.S. products and open its market. Even so, the United States must be aware that, in fact, its trade deficit is not the central issue for the U.S.-China relationship. That is because the deficit is a problem closely related to excessive consumption, which is a structural problem in the United States itself, and the dollar's status as the world's key currency. Even if the United States succeeds in forcibly shrinking its deficit with China, its overall trade deficit is unlikely to decline as deficits with other countries increase. However, as the trade friction is a matter of strong interest for the general public, it can be exploited as a means to fuel populism and extreme nationalism. It is possible to win voters' support in elections by using the trade friction as an excuse to rally the nation. Moreover, taking up market opening and other trade issues is an effective way of obtaining support from other countries exposed to competitive pressure from China.
  2. (ii) Curbing technology transfer to China
    China's presence in the global supply chain has grown, and competition between China and developed countries, including the United States, has intensified in the field of technology and in technology-intensive industries. Against this background, China is coming under increasing criticism for engaging in such practices as forced technology transfer, theft of technology and infringement on intellectual property rights. As the United States is wary of technological advances in China, it is striving to maintain the dominance and competitive advantage of U.S. technologies by curbing technology transfer to China. In a statement issued when the list of Chinese products subject to additional tariffs was announced on April 3, 2018, the Office of the U.S. Trade Representative (USTR) made clear that the targets are products benefiting from China's policy initiatives to promote the manufacturing industry, including the Made in China 2025 initiative. The United States is also trying to control the inflow of students and researchers from China in science and technology fields through such measures as restricting visa issuance and reforming the immigration system.
  3. (iii) Reforming the international trading system
    The United States is trying to hold back China through the rebuilding of the international trading system. The United States is claiming that it has suffered a huge disadvantage as a result of China's exploitation of the multilateral trading system centered around the WTO and is insisting that the WTO should revise its preferential measures for developing countries that are benefiting China. At a meeting of trade ministers from Japan, the EU and the United States held in New York on September 25, 2018, an agreement was reached on presenting a joint proposal for the reform of the WTO in November. The proposal is expected to include the adoption of penalties to be imposed on countries that have introduced a system to give preferential treatment to specific domestic industries, with China as a likely target.

Under the policy of deterrence against China, curbing technology transfer is becoming increasingly important. The National Defense Authorization Act for Fiscal Year 2019, signed by President Trump on August 13, 2018, contains the Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018, which strengthens the authority of the U.S. Committee on Foreign Investment in the United States (CFIUS), responsible for reviewing foreign companies' investments in the United States, and the Export Control Reform Act of 2018, which provides for countermeasures against the transfer of critical U.S. technologies to other countries. Although no particular country has been specified, all these legislations are considered to be intended mainly to restrict technology transfer to China.

In particular, as a result of the enforcement of FIRRMA, the following business activities, in addition to "controlling investments" in U.S. companies by foreign companies, have become subject to review.

  • Purchase, lease or concession of real estate located in close proximity to a U.S. military installation, or an air or maritime installation.
  • A non-passive investment in a U.S. company owning critical technology, critical infrastructure or sensitive data.
  • A change to the right of a foreign company investing in a U.S. company which may result in the transfer of the control of the U.S. company to the foreign company or which may enable the foreign company to access the U.S. company's critical technology, critical infrastructure, or sensitive data.
  • A transaction, concession, or contract intended to evade review by CFIUS.

Consequently, it will become more difficult than before for Chinese companies and investment funds to acquire or invest in U.S. companies, particularly in the high-tech sector.

The economy is not the only area of confrontation between the United States and China. In a speech at the Hudson Institute on October 4, 2018, U.S. Vice President Mike Pence strongly condemned not only China's economic policies and systems but also its political systems, religious policy, Taiwan policy and foreign policy initiatives (e.g., the Belt and Road Initiative ), maritime expansion, and interferences in the internal affairs of the United States (particularly interference in U.S. elections) ("Remarks by Vice President Pence on the Administration's Policy Toward China," The Hudson Institute, Washington, D.C., October 4, 2018). Moreover, he made clear the United States' readiness to confront China on all fronts, for example by raising tariffs and strengthening the control of foreign investments in the United States on the economic front, and also by reinforcing the military forces and strengthening cooperation with Indo-Pacific nations that share values with the United States. Many media outlets view this speech as an indication of an emerging U.S.-China cold war. (e.g., "Pence's China Speech Seen as Portent of ‘New Cold War’," Jane Perlez, The New York Times, October 5, 2018).

