After decades of trying to create positive diplomatic relations, a trade war broke out between the United States and China. After tariffs placed on Chinese imports in the US, China retaliated with their own tariffs. A year into the trade war, US President Donald Trump placed sanctions on Chinese-made Huawei phones. This changed the trade war, and the future of trade wars forever. By specifically targeting an international company, the trade war went from being a primarily bilateral issue into a much larger problem affecting all other countries that sold Huawei phones. The World Trade Organization has been working with both countries to attempt to find a way to end the trade war with limited success. While the trade war may continue, the Huawei battle shows that trade wars have the capacity to quickly affect the entire world.
The United States and China have spent decades attempting to cultivate a prosperous relationship. Through major political events, agreements, and many trade deals, the US and China had eventually created a working relationship. In the past two decades, China has rapidly grown and expanding economically, making it difficult for any nation to keep up with trade policies that continuously fit the needs of both nations. The World Trade Organization has worked to keep up with these changes, and until the trade war, they have been successful in avoiding any major conflicts. After US President Donald Trump was elected, a trade war broke out between the two nations. This led to incredibly high tariffs being put on imported Chinese products in the US. It also caused some Chinese leaders to begin to rethink their position on US-Chinese relations. In the spring of 2019, President Trump signed an executive order and declared a national emergency. He stated that certain electronic telecommunication devices were posing a major security threat to the United States. He then stated that Huawei, a Chinese phone brand, was one of the biggest potential security threats with their new 5G networks. This started the ‘Huawei Battle.’ During this battle, many governments, companies, and political leaders weighed in on the significance of essentially banning a Chinese product in the US. This battle led up to the G-20 Summit and would trigger the start of talks that would end the trade war. The final major battle of the US-China trade war, the ‘Huawei Battle,’ may signify the end of the war after US President Donald Trump and Chinese President Xi Jinping agreed to renegotiate economic and trade between the two nations. While the trade war may come to an end after negotiations commence, the Huawei battle shows how a trade war that begins between two-countries can quickly affect the entire world.
2. History of US-China Relations
China and the United States have had a tumultuous history. From a time when Americans were not able to enter into China, to a booming trade industry, there were many obstacles and roadblocks the US and China had to face in order to create positive diplomatic relations. After China officially became the People’s Republic of China in 1949, China and the United States disagreed on many things. These disagreements caused China to declare that Americans were not allowed inside of China for any reason. At this time, the Us was working harder to maintain positive relations with Taiwan. This caused many conflicts with China. In 1979, the year the United States and China began to establish diplomatic relations. Finally, in April of 1979, China invited US ping pong players to visit. This visit was the first time Americans were allowed in China since 1949 and has since been referred to as ‘Ping Pong Diplomacy.’ Then, after a decade of slowly working to improve relations, the US committed to the One China policy. The One China policy stated that China (including Taiwan) is one singular state, and the US must treat them as such. In a time when the US-Taiwan relations were important, this was a significant step in creating positive relations between the US and China. It also meant that the US would need to stop trading directly with Taiwan. The next ten years were spent improving diplomatic relations between the US and China.
While relations seemed to be continuously improving, the Tiananmen Square Massacre occurred in June of 1989, creating a major rift between the US and China. After months of student protests, the government ended the protest by force. The United States’ government did not agree with this approach, and thus, suspended military sales with Beijing. It was a major halt in the improvement of US-China relations. Finding a way to rekindle relations proved incredibly tricky both for the US and for China. The next eleven years were equally as tumultuous as they were full of many unfavorable political events on both sides. All of these events managed to hinder positive diplomatic relations. US-China relations needed some form of an agreement in order to create a positive relationship.
In October 2000, US President Bill Clinton signed the U.S.-China Relations Act of 2000. This act gave the US and other countries the ability to open up distribution points within China, along with allowing China to open its market to trade with the US. Allowing China to open its markets to the rest of the world was an extremely controversial part of the plan as workers in China were not given the same ‘human rights’ as those working in the US. Many US citizens and leaders were concerned that this deal would allow China to continue to use working conditions that were considered inhumane by the United States. While there were many who were concerned about this, the deal allowed the chance for China’s economy to prosper globally. Even still, “the measure is considered the most important U.S. trade legislation since the passage of the North American Free Trade Agreement in 1993.” The U.S.-China Relations Act changed the entire trade industry of both the United States and China.
