China Power

The Misconceptions at the Heart of the US-China Trade War

Talks won’t do much good unless both sides come to understand how their opponent thinks about the issues.

The Misconceptions at the Heart of the US-China Trade War
Credit: Official White House photo by Shealah Craighead

Chinese Vice Minister of Commerce Wang Shouwen is in Washington this week for another round of talks with American officials, in search of a breakthrough that could bring a truce in the current trade war. The two sides haven’t met since June, and the current meeting only involves middle-ranked officials. Both sides are playing down any idea that this fresh dialogue will produce a solution to what is quickly becoming a stalemate. U.S. President Donald Trump has said he has no deadline, and that, in fact, he may extend tariffs to cover all Chinese imports. This will have shaken the Chinese side, who are accustomed to American negotiators who clamor for quick decisions, and then often buckle when bluffed.

If the goal of this week’s meeting is for Americans and Chinese to better “understand one another,” then there are several aspects of one another’s history, economy, motives, and psychology that would be well-considered for both sides to embrace and internalize.

The Chinese Side

It is futile to try to understand the Chinese perspective on the trade war without taking into account how the Chinese have felt all along about letting in the outside world.

The roots of today’s trade war start at least in the Opium Wars of the 19th century. In truth, they extend much earlier. China never had much of an appetite for foreigners, their wares, or their ideas. China was relatively self-satisfied for much of its long history, and its experience with foreign involvement was rarely uplifting.

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The bitterness, resentment, shame, and humiliation that Chinese feel from its historical experience with foreigners in China plumbs deep waters. It should be required viewing for any American going to China to watch the movie The Sand Pebbles. Apart from being a really good story and an excellent movie, it imparts the history lesson of American Navy gunboats patrolling Chinese rivers in support of American businesses and businessmen in the early part of the 20th century. The vast majority of Americans know nothing about this, but the Chinese do, almost every single one of them. And it is part of what they see when they look at an American.

The Chinese side of the argument, therefore, might run something like this:

Despite our misgivings, and despite our history with foreigners, we encouraged you to come to China and build your factories here. We let you use our people and pay them pittance. We controlled and managed labor issues for you. You never had the headache of labor unions, because we don’t allow them. We built infrastructure, wrote laws that were foreign to our ideas, and made sure you had nice places for your management and staff to live, much nicer than most Chinese have even today.

We built export processing zones, where you could import your raw materials and components tax-free, make the product, and export it easily. We’ve let you access our markets, as well, although we were so poor at the beginning of our economic reforms that we could barely afford Chinese products, much less foreign ones.

By doing all this, your costs went to rock bottom. Chinese profit margins are low. Yours are high. We gave you a path to a level of profit that you never had by manufacturing in America. And now you complain that we’re exporting too much! Don’t Americans like lower prices?

One would think by now that the Chinese would understand that most Americans are not rich. Thousands of communities across America would be profoundly and positively affected, economically and socially, by any company who would bring a factory to their town.

This is a reality about America which many Chinese either don’t know or choose to ignore. For those who do know it, and have seen it, it’s disturbing. The truth about American life alters an image of the United States that the Chinese partly depend upon for their own identity — for the modern Chinese identity is very much wrapped up in matching the United States, and exceeding it if possible. The ambitious Chinese, egged on by a government and a Communist Party that holds the U.S. up as the target to beat, find it very uncomfortable that the target has so many holes in it.

“Why are factory jobs important to you? You’re rich!” one Chinese associate said recently.

Because many Chinese underestimate the importance of those factory jobs to Americans – and similarly underestimate the extent of Americans’ patriotism and nationalism, so different from the Chinese varieties — China may be surprised at the extent to which Americans will consent to bear the costs of the trade war.

The American Side

China did not open its door to the outside world so that the world could get rich; China opened its door so that China could get rich.

This would seem to state the obvious. That this point alone is rarely considered by most Americans in negotiations with China is a fundamental flaw in the U.S. approach. China is and always has been acting in its own self-interest, which should be considered normal.

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The position of the U.S. side might be summarized as:

We invested in China when it was risky. We found ways to get around your very significant human rights issues. We brought technology, and only asked that you respect our right to it. We brought companies, from Motorola to Proctor and Gamble, that have changed the face of Chinese life. We have welcomed hundreds of thousands of Chinese students to America. And what do you do? You steal our technology, copy it, and sell it back to us, and on to other markets in the world, at a lower price! How ungrateful!

That the U.S. government, as well as many others, have now called the Chinese “thieves” is very strong stuff. To a bilingual ear, it sounds even worse in Chinese than it does in English.

The United States would be well-served to remember that the mission of American companies in China was never altruistic. The mission was always profit, which, again, should be considered normal. And under that mission, American and other foreign companies have indeed transferred — by one method or another — a great deal of valuable technology to China.

However, it is wrong to characterize those transfers as “forced.” U.S. companies have often jumped at the chance to set up R&D centers in China. Far from being forced, companies have welcomed the opportunity. They see lower R&D costs, access to an educated workforce in their industries, and the potential of greater market access in China. American negotiators should not press this issue too greatly, as most of the overt technology transfers have been made by willing collaborators, not by hostages.

The U.S. position is strong in this trade war. It can be made stronger by understanding the Chinese side’s historical perspective, and not over-inflating the harm that has been done to American companies, when much of that harm was self-inflicted.

If this week’s talks are a listening session, then the Chinese should try to work toward an understanding of the United States as it really is. Ultimately, however, the Chinese will need to work toward a greater internalization of the meaning of rule of law. The Americans would do well to understand the historical context and motives of the Chinese side. And ultimately, Americans need to understand the role that U.S. multinationals have played in creating this situation, and hold them accountable. Much of where we are today lies at their door, not China’s.