Argument of the Hawkish Camp in China

In China, the opinion on how to respond to the trade war waged by the United States is divided between the hawkish and dovish camps. The hawkish camp strongly believes in the fundamental strength of China, particularly its economy, and is confident about defeating the United States in the trade war. A typical example of the hawkish attitude is the argument made by Jin Canrong, associate dean of Renmin University of China's School of International Studies ("‘Political Committee Member’ Jin Canrong: China's Five Advantages in the Trade War—Trump Could Be Miscalculating," Global Times, July 7, 2018).

According to Mr. Jin, China has advantages over the United States in the following respects. First, China is blessed with the excellent leadership of the Chinese Communist Party, strong patriotism among the Chinese people and a high level of social organizing capability. In addition, compared with the United States, China has a full-ranging industrial structure capable of domestically producing most sorts of products. Moreover, China not only has vast territorial land (9.6 million square kilometers) and a huge population (approximately 1.4 billion people) but is also a giant economy in terms of GDP size (on a purchasing power parity basis, China's GDP surpassed the U.S. GDP in 2014 and was equivalent to 120% of the U.S. GDP in 2017). China also has robust strategies for national security and economic development, and it does not need to accommodate other countries' intentions.

Meanwhile, the Trump administration, which has created many enemies abroad, is likely to find it difficult to obtain support from the international community. If the United States had started a trade war together with its allies, China would be in a tight spot. However, as President Trump has not only waged a trade war against China but is also attacking U.S. allies and neighboring countries over trade issues, the chances of the U.S. winning the war are not very high, according to Mr. Jin.

Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce who is also a hawk, is arguing that in order to win the trade war, China can resort to the following strategy (Mei Xinyu, "Trump Action Demands Strong Response," China Daily, March 23, 2018):

  • First, China's response should follow the principle of a precision strike. Since the trade war is not between China and the American people, but between China and President Trump and his protectionist-minded administration, China should first take measures to deal a blow to the industries in the U.S. states that helped President Trump win the 2016 presidential election and those states whose political leaders are still backing him in this year's mid-term election.
  • Second, China should suspend the ongoing initiative to open some emerging industries to the outside world during the trade war, pending the conclusion of the negotiations.
  • Third, China should not confine the countermeasures to pursuing solutions under the dispute settlement mechanism of the World Trade Organization (WTO). Instead, it should consider a legal move to possibly remove the United States from the WTO.
  • Finally, China's actions should extend beyond the economic field, to political and other areas, as the United States needs China's support and cooperation concerning matters in the field of international politics, such as resolving the Korean Peninsula nuclear issue.

The hawkish camp cites the following possibilities as potentially unfavorable factors for the United States in the U.S.-China trade war that may encourage the Trump administration to moderate its aggressive China policy: (i) The EU member countries and Japan will cooperate with each other in pushing back against President Trump's trade policy; (ii) U.S. consumers, farmers and industries will obstruct President Trump's anti-China trade policy; and (iii) U.S. voters' discontent will grow and affect the mid-term elections unfavorably for the Republican Party, prompting President Trump to back down (Cheng Xiaonong, "U.S.-China Trade War—Why Is China Pushing Back?," the Qing Lianju website, July 27, 2018).

Moreover, the hawkish camp expects not only that the trade war will lead to the improvement of China's economic structure by promoting the expansion of domestic demand, industrial upgrading and indigenous innovation capability, but also that the U.S. restrictions on investments from China and the strengthening of control of visa issuance for Chinese people will help prevent capital outflow and brain drain.

