The U.S.-China trade war started while China and Germany signed a 20 billion Euro deal. Will Europe stand by China in the fight against America?
Perhaps, the Chinese regime wants to form a temporary tactical alliance with Europe. Even that is challenging for them.
Narration: Are individual American firms taking on the entire Communist regime in the intellectual property rights fight? And will they lose?
In fact, it takes huge cost risks for China to punish American firms. If they move out of China, China will lose tax income, job opportunities, and access to the world's top technologies.美中貿易戰
Is the U.S.-China trade war really about trade or something else?
「Although the Chinese government chose to join the WTO based on its own interests;
The logic behind its decision-making is to take all opportunities to weaken the possibility of execution on the terms that restrict the Chinese government’s actions.」
Does the U.S.- China Trade war resemble the 2nd Opium war? If so, what does that mean to China and the World?
Welcome to 《Zooming In》. I am Simone Gao. Today, let’s talk about the U.S.-China trade war. When you turn on the TV nowadays, what you hear about this fight between the first and second largest economies in the world would probably fall into the following categories: New Tariffs; China’s retaliation; How much Trump supporters got hit; and the trade war’s impact on the U.S. economy. No doubt, people care about these things. But they are not going to care about them 20, 30, 50 years from now. By then, people would look at the trade war from a different perspective. They would examine what the trade war had changed, not just in a sense of balancing trade, but whether it had disrupted an old order and set the world on a new track. Maybe people would also think about what the world would be like if the trade war hadn’t happened. These angles are important because they define what this struggle was really about. Today, we will do exactly this but years earlier. We will explore what the trade war is really about by looking at history and examining the similarities between this war and another century-shaping struggle that has long been forgotten - the Second Opium War. But first, let’s start our journey by looking at this conflict’s newest development.
The trade war between the U.S. and China officially started on July 6, 2018, when the United States’ 25 percent tariffs on $34 billion on Chinese products became effective. China retaliated immediately by raising 25 percent tariffs on U.S. goods that also amounts to $34 billion. The Trump administration estimated that China’s intellectual property theft costs U.S. companies $50 billion annually. The first round of tariffs on $50 billion, including the $34 billion that went into effect on Friday, is meant to match those losses.
Three days later, on July 9, Chinese Premier Li Keqiang went to Europe and met with German Chancellor Angela Merkel, illustrating a blatant intent to lobby against U.S. tariffs. The two countries signed various deals worth 20 billion euros (23.6 billion US dollars). In addition to multiple joint cooperation projects between governmental agencies, companies like BASF, BMW, Volkswagen, Daimler, Siemens and Bosch announced deals and partnerships.
Chancellor Merkel reaffirmed Germany’s commitment to stick to the World Trade Organization guidelines and to back multilateralism.
The trade war escalated immediately after Li’s trip to Europe. On July 10, the Trump administration identified an additional $200 billion in Chinese products and intends to impose 10 percent tariffs after a review period. On July 11, Trump pressed European allies to double their military spending while bashing Germany for supporting a gas deal with Russia.
「Well I have to say I think it's very sad when Germany makes a massive oil and gas deal with Russia where you're supposed to be guarding against Russia and Germany goes out and pays billions and billions of dollars a year to Russia. So we're protecting Germany, we're protecting France, we're protecting all of these countries and then numerous of the countries go out and make a pipeline deal with Russia where they're paying billions of dollars into the coffers of Russia. So, we're supposed to protect you against Russia but they're paying billions of dollars to Russia and I think that's very inappropriate. And the former chancellor of Germany is the head of the pipeline company that's supplying the gas. Ultimately Germany will have almost 70 percent of their country controlled by Russia with natural gas. So you tell me is that appropriate? I mean, I've been complaining about this since the time I got in, it should never been allowed to have happened.」
Despite the tension, U.S. stocks climbed. By 10:18 p.m. on July 12, the S&P 500 was up 24 points, to 2,798. The Dow was up 224 points, to 24,924. And the Nasdaq was up 107 points, to 7,823. According to AP, this is largely due to a better-than-forecasted U.S. jobs report on Friday and the expectation for strong earnings reports from nearly every swath of corporate America in the upcoming weeks.
Meanwhile, European Union leaders expressed they are aware of China’s unfair trade practices and understand the U.S. position towards China. Notwithstanding, they differ from President Trump in how to deal with this matter.