3. The Economic Rise of China
For many years, China was considered a third world country. This all began to change in the last 50 years as China began producing more and more products and trading with many more countries. In the 1970s and 1980s, China began to open up its economy to the rest of the world. Then, extremely quickly, China reformed its trade plans, allowing them to grow to be one of the largest trading nations in the world. This happened in a short time frame of about 25 years. Because of the rate of their growth, other nations struggled to implement trade agreements that would continue to meet the needs of a growing China. On December 11, 2001, China joined the World Trade Organization (WTO). This marked the beginning of more fruitful trade relationships between China and other WTO countries. Many changes in China needed to take place, including the expansion of certain industries along with many adjustments made by state-owned services in order to keep up with new demands.
The United States benefitted immensely from China’s accession into the WTO. The US was then able to access China’s large technology markets. This began the start of partnerships like Huawei and Google. It also allowed the US to produce chips to be used in Chinese cellphones. This deal created a lot of business in technology for both the US and for China, and it allowed both countries to advance technology worldwide. While technology was one of the obvious ways this deal helped the US and China, it also meant that the US and China would be able to create lasting partnerships in both the agricultural and clean energy sectors. After China’s accession into the World Trade Organization, the US and China began to work together more economically than ever before.
4. The Trade War
The trade war between the United States and China started long before Donald Trump became the president of the US. In his campaign, he stated that China was not a friend of the US and that the trade deals were allowing China to trade unfairly. After Donald Trump became president, the beginnings of the trade war began with talk in the United States that China was stealing technological secrets. Along with the concern of China’s potential attempts at espionage, the Trump administration has always firmly believed that buying strictly American-made products will help the US economy. The potential of China’s espionage finally allowed the Trump administration to step in and change the way Americans could buy products.
President Trump then increased tariffs on Chinese products. In June of 2018, the Trump administration increased tariffs on $50 billion of Chinese imports. This sparked outrage, causing China to retaliate and tax $50bn worth of American imports. China stated that the United States should not have been able to increase tariffs unilaterally without the explicit agreement of the WTO. In March of 2018, President Trump stated on his twitter account that trade wars are
This caused President Trump to state that he would continue to increase the tariffs as long as China continued to increase their tariffs. President Trump stated that one of the main reasons for the trade war and the increased tariffs was that China had been playing ‘unfair’ and was costing the US more and more domestic jobs each year. These raises in tariffs showed the beginnings of an increasingly hostile relationship between China and the United States.
The tariffs and statements continued as the White House pledged to be more strict throughout the end of 2018 and the beginning of 2019 on both tariffs technology entering into the US. Tariffs have also been placed on imports from Mexico, Canada, and the EU. All of these other countries retaliated in the same ways that China did. While the other countries also retaliated, the fallout of a trade war between the US and Mexico is not nearly as detrimental as the trade war between the US and China. While China attempts to become the largest economy in the world, they rival the US and can withstand a trade war for potentially many years. He stated:
“when a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. For example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”
Trump’s statement scared many businesses across the US as they feared how a trade war with China would hurt them. As Trump continued to increase tariffs throughout 2018, he continuously stated that having strong industries for these products within the US is necessary to create a stronger economy. Many economists stated that the basic
As China and the United States are the largest economies in the world, a battle between the two nations may be incredibly detrimental to both nations. Due to the potential outcomes of the trade war, American economists stated their concerns and asked for an end to the trade war. They spoke about how these increased tariffs would increase prices for American consumers and American businesses that rely on Chinese made products. Economists warned that if the trade war escalated that it could hurt the middle class. Other politicians disagreed with economists, saying that the US needed to be firmer when it came to making agreements and working with China. President Trump’s administration held firm on the idea that raised tariffs to foreign imports would eventually make American products more affordable. While this line of thought may be true, with no time for American companies to adjust to buying and producing all of their products domestically, purchasing any products that were once foreign-made would be more expensive for companies and the general public.