Argument of the Dovish camp in China

Meanwhile, the dovish camp believes that China, with its current level of economic strength, cannot defeat the United States in the trade war, so it argues that China should accept and use the U.S. demands as a leverage to accelerate the reform and opening-up initiative. The opinion of Professor Yu Zhi of Shanghai University of Finance and Economics is representative of this argument (Yu Zhi, "China Should Prevent the Trade War from Escalating," Lianhe Zaobao, July 26, 2018).

  • The impact of the trade war is much greater on the Chinese economy than on the U.S. economy. That is because China is more dependent on exports to the United States than the United States is on exports to China. Furthermore, the United States can raise tariffs on more Chinese products than China can on U.S. products and it can use some of the tariff revenue to pay compensation to U.S. companies that have suffered losses. In addition, Chinese companies are less resilient to the impact of the trade war because their profitability is lower than that of their U.S. counterparts.
  • Thus the Chinese government should strive to resolve the problems behind the U.S.-China trade friction and do its utmost to prevent the trade war from escalating. State-controlled media in China are attributing the responsibility for the trade war entirely to the United States and are contending that China has made every possible effort to avoid a trade war. Although Chinese media are asserting that greed and hubris on the part of the United States are the fundamental causes of the trade war, this attitude is too emotional and is lacking in self-possession and objectivity.
  • In fact, there is still much room for effort on the Chinese side. As the U.S. side points out, the Chinese government's support for exports and strategic industries (the provision of various direct and indirect subsidies) is one factor of the trade imbalance between the United States and China. In addition, China's external economic and trade strategy and industrial development strategy, which depend on various subsidies, are causing a lot of problems, including the deterioration of the terms of trade due to export price drops, a decline in the efficiency of industries and companies receiving subsidies, accounting fraud, excess production, dumping, and bribery. In particular, such industries as solar power generation, new energy vehicles and robotics are in serious trouble. The management of external economic and trade strategy and industrial development strategy is in no way a domestic affair. When such strategies are formulated and implemented, consistency with international rules, such as the WTO Agreement on Subsidies and Countervailing Measures, and a possible negative impact on other countries must be taken into consideration.
  • Therefore, in U.S.-China negotiations, China should not treat its external economic and trade strategy and industrial development strategy as part of its core interests over which it can by no means compromise. Although the objective of development strategy may be treated as a core national interest, specific approaches and methods adopted under the strategy should not be treated as such. To be sure, it is difficult for China to abandon the strategies it has already announced, such as "Made in China 2025," but adjustments can be made. The parts of the strategies which do not conform to international rules or which have had an excessive impact on other countries can be corrected. China should switch its approach to promoting the development of strategic industries from the provision of subsidies to targeted industries to tax cuts for all companies and support for industrial basic research.
  • Next, China should strengthen the protection of intellectual property rights. Not only is strengthening the protection of intellectual property rights a global trend, but it will also contribute to the improvement of China's own innovation environment and will be the key to the development of high-tech industries. At the same time as making efforts to correct its shortcomings, such as eradicating counterfeit products, China should aim to resolve the problem of forced technology transfer, over which there is no clear WTO rule, through bilateral negotiations.
  • China should not underestimate the damage of the trade war on itself, nor should it overestimate the damage of its retaliatory measures on the United States. Otherwise, China could make a serious strategic blunder. Some people assert that China should "fight fire with fire," but that would merely escalate the trade war.

The Position of the Chinese Government

With no prospect in sight of how a compromise can be reached after the outbreak of the U.S.-China trade war, the Chinese State Council announced a white paper titled "The Facts and China's Position on China-US Trade Friction." The white paper set forth the following eight Chinese principles:

