Opinion

US Tariffs Aim to Contain China’s Technological Rise

While tension increases with each of the imports listed under the new tariffs, it now seems clear that the US are trying to slow down China's technological advances. Though such a protectionist attitude represents an obstacle, China should consider it an opportunity to strengthen relations with its Asian neighbours and the EU.

By: Date: April 10, 2018 Topic: Global Economics & Governance

This opinion piece has been published in Caixin

caixin logo english

Beijing’s attempts to calm down a furious U.S. administration (with promises of opening up sectors and a stronger yuan) do not seem to have convinced the White House to tone down its protectionist actions against China. Following two rounds of import tariff hikes earlier this year, the U.S. announced a 25% hike in import tariffs on 1,333 products exported from China to the U.S. at an estimated value of $60 billion.

The given reason for this third round of measures is no longer national security (for tariffs on steel and aluminum) or safeguarding domestic industries (for solar panels and washing machines), but rather, China’s breach of intellectual property rights. In only a few hours China has stepped up its retaliation from a small package ($3 billion) targeting a few agriculture-related products to a much larger list of 106 products valued approximately $50 billion. More importantly, China’s targeted products are no longer low-end but include higher-end products, such as aircraft and automobiles.

We argue that the U.S. strategy has evolved over time from one in which the purpose was to reduce the U.S. bilateral trade deficit with China to a much more targeted but also relevant one, namely constraining China’s progress up the industrial ladder. This is evident from the fact that the U.S. has excluded most of its allies from the import tariff hikes on steel and aluminum and targeted only China with the most recent measures to protect U.S. manufacturers’ intellectual property rights.

More importantly, out of the 1,333 targeted products, around 70% of them (by count) are high-end manufactures. In other words, the U.S. administration’s latest move has hit China where it hurts the most, namely its goal to upgrade its manufacturing industry, a key strategic plan called Made in China 2025. In turn, only 3% of the import products included in the U.S. list, are low-end products, which further supports our thesis of the U.S.’ final goal: containing China’s technological rise.

As for China’s reaction, it has clearly moved from shyness to aggressiveness ($3 billion towards $50 billion) and covered a very different set of products. A careful analysis of China’s imports from the U.S. by product can help us explain the reasons behind such behavior and, ultimately, the costs involved.

We argue that an effective retaliation by China should include products complying with two key conditions: First, China should be a large enough market for a specific U.S. export product so real harm could be inflicted on U.S. exporters in that specific sector. Second, the U.S. should not be China’s main sourcing country for that specific product. The reality is that only a few products, namely wood, aromatic hydrocarbon mixtures and waste copper, comply with these two criteria. In other words, China’s ability to execute a painless retaliation is very limited in terms of potential products. As the table below covering the universe of China’s exports to the U.S. shows, China’s first $3 billion package was quite aligned with the idea of a painless retaliation (see products marked in blue in aforementioned table) but this is no longer true for the second, larger set of targeted imports from the U.S. (products marked in red in the same table).

This is understandable as the U.S.’s intentions became clearer with the 1,333 product list. The U.S.’ attempt to contain China’s technological rise by limiting China’s exports of higher-end products has obliged China to raise the stakes and retaliate in a much more painful way, namely targeting higher-end imports from the U.S. While this may take a toll on the speed of China’s technological catch-up, it will all depend on whether other developed countries follow the U.S. in its protectionist move. In that regard, not only trade relations between China and the European Union are all the more relevant in this context, but also China’s relationships with Japan and South Korea.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read about event More on this topic

Upcoming Event

Jan
22
08:00

Rules-based trading system and EU-Australia

At this event the Australian Minister for Trade, Tourism and Investment, Senator the Hon Simon Birmingham will speak about Australia-EU bilateral trade, the FTA negotiations and the importance of multilateral rules-based trading system

Speakers: Senator the Hon Simon Birmingham, André Sapir and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Upcoming Event

Feb
8
08:30

The world’s response to China’s Belt and Road Initiative

This event will look at the Chinese Belt and Road Initiative as well as the response from the rest of the world.

