"If Democratic presidential candidate Joe Biden wins the upcoming presidential election in November, the United States will become Chinese territory, and Americans may have to learn Chinese forcibly." These are the words that Trump spoke during an interview on the U.S. <Hugh Hewitt Show> last month. The conflict between the U.S. and China has reached its highest level with it being pulled into the U.S. presidential election. Why are the U.S. and China in conflict, what is the background to the conflict, and why can it not be resolved?
A trigger of conflict
U.S. President Donald Trump imposed an additional 25% tariff on goods imported from China to the U.S. starting July 6, 2018. In response, China imposed an additional 25% tariff on U.S. imports entering China in retaliation. However, the U.S. government did not impose a 25% increase but stopped at an additional 10% tariff. The conflict erupted between the two nations with increased import tariffs. In addition to the economic battle, there are conflicts in politics and technology. On July 22, 2020, the U.S. ordered the closure of the Chinese Consulate General in Washington, located in Houston. Chinese Foreign Ministry spokesperson Wang Wen-bin protested the move, calling it "A tyranny that not only violates the basic rules of international relations but also intentionally undermines Sino-U.S.” Two days later, the Chinese Consulate General was closed. The Chinese government retaliated with the ordering of the U.S. Consulate General in Chengdu closed. On July 27, 2020, the U.S. Consulate General in China official closed its doors. The conflict between the U.S. and China has intensified through its “Chancery War." The U.S. has also imposed transaction restrictions on the Chinese IT company ‘Huawei’ and 70 affiliates in the name of national security to protect U.S. information and communication technology and services. This act started a technical war between the two countries. In July, Trump said his government would ban a Chinese application TikTok, from August, but it continues to operate and conflict between the U.S. and China.
Trump's tariff bomb, which triggered the trade war, was proposed as protectionist measures. After Trump took office, the U.S. began taking steps to withdraw from TPP and renegotiate NAFTA and the Korea-U.S. FTA. The U.S. identified China as a ‘Non-Market Economy’ and wanted to take stronger measures against China in the name of national security. China then imposed excessive additional import tariffs like the U.S. had imposed on it. The U.S. did not stop there, and increased the tariffs on imports from China as a protectionist trade measure. China was declared a ‘Non-Market Country’ because the U.S. felt China’s economy was emerging by riding that of the U.S. economy. That is, China was using its monopolistic status to hinder fair competition and passively respond to the protection of intellectual property rights. In addition, China was striving to take the lead in the global economy by strengthening its economic power through the convergence of existing manufacturing and the Internet through its 'Made In China 2025' project. The U.S. seems to have kept China from progressing with its continued tariffs on international products. Talks, however, continue as well between the U.S. and China. The two countries signed a first phase trade agreement in January. The agreement calls for China to buy large-scale U.S. products and the U.S. to remove the additional tariffs imposed on Chinese imports. This new agreement came after an 18-month trade war that began with the tariff bomb. As a result, the conflict between the U.S. and China had started to subside, but the conflict exploded again when the U.S. declared China responsible for the COVID-19 outbreak.
Who shot it?
The conflict between the U.S. and China has continued to be deepened. The tariff tit-for-tat that began in July 2018 lasted about five months. It seemed as if there would be a truce when an agreement was reached at the G20 Argentina Summit in December of the same year, but the situation deteriorated again when trade negotiations broke down in Washington in May 2019. China rejected the terms presented by the U.S. regarding China's lack of intellectual property rights protection and the forced transfer of technology as an infringement of its sovereignty. In response, the U.S. scrapped the G20 truce agreement and imposed a 25% tariff increase on Chinese imports from May 10. China then imposed additional tariffs on U.S. goods. With the battle still raging, Trump, in his campaign speech for the U.S. presidential election on August 27, 2020, said, "We will give preferential tax treatment to companies that bring jobs to the U.S. from China, but we will impose duties on companies that leave the U.S. and create jobs overseas." The comment was clearly aimed entirely at China and shows Trump's unwillingness to stop the tariff war with China. The economic conflict has affected the financial world. On June 24, 2019, the U.S. imposed sanctions on major Chinese banks such as ‘Bank of Communications’ and ‘China Merchants Bank’, because the banks were suspected of money laundering. The U.S. ordered the banks to submit relevant documents under the name of the Patriotic Act, which allows the U.S. government to obtain private information on suspected terrorists. However, the banks rejected, and on July 2, 2020, the U.S. enacted a bill to impose sanctions on Chinese financial institutions. These major Chinese banks could affect the whole global market, so if China confronts the U.S., there could be great repercussions to the global financial market.