Jyrki Katainen（Vice President of European Commission）: 「In our discussions on modernising WTO, we have to stress very clearly the state subsidies to industry. It's a problem today and it will hamper investment. Also unfair trading practices, for instance, forced technology transfer is obviously an issue. The two issues together are the reasons why, not the only reasons, but some reasons why, for instance, the United States has taken unilateralism actions. But we have to solve this in orderly manner.」
When Li Keqiang visited Europe, his intention was clear: China wants to turn Europe against America. But can China do it? I spoke with senior Chinese political commentator Wen Zhao. This is what he has to say.
「 A Sino-German alliance against the U.S. might be what the Chinese communist regime badly needs right now. During Li Keqiang’s visit, China made a 20-billion-Euro purchase from Germany. Considering Europe is also retaliating against the U.S. tariff increases, is it likely that China and Europe will join hands to fight back against the U.S.?」
「 They’re unlikely to act as an alliance for a few reasons. First, there’s no way to form a goal as an alliance. Though they all hope Trump will abandon tariff actions, each is only concerned with their own goal. China is not going to consider its ties with the U.S. by relying on Trump to give up his trade war against the EU. It is also true with the EU. They negotiate with the U.S. separately. No group negotiation. So no power of acting as an alliance has been seen. Secondly, China and the EU are unlikely to reach an agreement on task division to maximize efficiency against the United States. Each side works out its own counter-attacks against the U.S. No concrete coordination. Even no scheduled joint actions. Therefore, they have reached no consensus over common targets or strategies as an alliance. They just protest the U.S. tariff increases together over trade disputes. Perhaps, the Chinese regime wants to form a temporary tactical alliance with Europe. Even that is challenging for them. The reason is that the U.S. strives for China to open up its market, intellectual property rights protection, and removal of export subsidies, which are in line with the EU.」
Coming up， Is the U.S.-China trade war reminiscent of the 2nd Opium War?
Narration: On July 6, 2018, shortly after the U.S. trade tariffs went into effect, China's Ministry of Commerce put out a statement saying that President Trump had just 「launched the largest trade war in economic history.」 According to Douglas Irwin, an economics professor at Dartmouth, that claim isn’t true. The largest trade war happened in the 1930s. President Herbert Hoover signed into law the Smoot-Hawley Act, which caused tariffs to be above 45 percent on average on nearly 900 products from all nations. Canada and Europe retaliated. Global trade fell by 25 percent and it exacerbated the Great Depression.
That is the undesirable situation that many fear the current trade war may lead to. However, President Trump has only put tariffs on less than 4 percent of total U.S. imports. The highest tariff rate is at 25 percent.
At least for now, compared to the trade war during the Great Depression, an all-out trade war levying tariffs on all $500 billion Chinese products will not make history repeat itself.
蕭茗（Host/Simone Gao）：雖然川普總統發起的貿易戰在規模上無法與加劇大蕭條的斯姆特 - 霍利關稅法案相比，但是這場貿易戰對經濟和政治秩序同樣會產生深遠的影響。高級政治評論員文昭先生說，美中貿易戰讓人想起1856年中國，英國和法國帝國之間的第二次鴉片戰爭。鴉片戰爭沒有引起經濟大蕭條，但卻帶來了其它方面的影響，包括引發了兩個不同的國家管理體制之間的衝突。所以，它給這個有著300年曆史的清朝帶來了巨大的衝擊，並且引發了這個有著2000年曆史的帝國製度衰敗的開始。這對我們今天意味著什麼 ？讓我們先回顧歷史。
Just because Trump’s trade war is not comparable to the Smoot-Hawley Act that deepened the Great Depression doesn’t mean Trump’s trade war will not have a profound impact on the world economic and political order. According to Wen Zhao, the U.S.-China trade war is reminiscent of the 2nd Opium War between China, Great Britain, and the French Empire in 1856. The Opium Wars did not cause a great depression, but they brought out, among other things, the clash between two contrasting governing philosophies. By doing so, it sent great shock waves to the Qing dynasty and eventually initiated the start of the end of a 2000-year-old imperial system. What does all this mean to us today? Let’s examine history.
The first Opium War started in 1839. It is called the Opium War, but the treaty resulting from it hardly had anything to do with opium. It was actually a series of military engagements fought between the United Kingdom and China’s Qing dynasty over their conflicting viewpoints on diplomatic relations, trade, and the administration of justice in China.
