Will The U.S.-China Trade War Matter In The Coming Decades?

Mar 11, 2019
Originally published on March 11, 2019 5:12 am
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Here's a side effect of the U.S. trade war with China. It is strengthening a long-running trend in East Asia. China wants to rely less on doing business with the United States. It wants to rely more on business with its smaller Asian neighbors. Rachel Martin spoke with Parag Khanna, author of the book "The Future Is Asian."

PARAG KHANNA: So the trade war's outcome is fairly predictable because it's already been happening for the past 30 years. Asians have been integrating their economies. They have such tremendous complementarities. You have industrial centers, financial centers, natural resource providers. They're all trading more and more with each other. And in fact, trade between Asian countries is much larger than their trade with us. Now bring in the trade war where, because of the tariffs and the reciprocal tariffs, it's harder for America to export aircraft and soybeans, semiconductors, industrial goods and so forth to China, meanwhile to other Asians, as well, because we didn't join TPP.

You take those two things together - trade war and TPP - and what the calculation from China is, well, we should be substituting for the United States. If you want China's strategy in exactly two words, it's permanent substitution. Let's no longer buy American semiconductors because you never know when the occupant of the White House is going to cut off our supply. So let's get them instead from Taiwan, from South Korea, from Japan. So if you break down the volume and the share of trade that's represented by different sectors of the American economy - again, natural gas, industrial goods, technology goods, agriculture and so forth - those things are all substitutable by someone else.

RACHEL MARTIN, BYLINE: But supposedly, the entire reason for the trade war, for the pressure from the Trump administration is to open Chinese markets to U.S. companies.

KHANNA: Right. And this is the thing where we have to be clear that corporate America is correct in siding with the Trump administration in the intellectual sense that China is a cheat, right? And everyone does want China to open up. But they would not conduct the trade war in the same way because the White House has not calculated the reaction to their action. Other countries agree with us. Canada wants more market access in China, too. Europeans do, as well. But they are signing more trade agreements with Asian countries. So just fast forward about five or 10 years. The volume of trade between Europe and Asia, including China, will be something like $2.5 trillion a year. And our trade with the region will be barely a trillion dollars.

MARTIN: At the same time, to the Trump administration's credit, they are trying to pressure China on legitimate grievances - the violation of intellectual property laws, of cyberattacks. Are these other countries that are signing unilateral trade deals with China - do they not care?

KHANNA: It's not that they don't care, because Europeans have exactly the same concerns. The German business federation, the German government, major companies like Siemens pressure China all the time. They do it more quietly. They work through joint ventures and partners to access the market. We could learn a lot from looking at how they try to combat unfair trade practices on the ground rather than the approach that we are taking.

MARTIN: So what if you were sitting in a room having this conversation with a bunch of American CEOs in Silicon Valley, who I imagine would be a little bit anxious about the arguments that you're putting out? I mean...

KHANNA: To the contrary - let's remember that the technology sector in the United States is not only the tip of the spear, in terms of our innovation edge over the rest of the world. It's also the sector that's had the thorniest relationship with China. So digital media and tech companies in the United States have always had a diversified Asia focus. There is more Facebook users, for example, in India than any other country in the world. So they've always had a non-China-centered view because they haven't had market access in China.

MARTIN: The book is called "The Future Is Asian," written by Parag Khanna. Thank you so much for coming in.

KHANNA: My pleasure.

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