Jul 11, 2023

U.S. and China trade war still hot after five years

Posted Jul 11, 2023 9:15 AM
KU Trade Law Professor Raj Bhala
KU Trade Law Professor Raj Bhala

Hutch Post

HUTCHINSON, Kan. — Raj Bhala, Brenneisen Distinguished Professor of Law at KU and a Senior Advisor at Dentons is still watching with interest the more than five-year-old trade war between the United States and China. It's important to note that since the U.S. Dollar is still the world's chief reserve currency, that gives U.S. sanctions teeth other countries may not have.

"The United States can impose trade sanctions more effectively than other countries who have less widely used currencies," Bhala said. "The sanctions themselves tend to be of the sort of freezing dollar denominated accounts, freezing investments in dollars, freezing transactions in dollars. Because the dollar is so widely used, when the U.S. uses the sanctions weapons to prohibit dollar-denominated transactions, those weapons have worldwide effect."

The question is, will trade continue to be the weapon of choice for both China and for the United States, or will more conventional weapons of warfare be brought forward in the coming years.

"The trade war itself is not going to go away anytime soon," Bhala said. "We are in a long-term struggle, confrontation, strategic competition, whatever term you want to use, with the People's Republic of China. At least as long as it is governed the way it is, with President Xi Jinping's Chinese Communist Party and his policies. Anyone who is watching what is happening across the Indo-Pacific region, which is the most important strategic region for the United States, has to be concerned about escalation in at least two locations, the nine-dash line across the South China Sea and Taiwan, across the Formosa Strait."

The United States One China policy kept things at an uneasy equilibrium for decades, but it isn't clear how much more patience China will have to keep the status quo.

"The Chinese made the point that they want reunification sooner rather than later," Bhala said. "Although they prefer a peaceful reunification, they are not ruling out other means to bring Taiwan, in what their view is, back to the motherland."

A hot military conflict between the two nations would absolutely set the world of trade on its ear.

"Logistically, through the South China Sea and through the Formosa Strait, you're looking at about 50% of world trade flowing on ocean vessels, cargo ships. You're looking at a huge percentage, probably over half of semiconductor chips coming out of Taiwan and flowing through those critical strategic waterways. Any kind of military disruption would result in a horrific international economic catastrophe."

Both the Chinese and the Americans are looking to harden themselves against potential threats from the other as the trade war continues.

"Trade policy is national security policy," Bhala said. "National security policy is implemented partly through how one conducts one's trade relations. Right now, the name of the game is on supply chain management. Basically, what the U.S. is trying to do is de-risk or de-couple all of its supply chains with respect to strategic goods and services from China. To put it in simple terms, we simply do not want to be dependent on China or any of its allies for a good or service that is important for us."

The Chinese are attempting to do the same on the side of America and its allies.

"Imagine, basically, the largest two economies in the world, each trying to develop its own somewhat separate and independent supply chain for all the key goods and services that each need and at the same time, disrupt the other's supply chain. We want to disrupt China's, they want to disrupt ours. That's kind of really what's going on, to put it in stark terms."

Bhala's book, Trade War: Causes, Conduct, and Consequences of Sino-American Confrontation will be out in September.

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