Speakers: Alicia García-Herrero, Jean-Francois Di Meglio, Theresa Fallon and Uri Dadush Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More by this author

Blog Post

What 2019 could bring: A look inside the crystal ball

Economic performance prospects in Europe, the US and Asia in 2019. We start off by reviewing commentaries and predictions about the euro zone, which many commentators expect to perform below potential as uncertainties continue to dampen a still robust recovery.

By: Michael Baltensperger Topic: European Macroeconomics & Governance, Global Economics & Governance Date: January 14, 2019
Read about event

Upcoming Event

Feb
12
12:30

Is the European automotive industry ready for the global electric vehicle revolution?

How can Europe catch up on the global electric vehicle race?

Speakers: Simone Tagliapietra and Reinhilde Veugelers Topic: Energy & Climate, Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article Download PDF More on this topic

Policy Contribution

The Belt and Road turns five

Five years after its launch, Michael Baltensperger and Uri Dadush reflect on China’s Belt and Road Initiative. The plan to revive ancient trade routes has the potential to enhance development prospects across the world and in China, but that potential might not be realised because the BRI’s objectives are too broad and ill-defined, and its execution is too often non-transparent, lacking in due diligence and uncoordinated.

By: Michael Baltensperger and Uri Dadush Topic: Global Economics & Governance Date: January 10, 2019
Read article More on this topic More by this author

Opinion

Lose-lose scenario for Europe from ongoing China-US negotiations

Without an expectation of a larger market for European exports in the absence of additional opening up by Chinese authorities, European exporters should not enjoy the ongoing China-US negotiations.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: January 9, 2019
Read article More on this topic More by this author

Podcast

Podcast

Deep Focus: Europe's auto industry and the global electric vehicle revolution

Bruegel fellows Reinhilde Veugelers and Simone Tagliapietra elaborate on the recent Policy Contribution they co-authored on the European automotive industry in the light of the global electric vehicle revolution.

By: The Sound of Economics Topic: Innovation & Competition Policy Date: January 8, 2019
Read article More on this topic

Blog Post

Ethics and artificial intelligence

Machine learning and artificial intelligence (AI) systems are rapidly being adopted across the economy and society. Early excitement about the benefits of these systems has begun to be tempered by concerns about the risks that they introduce.

By: Valerie Frissen, Gerhard Lakemeyer and Georgios Petropoulos Topic: Innovation & Competition Policy Date: December 21, 2018
Read article More by this author

Podcast

Podcast

Director’s cut: Wrapping up 2018

With 2018 drawing to a close, and the dawn of 2019 imminent, Bruegel's scholars reflect on the economic policy developments we can expect in the new year – one that brings with it the additional uncertainty of European elections.

By: The Sound of Economics Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Date: December 20, 2018
Read article Download PDF More on this topic

Policy Contribution

Is the European automotive industry ready for the global electric vehicle revolution?

This Policy Contribution investigates the position of the European automotive industry in a scenario in which electrification substantially progresses. Europe cannot follow China in the adoption of centrally-planned industrial policy measures. But it certainly can and should do more to stimulate the transformation of its automotive industry through more ambitious policies.

By: Gustav Fredriksson, Alexander Roth, Simone Tagliapietra and Reinhilde Veugelers Topic: Innovation & Competition Policy Date: December 20, 2018
Read article More on this topic More by this author

Opinion

China’s view of the trade war has changed—and so has its strategy

The truce agreed on by China and the United States at the sidelines of the recent G-20 meeting in Buenos Aires doesn’t really change the picture of the U.S.’s ultimate goal of containing China. The reason is straightforward: The U.S. and China have become strategic competitors and will continue to be so for the foreseeable future, which leaves little room for any long-term settlement of disputes.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: December 19, 2018
Read article More on this topic More by this author

Blog Post

Brexit: Now for something completely different?

The life of Brexit. After a week of ECJ rulings, delayed votes, Theresa May’s errands across Europe and the vote of no confidence, we review the latest economists’ opinions to try to make sense of what has changed and what hasn’t.

By: Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: December 17, 2018
Load more posts