  1. (i) China is firmly committed to safeguarding its national dignity and core interests.
    China does not want a trade war, but it is not afraid of one and will fight one if necessary. China has kept the door to negotiations open, but negotiations can only happen when there is mutual respect, equality, good faith and credibility. Negotiations cannot be conducted under the threat of tariffs, or at the cost of China's right to development.
  2. (ii) China is firmly committed to the sound development of China-U.S. economic and trade relations.
    China would like to work with the United States in the same direction, act in a spirit of mutual respect and win-win cooperation, focus on economic and trade cooperation, and properly manage economic and trade differences. Under the condition of equality and mutual benefit, China is willing to resume negotiations with the United States on a bilateral investment treaty, and launch bilateral FTA negotiations when appropriate.
  3. (iii) China is firmly committed to the reform and improvement of the multilateral trading system.
    China firmly observes and upholds the WTO rules and supports an open, transparent, inclusive and non-discriminatory multilateral trading system. China supports necessary reform of the WTO and firmly opposes unilateralism and protectionism. China supports initiatives to enhance cooperation within the G20, APEC and other multilateral frameworks and to make economic globalization more open, inclusive, balanced and beneficial to all.
  4. (iv) China is firmly committed to protecting intellectual property rights (IPR).
    China will keep improving its laws and regulations on IPR protection and enhance the quality and efficiency of IPR reviews. China protects the lawful IPR of foreign businesses in strict accordance with the law, and takes stern measures to address all types of IPR infringement cases. China will enhance its cooperation with all countries to protect IPR.
  5. (v) China is firmly committed to protecting the lawful rights and interests of foreign businesses in China.
    China treats all businesses registered in the country equally and always protects the lawful rights and interests of foreign-invested businesses, and takes firm measures to address violations of their lawful rights and interests in accordance with the law.
  6. (vi) China is firmly committed to deepening reform and widening opening-up.
    China will always continue to deepen its reform without reversing course. China will not close its doors to the world, but will only open them wider. The market will play a decisive role in the allocation of resources and the government will play a better role to encourage competition and oppose monopoly. China will manage its own affairs well and pursue economic development with higher quality.
  7. (vii) China is firmly committed to mutually beneficial cooperation with other developed and developing countries.
    China will accelerate the negotiations on the China-EU Investment Agreement and the China-Japan-ROK Free Trade Area and promote deeper international cooperation under the framework of the Belt and Road Initiative.
  8. (viii) China is firmly committed to building a community with a shared future for mankind.
    China will continue to act as a responsible major country and join other countries in building a world that enjoys common prosperity.

As is indicated by the inclusion in those principles of actions to accommodate many of the U.S. demands, this white paper indicates a softening of the Chinese side's stance toward resolving the trade friction and ending the trade war. Pursuing these principles should help dilute the view of China as the odd man out. On the other hand, the resulting deepening of reform and opening-up is expected to further intensify competition between China and the U.S., as it accelerates China's catch-up with the United States by injecting fresh energy into the Chinese economy. With the prospect of China's GDP surpassing that of the United States moving closer to reality, the U.S. view of China as a threat is likely to persist. Therefore, even if a compromise is reached between the two sides in the near future and the trade war is brought under control, the trade friction is likely to drag on for long, with the possibility left open of the war flaring up again.

The original text in Japanese was posted on October 19, 2018.

  1. ^ In the 1980s, when the Japan-U.S. trade friction was at its peak, U.S. revisionists asserted that as Japan was different from other developed countries in the West, it should be dealt with through a different approach, particularly with respect to trade issues. MITI and the Japanese Miracle by Chalmers Johnson (Stanford University Press, 1982), Trading Places: How We Allowed Japan to Take the Lead by Clyde V. Prestowitz Jr. (Basic Books, 1988), The Enigma of the Japanese Power by Karel van Wolferen (Knopf, 1989), and Containing Japan, More Like Us by James Fallows are books representative of the revisionist argument.
  2. ^ Francis Fukuyama, an American political scientist, in his book The End of History and the Last Man (Free Press, 1992), presented the argument that the development of social systems and the history of ideological evolution will reach an end point, as liberal democracy as the final form of human government, liberal nations, political liberalism and economic liberalism triumph over other ideologies. The collapse of the Soviet Union and the end of the Cold War were widely regarded as the "end of history" as defined by Fukuyama.

December 4, 2018