5. President Trump’s 2019 Executive Order on Cyber Security
China’s firewall has separated them off from the rest of the world for years. Foreign social media and cyber companies (like Google, Facebook, and more) have been kept out of China entirely. This has allowed companies like WeChat and Alipay to prosper inside of China. This wall (or an ‘Iron Curtain’ as it has been referred to) has been one-sided for many years until US President, Donald Trump, changed things. On May 15, 2019, President Trump signed an executive order that banned communication devices that could pose a potential risk to US national security. Along with putting out the executive order sanctioning potentially dangerous telecommunication devices, President Trump declared a national security emergency due to these same products. The Entity List these products have been added to will barre “ U.S. companies from supplying the Chinese company with parts such as electronic chips or providing other technologies without U.S. government approval” by the Export Administration Regulations. This can mean both the physical chips used in the phones along with the interfaces and operating systems the phone run on. President Trump stated the reasoning for the order was only as a national security measure, even though it was directly targeting Chinese products. In the midst of the trade war, it seemed that this was directly barring China from sending their products to the US and working with US-based companies in creating new products and software such as 5G networks.
6. The Executive Orders Effects on Huawei
The new 5G networks that Huawei is developing, while incredibly fast, has been believed to be used as surveillance by the Chinese government. This has been the talk of many nations in 2019, including in EU countries, Australia, and more. Even though the Trump administration is positive that these devices are being used for espionage, the US government has not been able to present any evidence that the Huawei devices have been used for spying. Huawei has also continuously stated that these allegations are false. While Huawei was not directly mentioned in President Trump’s 2019 executive order, it was clear that this executive order was following the arrest of Huawei CFO, Meng Wanzhou, in 2018. The arrest happened after the US accused Wanzhou of “helping Huawei cover up violations of sanctions on Iran.” Even though the original reason for the blockage of Huawei products was based on the potential security risks, President Trump later stated that the order was explicitly targeting Huawei. The executive order affected not only the international trading of these communication devices, but it also changed how American products and services could interact with the banned products. President Trump specifically added Huawei to this list of companies, meaning that US-based firms and companies cannot trade with Huawei without a proper license.
After the executive order and the addition of Huawei to this list, Google stated that they would “limit the software services it provides to Huawei” in order to comply with President Trump’s order. Huawei, one of the most popular phone brands in China, runs on Google’s operating system. This means that new Huawei phones (and potentially older Huawei phones, too) will have to stop running Google services and other applications if the sanctions remain.While Chinese customers had already been experiencing an extremely limited use of Google’s services due to the internet censorship, other customers abroad (mainly those in Europe) would have to adjust to Huawei without the use of Google. Even though Google offers a free version of its operating system to Huawei and other smartphone brands, they would lose out on the profits they make from apps and additional services. This could mean millions of dollars lost in profits. This change may also deter many potential customers from purchasing a Huawei phone over another Android phone with full access to the Google Play store. While this may seem like a minute change, Li Yuan, of the New York Times, argues that this could be the beginning of a ‘digital Iron Curtain.’
While these sanctions primarily affect Huawei, there are many other US-based companies that are affected by President Trump’s executive order. While Google has obvious reasons to be angry about their loss of Huawei as a partner, FedEx is also reportedly upset. The U.S. Department of Commerce had asked that FedEx would support them in restricting Huawei products from entering the US and being delivered to US consumers. After this request was made, FedEx sued the U.S. District Court stating that “’FedEx is a transportation company, not a law enforcement agency.’”FedEx is one of the many companies that was indirectly affected by the sudden change in Huawei’s ability to freely trade with US-based firms. The chief legal officer of Huawei, Song Liuping, has stated that the Huawei ban will hurt more than 1,200 US-based firms. US-based firms like Broadcom, Qualcomm, and Intel supply one-third of Huawei’s chips (even if most of these chips are produced in China). Thousands of American jobs would be affected if these major companies would no longer be able to continue producing chips for Huawei. These companies, according to President Trump’s sanctions, would be required to apply for and be granted permits in order to continue their business with Huawei.
7. The Chinese Response to the Huawei Sanctions
While many in the US see Huawei as a risk to national security or as Chinese technology overpowering American-made products, many in China see this as the US becoming hostile. Many Chinese sources state that the Chinese government is still open to finding an agreeable end to the ongoing trade war, but that the overall mindset of US-Chinese relations is beginning to change since the ‘Huawei battle’ began. The Huawei battle also began to show Beijing that they must rely on their own technologies instead of using US-based technologies, like Google’s software. This means that Chinese technology companies will have to adjust to creating and using different operating systems rather quickly. On the other hand, Huawei owns many of the patents that are needed for the development of a 5G network. This will not only allow Huawei to continue to develop their 5G network, but it will also hinder other technology companies from developing their 5G networks.