The economic conflict has now become a technology war. On January 16, 2019, the U.S. banned the use of ‘Huawei’, China's largest telecommunications company. In addition, the U.S. Ministry of Commerce blacklisted Huawei and stopped the procurement of parts and technology for Huawei. Next, the U.S. ordered the withdrawal of Chinese IT companies from the U.S. on August 24 under the pretext of national security. Because the U.S. banned Chinese applications such as ‘TikTok’ and ‘WeChat’, so TikTok, a private enterprise, decided to sell its U.S. portion to a U.S. company. The U.S. companies such as Microsoft and Walmart actively tried to begin negotiations to acquire TikTok. Then, on September 19, TikTok's parent company, Byte Dance, announced that it will establish ‘TikTok Global’ and work as a business partner for the U.S. companies Oracle and Wal-Mart. Oracle will acquire a 12.5% stake in TikTok Global, and Wal-Mart will also acquire a 7.5% stake. Moreover, Wal-Mart's CEO will participate as a director of TikTok Global. TikTok Global’s head office was also debated to be established in Texas, and it seems that the U.S. has benefited. However, the Chinese government said that before the U.S. companies could buy TikTok, they would need China’s permission to acquire the technology. China made this statement to counterattack the U.S. for imposing sanctions on Chinese companies. In conclusion, since the Chinese government must approve the agreement, variables remain until TikTok's U.S. business plan is finalized. In other words, the two nations have started a technology war.
Economic conflicts have also affected politics in each country. In particular, the U.S. Department of Defense declared Taiwan a distinct nation in its June 2019 report, countering the Chinese system of ‘One–China policy’ and stirred political conflict. Furthermore, the U.S. and China are using the Hong Kong Security Law, which deals with Hong Kong self-government issues, as another battle field. The U.S. said they would impose tariffs and remove visa benefits for Hong Kong people if the Hong Kong Security Law was enforced, but China stated that the U.S. is interfering in internal affairs. Moreover, the U.S. ordered the Chinese Consulate General closed on July 22, 2011, and it closed its doors on July 24. Secretary of State Mike Pompeo said, "China is stealing not only U.S. intellectual property rights but also European intellectual property rights. It is a measure to protect national security, economy, and employment from China." The U.S. is claiming security concerns for its actions, but it seems that the trade war is affecting politics. The Chinese government described the U.S. actions as "political provocations" and also ordered the U.S. Consulate General closed. Thus, the situation in both countries is deteriorating. However, China and the U.S. have signed the first phase of a new trade agreement on January 15, 2020, which details the elimination of forced technology transfers to U.S. companies and barriers placed on U.S. entry into the Chinese market. The two countries perceived the new agreement positively, and they indicated they would work towards a second stage of negotiation. However, in June 2020, Trump claimed China was responsible for COVID-19 pandemic and ordered the cancellation of the first phase of the trade agreement, so political conflict continues.
No one can avoid fighting
The trade war has had a big impact on the economies of both nations. It has brought not only economic losses but also benefits to each country. In particular, the renminbi, China’s national currency, has increased its ratio of usage in international trade in 2020. According to U.S. economic media CNBC, the renminbi ratio of global foreign exchange reserves rose to 2.0% from 1.1% in the first quarter of 2020, whereas the U.S. dollar decreased by about 3.0% over the same period. Regardless of the trade war, the result was somewhat predicted due to China’s gradual economic industry policy: One belt, One road. With more renminbi being used to make investments and trades, China is ensuring a stronger economic position and hegemony for itself. The trade war has raised China’s influence. There has also been damage caused by the conflict. Chinese citizens suffer from the financial sanctions imposed by the U.S. on Hong Kong. Hong Kong Secretary of State Carrie Lam, who is directly subject to financial sanctions, said, "We have to use financial services, but it is difficult to use them because of U.S. sanctions." The trade war between the U.S. and China is harming individuals, and the damage is also being felt in the technology industry. The U.S., which holds 48% of the global semiconductor market since 2018, is expected to lose about 3% if the technology war continues. Moreover, if China's ‘One belt, One road’ industry policy succeeds, U.S. semiconductor companies will lose at least 15 to 40% of the Chinese market.1) This percentage loss equates to about $200 billion in sales. In other words, if the conflict between the U.S. and China continues, both countries cannot avoid harm from the economic impact.