In 1842, the defeated Qing dynasty was forced to sign the Treaty of Nanking, which is regarded as the first unequal treaty China was forced to enter with Western powers. However, the real unequal rights that the United Kingdom acquired is not from the 「Nanjing Treaty」，but from the supplementary「Treaty of the Bogue」, which granted the extraterritoriality and most favored nation status to Britain. Ironically, these unequal articles are added by the Qing dynasty itself in part to minimize interaction with and influence by the British people and their culture. Because of that, they were implemented smoothly. Instead, it is some part of the Nanking Treaty which is not regarded as unequal that did not get fulfilled.
For example, the original treaty stipulated that the British merchants and their families could enter the city of the trading port. But after the war, the Governor of Guangdong and Guangxi, Yu Ying, refused to implement them. As a result, for seven years the British people could not enter Guangzhou city. Meanwhile, anti-British activities were allowed and British complaints were largely ignored. Another major conflict was the Qing dynasty’s intentional delay of the agreed re-negotiations of the 1843 「Whampoa Treaty」. It was deemed as a violation of the treaty by the United Kingdom, France, and America. All of these could be categorized as a consistent effort by the Qing authorities to expel the British without saying so. Finally, in 1856, there was the controversial 「Arrow」 incident, in which China arrested smuggling suspects from an English ship. This provoked the British to re-engage in military means. That was the start of the second Opium War.
The second Opium War again ended in the Qing Empire’s defeat. The「Supplementary Treaty of Peking」resulting from it includes more cession of land and indemnity. Coupled with the flight and death of the Xianfeng Emperor as well as the burning of the Summer Palace, these changes brought a shocking blow to the once powerful empire - an old system was thoroughly defeated. After the war, the Self-Strengthening Movement began. It is a major modernization movement that marked the start of the end of China’s 2000-year-old imperial system.
What was at the core of the Opium War, and how does it compare to the U.S.- China trade war? Let’s hear from Wen Zhao again.
「 In your opinion, what was the core reason behind the second Opium War? Was it that the UK wanted to continue selling opium to China? Or was it a Sino-British trade deficit?」
WenZhao: 「The Treaty of Nanking in 1842 and the supplementary treaty in the following year did not mention opium trade. As a victor, the United Kingdom did not ask the Qing government to allow opium trade. That means the Qing government had sovereign authority to determine whether opium was legal in China. The Qing government could have continued to investigate opium smuggling. The Treaty of Nanking and its supplementary treaty, the Bogue Treaty, aimed at establishing a modern trade system. In fact, in the first 10 years after the first Opium War, the UK exports to China declined, but it wasn’t a key factor in triggering the second Opium War. What triggered it was that the Qing government refused to honor certain terms as spelled out in the treaties. That caused the British government to take a protective stance to maintain world trade order. Frustration and anger continued to accumulate for the British. Seven years after the Treaty of Nanking, the British were still not allowed to go into Guangzhou city. Local government officials from the Guangdong Province did not protect the legal rights of the British businessmen. In 1854, the Qing government delayed implementation of the Sino-French Whampoa Treaty. Frictions continued to escalate until a full breakout took place when both sides were ignited by the 『Arrow』incident in 1856.」
「In what sense is the current trade war comparable in nature to the Second Opium War in China? 」
Wenzhao: 「In the sense of the nature of its conceptual structure. Although the Chinese government chose to join the WTO based on its own interests; however, its attitude towards the rules of the game is similar to the Qing government. The logic behind its decision-making is to take all opportunities to weaken the possibility of execution on the terms that restrict the Chinese government’s actions, regardless of whether such terms were fair. The methods used were also similar to that of the Qing government. First, they used a delaying strategy. For example, the governor of Guangdong and Guangxi province used a delaying strategy to stop the British businessmen from entering the city. Today, the CCP is also using a delaying strategy to prevent foreign investors from entering certain Chinese markets. When the CCP was forced to deal with increased pressure, the CCP protested and then slowly opened up. Another example is that the Qing governor Ye Mingxi removed the British flag on their ship in the name of capturing pirates. Today, the CCP used the excuse of fire protection to shut down Lotte Mart, and in the name of anti-trust, the CCP worked against Apple and Microsoft. All these examples reflect that the fundamental conflict between the two sides arises from their difference in acknowledging, and the willingness to abide by, established rules. Similar to the Qing government, the CCP is avoiding execution on terms that are fairly established in the contract. Their fundamental belief is that the definition of good terms is terms that benefit the CCP.」
Coming up, what will the U.S.-China trade war, a conflict rooted in different governing philosophies, evolve into?