Many Chinese scholars have been thinking of ways to decrease Chinese ties with the US. This includes China’s interests in clean power sources. While China can surely find other sources of clean energy, the United States will lose out on the Chinese funding for the projects. If these changes go through, this will mean that the entire world will be even more affected by the trade war. IF the US continues to lose trade deals with China, other countries will have to make deals with China. This could strengthen the economy of many other countries all while weakening the economy of the United States.
8. The End of the Trade War
The World Trade Organization is in place in order to create fair trade practices and also to help settle trade disputes. In the US-China trade war, both sides of the war were pushing for the WTO to take their side. President Trump pushed that the WTO needed to uphold higher standards for Chinese trade. The Chinese side stated that the United States should have gotten WTO approval for raising their tariffs at the start of the trade war. While both sides have many complaints, the WTO stated that with the help of other political leaders, they hope to come to an agreement that both sides approve of. In order for the WTO to continue to create positive trade practices in the world, a conclusion to the US-China trade war must come quickly.
While the WTO continues to work towards a potential solution to the trade war, many scholars and political leaders had begun stating that the war had gone too far. The Huawei Battle was proof that a change was needed. On June 29, 2019, US President Donald Trump and Chinese President Xi Jinping met in Osaka, Japan at the G-20 summit to discuss the trade war. President Xi Jinping stated that he still believes in a partnership between the US and China even though there have been many political changes inthe past few decades. This meeting ended many of the trade war issues, including the increase of large tariffs the US was placing on Chinese imports. President Trump agreed to stop adding additional taxes on Chinese products while the two nations discuss a new trade agreement. While President Trump will not be increasing any tariffs, he did state on his official Twitter account that “there will be no reduction in the Tariffs currently being charged to China.”
According to China’s foreign minister, Huawei was not discussed in the G-20 summit meetings, but the U.S. Commerce Department is going to be more liberal when granting licenses for American companies. Many American scholars and political experts have said that allowing China these liberties shows that President Trump ‘lost’ the meeting because he granted so many liberties to China. These discussions may change trade between the US and China forever.
9. Future Relations
In general, while the sanctions may temporarily hurt Huawei and its sales, they will ultimately force Huawei to create technologies in order to be a more independent brand. In the future, Huawei could potentially be able to run entirely using Chinese based technologies. China has a policy stating that they will be completely technologically independent by 2025, and Huawei will have to move to making 100% of their chips and processors within China. This could drastically change the technology sector in the US, as many companies would lose their partnerships with Huawei (and other Chinese technology companies). It would mean that the US would have to follow suit and begin creating all of their technology domestically, or they would have to find new nations to partner with.
While the US may need new technology partners in the future, many US-based companies have already turned to other Asian nations for imports. Vietnam, Taiwan, Bangladesh, and South Korea have all seen increased imports during the first five months of 2019. The recent tariffs have made importing from these countries much more affordable than continuing to import the same products from China. According to CNN Business, some of these products are still made in China but are being rerouted through other Asian countries in order to avoid the tariffs upon arrival in the US.Some of these companies are also considering a more permanent move to another country (from China) in order to stay out of any potential economic or political agreements in the future. This could mean a loss of profit for China as a nation, and it could mean that US companies are going to have to look for new suppliers quickly.
While the trade battle began with two countries, it quickly affected the entire world. Imports to the US from other Asian countries increased, Huawei phones suddenly became almost unsellable in Europe, and many other countries (including Australia) also began to create sanctions on Huawei devices. While US President Donald Trump may have begun the trade war with two objectives in mind (to force Americans into buying American-made products and punishing China for using unfair trade practices, he inevitably changed the entire world with his decisions. The future changes that Huawei makes will affect Europe majorly. If China pulls out of trading with the US on agriculture and clean energy, other countries will benefit from their new partnerships with China. While the obvious countries affected by this trade war are the US and China, the rest of the world will also have to change in order to adjust.
Conflict of Interest
The authors declare no conflict of interest.
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