Who Won the U.S.-China Trade War?

Neither country got the concessions it sought, and both damaged their economies. The real beneficiaries? Vietnam and others who stepped into the breach

By Bob Davis and Lingling Wei of The WSJ. Excerpts:

"Even so, little changed. China fell 40% short of its commitment in the Phase One deal to buy an additional $200 billion of U.S. goods over two years, says Chad Bown, a trade expert at the Peterson Institute for International Economics. As for U.S. complaints about Chinese coercion, technology theft and other misdeeds, United States Trade Representative reports on China’s trade practices are clear: No progress. Earlier this year, USTR used nearly the same wording as in 2017, before the trade war, to describe Chinese subsidies (“caused injury to U.S. industries”), excess capacity (“world’s leading offender”) and pressure to hand over technology (“U.S. concerns…remained unresolved”).

“Clearly, they [the Chinese] haven’t changed,” says Clete Willems, a former Trump trade negotiator now at the law firm Akin Gump. “We made it more costly for them, but they are still trying their same policies,” though he thinks it’s too early to declare a trade-war winner."

"Since the trade war, fights between the two countries have only hardened attitudes. The Trump administration blamed China for covering up the origin of the coronavirus pandemic, and the Biden administration has clashed with China over Taiwan and Russia. The Chinese leadership has accused the U.S. of hypocrisy, arrogance and trying to block China’s rise."

"Sometimes, though, tariffs have had the opposite effect, prompting companies to expand outside America to sell to China. BMW AG increased SUV production in China rather than export the cars from Spartanburg, S.C. after China raised its tariffs on automobiles to 40% from 15% as part of the trade war. “We try to match manufacturing capacities of a particular model to where the demand for that model is,” said a BMW spokeswoman."

"Chinese companies facing American tariffs exported less to the U.S., reduced hiring, spent less on research and development and were less likely to start new firms, according to economists at Peking University, Fudan University and other leading Chinese universities. Overall, China’s GDP loss was three times as high as the U.S., estimates Yang Zhou, a Fudan university economist who did her research at the University of Minnesota.

Recognizing that China’s official statistics might be subject to what they termed “manipulation and censoring,” Dartmouth College economist Davin Chor and University of Hong Kong economist Bingjing Li studied satellite imagery of the nighttime sky in China. Industrial areas subject to tariffs were noticeably less luminous than areas that weren’t, indicating a reduction in economic activity. Per capita income declined 2.5% in the tariffed areas, they estimate, compared with unaffected areas."

"Chinese authorities increased their use of subsidies—including cash infusions, discounted loans and cheap land—to try to dominate high-technology industries. In addition to the state-owned companies the government typically helps, last year Beijing pledged at least $1.5 billion in the coming five years to support more than 1,000 smaller, privately held firms, dubbed “little giant” startups. As part of that push, China last year published guidelines directing hospitals and other state entities to reserve for domestic firms between 25% and 100% of their purchases of technology items like medical equipment and imaging tools.

Weighing whether China or the U.S. came out ahead in the trade war is an exercise in counting gains and losses. But some countries had nothing but wins; they started exporting to the U.S. goods that China once sold. “Any time we impose tariffs on a single country, countries that can provide substitutes will ramp up,” explains Dartmouth economic historian Douglas Irwin.

Who won the U.S.-China trade war? In many respects, it’s been Vietnam."

"shipped $50 billion less in manufactured goods to the U.S. in 2021 than it did in 2018, as tariffs increased the cost of Chinese imports. During that same time, Vietnam—free from those U.S. tariffs—increased its factory goods shipments to the U.S. by $50 billion. Looked at from another angle, exports of manufactured goods from 14 low-cost Asian nations, including China, tracked by Kearney, increased by $90 billion in 2021 compared with 2018. Vietnam accounted for about half that increase."

"Over this period, America’s trade deficit with Vietnam also exploded nearly threefold to $90 billion. During the Trump administration, that gap attracted the attention of Mr. Lighthizer, who launched two investigations into Vietnamese trade practices that could have resulted in tariffs.

But the Biden administration, which sees Vietnam as a potential ally in its competition with China, ended both those probes. It now seeks Hanoi’s participation in a pan-Asian trade effort it is launching: a win for Vietnam and a win for the U.S."