The latest retaliation from China, outside trade measures, may have emerged.
According to the Epoch Times, on July 3, a Chinese court temporarily halted U.S. company Micron, the world’s largest manufacturer of memory chips, from selling its semiconductor products in China. The Fuzhou Intermediate People’s Court claimed that the company violated patents held by Taiwanese chip manufacturer United Microelectronics (UMC).
Back in December 2017, Micron filed a civil lawsuit in California, accusing UMC and its Chinese partner, Fujian Jinhua Integrated Circuit, of stealing design and manufacturing technologies related to its DRAM chips.
In its filing, Micron said UMC, which is scaling up its China business and plans to list on the Shanghai Stock Exchange, had poached key Micron employees with the aim of helping Fujian Jinhua improve its own DRAM technology.
This prompted UMC to countersue on Jan. 12, filing a patent infringement lawsuit against Micron at the Fuzhou Intermediate People’s Court. 6 months later, right before the U.S.-China trade war started, the Chinese court issued the ban of Micron’s sale in China.
蕭茗（Host/Simone Gao）：這就是美國企業界長期以來擔心的問題。當關稅不再有效的時候，中共當局會將矛頭對準美國的在華企業，讓它們的日子不好過。下一步將發生什麼? 我們再來聽聽文昭先生的看法。
This is what corporate America has long been worried about: when tariffs are no longer effective, the Chinese Communist regime will turn to American companies in China and make their life difficult. What will happen next? Here is Wen Zhao again.
「China and the U.S. differ in their attitude toward intellectual property rights, which manifests as conflict between two ideologies and value systems. Given this situation, what do you think will happen with conflicts such as the one between Micron and Fujian Jinhua? Are individual Western firms taking on the entire Chinese system, and are they doomed to fail？」
「Such a thing did happen in China: They stole a patent technology from a foreign firm, preemptively registered it in mainland China, accused the legal technology owner of infringement, and drove it out of the Chinese market. Currently, the punishment of Micron is an obvious intimidation of the U.S. businesses in China, hoping they will pressure their government to discourage Trump. This case precisely proves that China lacks an independent law-enforcement system; the government can use law arbitrarily for immediate goals. This is even more harmful than the theft of intellectual property rights, which makes it harder to establish long-term, mutually beneficial trade ties between China and the U.S. This game’s process is somewhat tricky. In fact, it takes huge cost risks for China to punish American firms. If they move out of China, China will lose tax income, job opportunities, and access to the world's top technologies. But the problem is that China’s entire governance system is opaque. Even if a limited number of American companies become its targets of retaliation, you can’t tell which ones will be unlucky. Hence widespread panic. It’s impossible for individual businesses to confront the Chinese regime. Only by supporting their government to change rule-implementing settings can they win an improved environment.」
Besides the fight over intellectual property rights, other tensions surrounding the trade war are also emerging.
As soon as the U.S.-China trade war started, on July 7, the U.S. Navy sent two destroyers into the Taiwan Strait, the waterway separating mainland China from Taiwan. This is the first U.S. warship heading into the strait since 2017. And it might signal the start of a sustained drumbeat of similar transits, reassuring the United States’ commitment to Taiwan amid intensifying Chinese pressure on the island and a U.S.-China trade war.
A few days earlier, U.S. Secretary of State Mike Pompeo visited North Korea to further assure the denuclearization process, which yielded little result after Kim Jong Un’s enthusiastic meeting with Trump last month. It was widely suspected that Kim’s change in attitude was due to pressure from China.
What do these new developments say about the trade war? Let’s hear from Wen Zhao.
