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Trade Tariffs Fuel Competition Between The U.S. And China For Global Dominance

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Trade Tariffs Fuel Competition Between The U.S. And China For Global Dominance
The American and Chinese flags

When the U.S.’ $34B tariff on Chinese exports went into effect last month, it signaled to the world that a fight for economic power is underway.

An emerging economic force for decades, China’s exponential growth in recent years has begun to threaten the U.S.’ position as a global superpower. President Donald Trump has employed tactics such as tariffs in an effort to tip trade agreements in favor of the U.S. 

It is a game of cat-and-mouse that could cost the global economy $430B. For Stratfor Vice President of Global Analysis Reva Goujon, tariffs are an obsolete strategy for dealing with global trade competitors in a modern economy.

“We are in this era of an emerging great power competition,” Goujon said. “This isn’t something that the current generation is all that used to, and it’s being played out primarily between the U.S. and China. The U.S. hasn’t faced a peer competitor like China in its history.”

Beyond tariffs, changing policies on investing in technology have been a sign of the growing competition between the U.S. and China. While tech has traditionally benefited from the cross-pollination of ideas at an international level, security questions have started to emerge on whether the U.S. should restrict the technology being used by China, and impose restrictions on U.S. companies investing in Chinese tech, Goujon said.

AT&T recently pulled out of a deal to carry a smartphone from Chinese company Huawei, and Congress proposed a new bill preventing branches of the U.S. government from working with service providers that use any equipment from Huawei or Chinese firm ZTE for security reasons.

From an industrial perspective, China has also been more lenient than the U.S. on laws impacting certain businesses. China, for instance, has limited restrictions on technology like drone delivery and automated vehicles, paving the way for accelerated progress in those areas.

“Technological competition is also a key battleground,” Goujon said. “When we talk about artificial intelligence development, in both the commercial and military spheres, this will be a game changer in the coming years. Whereas in the West, we are going to be rightfully concerned and trying to figure out concerns about data privacy, antitrust laws and ethics concerns, those concerns will not apply equally to China. That gives China time and space to catch up.”

China’s growing economic presence, particularly in real estate, is visible through its investments in global shipping and industrial assets. To mitigate a growing mountain of debt, the Sri Lankan government agreed to China’s 99-year lease on the Port of Hambantota last year. A strategic foothold in the global shipping industry, the port stretches across 15,000 acres and has access to a major commercial and military waterway off the coast of India.

Trade Tariffs Fuel Competition Between The U.S. And China For Global Dominance
The Port of Hambantota in Sri Lanka

Hambantota is one of 35 international ports China has invested in over the last decade as part of its "One Belt, One Road" initiative, a trillion-dollar infrastructure plan to invest in transportation, energy and communications projects across 60 countries. Beyond expanding its market reach, the One Belt, One Road project will help bolster China’s trade and military network against U.S. interference.

“The U.S. maintains a naval dominance of the global seas,” Goujon said. “That threatens China directly because it is dependent on its external trade. So what you are seeing is all of these big Chinese infrastructure projects designed to build redundancy in Chinese trade lines. Beijing has been following this imperative to secure these ever-extending economic supply lines with its military might. It’s obviously going to clash with a key U.S. imperative to maintain its dominance.”

U.S.-imposed tariffs on Chinese goods has a direct impact on those trade lines. Almost 7% of U.S.-China container trade could be impacted by tariffs. While the tariffs curb Chinese imports in the short term, tariffs could ultimately hurt economic growth in the U.S. The U.S. also imposed steel and aluminum tariffs against Canada, Mexico, Japan and the European Union, damaging relationships with trade and security partners.

“This administration, in particular, is using very old-fashioned tools like tariffs to correct imbalances, and at the same time being indiscriminate about it and targeting security alliances in the process,” Goujon said. “That is a result of the U.S. emerging out of this very nebulous Cold War era where it could afford to have those kinds of frictions, where there was no clear and present danger. But it needs these security partners now more than ever.”

Trade Tariffs Fuel Competition Between The U.S. And China For Global Dominance

In the worst-case scenario, the U.S. has threatened to impose tariffs valued at up to $450B on China, which would in response begin asymmetric retaliation, Goujon said. Boycotts of U.S. goods and the limiting of market share for U.S. companies operating within China could become the norm. Chinese imports, to circumvent mounting trade restrictions, would seek out alternative and less efficient routes, slowing down a logistics industry booming from the growth of e-commerce.

The resulting higher prices for goods from washing machines to iPhones imported from China could trigger inflation, forcing the Federal Reserve to pull back on its plan to raise interest rates. Meanwhile, U.S.-based businesses wait to invest for fear that the economy could stall. This activity itself could cause the economic climate to sour over time, Goujon said.

While the U.S. waits to see whether competition with China will unfurl into a trade war, government officials have started to rethink how trade policies are enacted. Last month, Sen. Bob Corker, the Republican head of the Senate Foreign Relations Committee, introduced a bipartisan bill that would allow Congress to check a president’s trade actions.

“It’s important to watch for building congressional checks on executive power when it comes to trade,” Goujon said. “When we see the White House resorting to unilateral moves when it comes to trade tariffs and questioning the World Trade Organization’s credibility, the key thing to watch is a congressional check that will take back some of that trade authority.”

Learn more about geopolitical trends during a keynote presentation by Reva Goujon, along with notable names from commercial real estate, at NAIOP’s CRE.Converge 2018 from Oct. 15 to Oct. 17 in Washington, D.C.

This feature was produced in collaboration between Bisnow Branded Content and NAIOP. Bisnow news staff was not involved in the production of this content.