Additionally, political conflict has also worsened their relationship. On September 2, Secretary Pompeo said, "Since American diplomats are restricted from working in China, we will restrict the activities of Chinese diplomats in accordance with the principle of reciprocity. Before Chinese diplomats can visit American universities or contact local government officials, they must obtain approval." Pompeo’s comment shows that the conflict between the two countries has worsened since the abolition of the consulate general. In July, the U.S. declared its withdrawal from the World Health Organization (WHO), holding China responsible for COVID-19. Trump claimed WHO was overly biased toward China. In a briefing on September 2, U.S. State Department representatives said, "The White House is in a position that WHO needs to reform, and this starts with WHO proving its independence from the Communist Party of China. However, if WHO gets out of China's area of influence, there is a possibility that the U.S. remains at WHO." This announcement clearly highlights the U.S.’s hostile attitude toward China and that the conflict will not be easily resolved. The conflicts will only naturally spread to other more diverse fields beyond trade.
Other countries have been affected by the conflict. In particular, as a neutral country, South Korea has suffered and is required to make careful decisions. China accounts for 27% of Korea's total exports and the U.S. for 12%. For this reason, the trade war between the U.S. and China is causing economic losses to South Korea. In September 2019, the OECD announced that Korea's exports in the first quarter decreased by 7.1% from the previous quarter. In response, Kim Youngjoo, president of the Korea International Trade Association, said, "55% of the decline in the first quarter of 2019 was due to the decrease in exports to China. The U.S.-China trade dispute will not benefit the Korean economy in the long run." In other words, it is inevitable that Korea will continue to suffer collateral damage as a result of the U.S.-China trade war. This trade war could, on the other hand, also be advantageous for Korea. The U.S. has completely stopped importing Huawei semiconductors. Since China lacks the capability to manufacture high-tech semiconductors independently, South Korea's Samsung and Taiwan's TSMC are the only companies that can produce semiconductors on consignment. Kim Jongho, a professor of KAIST Electrical Engineering, said, "In the future, the AI semiconductor market will open. Samsung could take advantage of this opportunity to become the world's leading semiconductor producer."2) Professor Kim offers a suggestion for growing Korea's economy. But Korea government remains more cautious about this conflict. South Korea has chosen a pragmatic strategy from the viewpoint of 'security is the U.S. and economy is China'. So, if South Korea maintains ambiguous relations with the two countries in this conflict, it could suffer at the hands of both. The problems linked to THAAD and the North Korean nuclear issue showed the need to maintain relations. Kim Inkyu, director of Chinapec, said, "Korea should promote a diplomatic strategy of compatibility and autonomy. It is time to reestablish the Korean style capitalist market economy."3) In other words, Korea should reduce its dependence on both countries and establish a Korean-only system.
A task on Korea’s shoulder
The Sino-U.S. conflict is now up and in full force with no indication it will end any time soon. Korea, which has close ties with both nations, needs to keep a wise relation with both the U.S. and China. It is also important for Korea to understand the economic, political, and technological aspects of the Sino-U.S. conflict. Moreover, it is necessary for Korea to keep an eye on Sino-U.S. relations as they are likely to change after the U.S. presidential election in November and take proper action in the international community.
1) Park Jisung, “U.S.-China Semiconductor War, Scenario Analysis”, Techworld News, September 2, 2020
2) Jang Hyungtae, “Korea-Taiwan Semiconductor War, Samsung's Surprise Operation Now”, The Chosun Ilbo, August 30, 2020
3) Kim Inkyu, “The Conflict Between the U.S. and China and the Korean Peninsula”, Finance Today, August 27, 2020
Na Cho Seongah / Reporter
Sang Lim Hyeji / Reporter