Limits to an agreement between the US and China

Should Trump desire a grand agreement, the economies of the two countries would continue to drift further apart.

Relations between the United States and China have become increasingly tense and complex over the last few years. Their rivalries are not only mainly economic, but also political, technological and cultural.

The rise of China as a global power is challenging the political and economic hegemony of the US, fuelling several tensions that intensified during Donald Trump’s presidency. Although the opportunity of a comprehensive trade agreement seems attractive, there are several obstacles making a real reconciliation between the two countries objectively difficult.

Trump's first measures

During the very first weeks following his return to the Oval Office, American President Donald Trump adopted a dual approach towards the People’s Republic of China. On one hand, he tried to maintain an open posture, leaving the door open for potential agreements. On the other hand, he approved a range of measures that further worsened US bilateral relations with China. Among these measures, an increase in customs duties by 10% on Chinese imports stood out, and he also threatened further increases. These measures created uncertainties among American multinationals and the financial market. At the same time, they left China in a delicate situation.

The consequences of customs duties

Trump's tariff increase had a significant impact on both global trade and the internal economies of the two countries. Indeed, the US trade-weighted average tariff rate on Chinese products increased by 20% in two months – an unprecedented level. This figure is significantly higher than the 12% increase recorded during the first round of the trade war between the US and China. The speed and the scale of these changes destabilized investors’ trust and raised concern over the long-term economic sustainability.

The effects on the American economy

The increase in tariffs had a double effect for the United States. On one hand, this measure is a competitive advantage for the US companies, since they’re protected from foreign competition. On the other hand, prices of imported products have risen, thus affecting consumers’ purchasing power negatively as well as the cost of raw materials for businesses. The result is slower economic growth and a range of difficulties for those companies that depend on Chinese products.

The effects on the Chinese economy

The effects of Trump’s measures on China were likewise significant. Indeed, exports to the US, which are an important sector for the Chinese economy, have drastically dropped. Therefore, the Chinese government was forced to look for new markets and invest in economic diversification strategies. However, China showed an impressive resilience thanks to its capability of adapting rapidly and exploiting its internal resources.

The geopolitical context

Apart from the economic aspects, tensions between China and the US can be inserted in a wider geopolitical context. Indeed, their competition isn’t limited to trade, but it also has to do with technology, national security and global influence. For instance, regarding the technology war, the US limited the access of Chinese companies to the American trade and technology sectors. At the same time, China invested a lot in research and development aiming to reduce their dependency on Western innovations.

The technology issue

Technology is a core battlefield in rivalries between China and the US. Huawei and TikTok were at the core of controversies that highlighted the American concern over data security and Chinese influence.

At the same time, China accelerated development in their own technologies in order to become a global leader in this sector – such as 5G and AI.

Global influence

The competition between the US and China affects global influence too. Indeed, China launched ambitious initiatives such as the Belt and Road Initiative aiming to create an infrastructural and economic network for Chinese products trade worldwide. In their turn, the US tried to reinforce their traditional alliances and promote democratic values as a countermeasure to the increasing Chinese power.

Limits to an agreement

Despite diplomatic efforts and trade talks, there are several factors limiting the possibility to reach a comprehensive and long-lasting agreement between the US and China. They include fundamental differences in their political systems as well as economic priorities and cultural values. Moreover, their increasing competition for global power makes it difficult for both nations to accept compromises that may be perceived as a loss of power.

A temporary agreement

The United States and China may come to a temporary agreement on specific issues, such as a decrease in tariffs and technology cooperation. Nevertheless, these agreements are often fragile and dependent on political or economic changes. Their mutual distrust and the lack of a common ground make it difficult to turn these agreements into long-lasting solutions.

Future perspectives

If we look at the future, the relations between the US and China are likely to evolve in an unpredictable way. Both are aware of the importance of keeping a certain stability in their relations. However, latent tensions make this stability uncertain. The opportunity for a stronger collaboration will depend on the ability of both to overcome their differences and find a balance between competition and collaboration.

Final reflections

Relations between the US and China are a decisive turning point in our century. Indeed, it isn’t a mere economic competition, but it’s also a confrontation between models of development, governance, and economic civilisation.

Against this background, the American model retains a value that goes beyond its market function. Indeed, it comes from an open, competitive and transparent ecosystem fuelled by research freedom, IP, corporate social responsibility and democratic control on institutions.

Therefore, American quality isn’t simply technical or industrial, but it’s also cultural and political. Moreover, it’s based on pluralism, innovation, fair competition and self-correction abilities. The combination of these elements makes made-in-the-USA goods, services and technologies more credible in terms of reliability, security and long-terms sustainability.

For this reason, even in case of partial or temporary agreements with Beijing, the US and Chinese economies are likely to continue to drift further apart. Not only are customs duties and supply chains at stake, but also a choice between two different systems. On one hand, we have a democratic model fostering freedom, quality and responsibility. On the other hand, there’s an efficient but less transparent State-led capitalism. Dealing with these rivalries will clearly be essential not only for Washington and Beijing, but also for the whole international balance.

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