「It is widely suspected that Kim’s shift in attitude was due to Xi Jinping. Moreover, on the second day of the trade war, U.S. warships sailed through the Taiwan Strait. Why have the tensions spilled over into other fields so quickly? What’s going to happen next?」
「Actually, the Chinese regime doesn’t have much at hand for what’s to come next because China imported only $130 billion of U.S. goods last year. North Korea and the South China Sea are what the Chinese regime can use to put pressure on the U.S. Sectors such as overseas study services, tourism, and U.S. firms in China inevitably become the targets of the communist regime. But America is the No. 1 destination for Chinese students, who, in the eyes of the regime, will bring back tech to them to enhance their industries. If service trade is affected, China’s long-term loss will also be greater than that of America. After all, China has only temporary purchasing power in these sectors, while the U.S. has irreplaceable products; and the seller is stronger in a long-term view of the market. What Xi Jinping relies on is largely low system advantages, which are not supposed to arm him with decisive, long-term strengths. But he assumes that China is so huge and has so many tools for use, which makes it hard for him to cave in unless those tools are used up.」
「The Opium Wars severely shook up the Qing dynasty’s rule. They also signaled the beginning of the end for China’s 2000-year imperial system and an opportunity to meet with modern civilization. Since you have likened the U.S.-China trade war to the Second Opium War, what impact do you think the trade war will have on global political and economic patterns? And what does it mean to China?」
「Well, we need to be clear when it comes to impact. Who was the winner in World War II? Hitler or the Allies? Of course, they had a different impact. A popular rhetoric is that there would be no winner in a trade war. It’s wrong. Every war has a winner. Whoever has come closer to attaining his goal will be the winner. The result of a war is more meaningful than the process of it. Suppose the United States reaches its goal, it means the Chinese regime should pare down its control over the economy, abandon foreign exchange rate intervention, revoke huge subsidies for certain industries, and open up sectors that are monopolized by SOEs to foreign capital. Without direct intervention and protection from the government, the sluggish state-owned economy will hardly survive. In response, market-oriented reform will become urgent, and competitive market participants will get diversified. The Party’s control over Chinese society will loosen; the latter will rely on mature, independent law rather than arbitrary governmental intervention more than ever for effective governance. That will push Chinese society toward the rule of law and social justice; and more space will be created for civic political forces in China. It will definitely be a good thing for all trading partners if China becomes a more disciplined player. Not long ago, Korean companies were bullied in China because of the Sadr missile back in their home country. So, if China becomes a more disciplined player, everyone will benefit from it. If the result is not closer to this goal, that will be an opposite impact.」
蕭茗（Host/Simone Gao）：從這個意義上講，美國企業應該支持川普總統的貿易戰，因為川普在為他們的長期利益而戰，而不是照顧他們的短期利益。美國企業是世界創新的源泉。作為個體的中國企業根本無法與它們競爭。但是，如果中共當局成為中國企業的後盾，即便是「蘋果」或「谷歌」也顯得微不足道。長久以來，美國企業一直在遊說，但是卻搞錯了遊說的對象。為了進入中國市場，美企一直在向中國當局伸出橄欖枝，犧牲美國的價值觀。現在川普給他們指了一條更好的道路。這裏的邏輯很簡單，當「福建晉華」與「美光」一對一幹起來時，「福建晉華」輸了。當「福建晉華」得到中國當局撐腰時，「美光」卻失敗了。而當「美光」和其它美企允許本國政府捍衛自己的利益時，他們的對手就蔫了。到那時，無論是美國人民、還是中國人民，都會比今天過得好。要找到我們，請搜索：『《世事關心》 蕭茗』。感謝您的收看，祝您一天愉快。
In this sense, corporate America should support President Trump’s trade war because he is fighting on their behalf for long-term, not short-term benefits. American companies are the world’s powerhouse for innovation. Individual Chinese firms can’t compete against them at all. But when the Communist regime backs Chinese firms, even Apple or Google seems small. For too long, American companies have been lobbying the wrong party. In the hope for access to the Chinese market, they have been extending olive branches to the Chinese authorities by compromising American values. Now Trump is showing them there is a better route. The logic is simple. When Fujian Jinhua was one-on-one with Micron, Fujian Jinhua lost. When Fujian Jinhua was backed by the Chinese regime, Micron lost; When Micron and all other American firms allow the American government to stand up for them, they as a whole shadow their opponents. And at that time, both the American people and the Chinese people will be better off than they are today. Make sure to search for us:「Zooming In with Simone Gao」. Have a nice day.
Writer：Simone Gao Michelle Wan
Editors：Julian Kuo Bonnie Yu Frank Lin
Narrator: Rich Crankshaw
Transcription: Jess Beatty
Translation：Greg Yang Frank Yue Michelle Wan
Special Effects：Harrison Sun
Assistant producer：Bin Tang Sherry Chang Merry Jiang
Host accessories are sponsored by Yun Boutique
New Tang Dynasty Television