There is no U.S.-China trade war

There is no U.S.-China trade war, by Martin Feldstein.

The current conflict between the United States and China is not a trade war. Although the U.S. has a large trade deficit with China, that is not the reason why it is imposing high tariffs on imports from China and threatening to increase them further after the end of the current 90-day truce on March 1.

The purpose of those tariffs is to induce China to end its policy of stealing U.S. technology.

The Chinese government refers to the conflict as a trade war because it hopes that buying large quantities of American products will lead the U.S. to end its tariffs. The Chinese negotiators have recently offered to buy enough U.S. products to reduce the trade deficit to zero by 2024.

Tellingly, the U.S. negotiators have rejected that as a way to end the dispute.

The U.S. wants China to stop requiring American firms that seek to do business in China to have a Chinese partner and to share their technology with that partner. That policy is explicitly forbidden by World Trade Organization rules, which China has been obliged to respect since they joined the WTO in 2001.

The Chinese deny that they are violating that rule, arguing that U.S. firms are not being forced to share technology: they do so voluntarily in order to have access to the Chinese market and to Chinese production opportunities. But American firms regard China’s behavior as a form of extortion.

The U.S. also wants China to stop using cyber espionage to steal technology and other industrial secrets from American companies. …

The Chinese use the stolen technology to compete with U.S. firms in China and in other parts of the world. The U.S. Trade Representative recently estimated that this technology theft is costing the U.S. economy $225 billion to $600 billion per year.

And the FBI has asserted that the China’s cyber theft of American technology is the “most severe” threat to U.S. national security. …

The U.S. is determined to stop it. If nothing is resolved by March 1, the U.S. will raise the tariff on $200 billion of Chinese exports from 10% to 25%. That will hurt the Chinese economy further and cause the Chinese authorities to take the U.S. demands more seriously — and to negotiate accordingly.