“A person who covets a lot always needs a lot.” This famous saying by Quintus Horatius Flaccus perfectly reflects the current positions of the United States (U.S.) and China — the two countries possessing the world’s two biggest economies. However, as Horatius’s quote suggests, the U.S. and China have desired to further develop their economies, which brought about a situation where the two countries' needs overlapped, causing a serious conflict. The conflict is now affecting the whole world, and many experts are devoting their efforts to figure out the economic situation the conflict will bring in the future.

Stephen Roach, an American economist and a senior lecturer at Yale School of Management, argues that the U.S. had made a diversion of China since 1992 when it decided to designate China as a currency manipulator. The U.S. did not appreciate the situation where China steadily developed into an economic superpower. In fact, the anti-China mood reached its climax when Donald Trump became the U.S. president. On July 6, 2018, the U.S. imposed a 25 percent tariff on 818 kinds of Chinese imports worth 34 billion dollars. The trade war between the two countries marked its beginning on the same day that China, on the same scale as the U.S., imposed a 25 percent retaliatory tariff on U.S. agricultural products, automobiles, and marine products.

The Conflict Rises Between the Two

The U.S.’s implementation of the tax on July 7 was imposed as President Trump adopted the trade and security theory of Peter Navarro, the chairman of the Federal Trade Commission. Trade and security theory is the logic that a country considers another country as an enemy when it faces a trade deficit while the other continues to generate a trade surplus. By utilizing this logic, countries that record trade surpluses against the U.S. were regarded as economic enemies. The U.S. thus expected China to undergo economic depression by employing the theory in their economic relationship.

Additionally, another interpretation of the U.S.’s decision is that President Trump’s administration is putting pressure on China after the summit between the U.S. and North Korea, which was held on June 12, 2018, was stalled. Trump had previously criticized China for obstructing the North Korean nuclear issue behind the scenes. Furthermore, he continued to bring up rumors of China’s sabotage since the start of the trade conflict. In other words, President Trump’s action implies that he will continue to link the denuclearization issue with China in order to pressure General Secretary Xi Jinping to simultaneously resolve the North Korean nuclear issue and replenish the deficit derived from the trade with China.

The trade strife, which is also being called the new-cold war, emphasizes the opening of a power struggle as China is trying to economically develop further, with the U.S. ready to endure facing negative public opinion and reducing its economic power on the international stage. China's decision not to take a submissive attitude is because, otherwise, China would have to accept all the market opening conditions proposed by the U.S., which will degrade the competitiveness of the Chinese economy internationally. Furthermore, the submission of Xi Jinping to President Trump has a possibility to threaten the position of Xi Jinping’s leadership of the Chinese Communist Party.

The U.S.’s Public Opinion

The U.S. and China are in very different positions regarding their economic status and public opinion in this situation. From the perspective of the U.S., some U.S. citizens are on board with the trade war if it does not involve violence or the military. According to the American Association for Public Opinion Research (PEW), 24 percent of Americans viewed China as the greatest threat and were more worried about their military power than their economic power. Such concerns are plausible when reviewing the Department of Defense annual report of 2019, as it states that China now has the largest navy in the world, consisting of approximately 350 ships and submarine, while the U.S. has around 293.

At the same time, others believe that China’s growing economy will positively influence the U.S. This is because the growth will give the U.S. a chance to have new trading partners through greater competition between other countries. According to Intereconomics, an online newspaper that reviews European economic policies, “different countries produce different varieties of similar goods. International trade enables consumers to enjoy a greater variety of consumer goods without the need to produce these goods domestically.” As the U.S. is currently the richest economy in the world, other countries would be willing to ally with the U.S. rather than China, trusting that they will continue to be the richest economy in the world.

China's Public Opinion

Looking into China’s perspective, the new tariffs the U.S. implemented are forecasted to barely affect the economic control of China. Although it will affect some businesses such as electronic manufacturers, the influence may be negligible as these businesses only attribute about 2.5 percent of their total exports to the U.S. Some believe that this war might be even advantageous to the Chinese economy as the U.S. is pressuring China and making it a more open country, consequently benefiting Chinese citizens when consuming imported goods. On the other hand, some Chinese people think China might be losing more than winning from the trade war. These concerns come from the big difference in the number of products that China exports to the U.S. compared to the amount the U.S. exports to China.

Chinese citizens are also not afraid to speak up about their thoughts regarding this trade war. On an online platform called WeChat, Chinese citizens criticized President Trump, which could be interpreted as a gesture to pressure the U.S. by using public opinion. In fact, whenever President Trump shared his opinion about the Chinese government on the social media platform Twitter, Chinese citizens have responded in a fury and even counterattacked his arguments.

The Deepening of the Trade War

In May 2019, the Bureau of Industry and Security (BIS) of the U.S. placed Huawei, China’s top telecommunications equipment maker, on an export blacklist known as the “Entity List.” The reason behind the blacklisting is that President Trump wanted to protect the domestic market from any company that is using information and communication technology (ICT) from countries considered a national security threat. Furthermore, India also quietly removed Huawei’s equipment from their market in August as India and the U.S. are close trading partners. Such actions influenced the Chinese market, as it relies heavily on the exportation of electronic devices, especially Huawei, which is a very popular cellphone brand in the world.

After the U.S. made the decision to ban Huawei, China was hesitant to have the U.S. as allies, and the conflict between the two countries deepened, also involving third-party countries. Beijing retaliated by suspending purchases of agricultural products from the U.S. and lowering its currency’s value to make Chinese goods less expensive abroad. In response, the U.S. Treasury named China a currency manipulator and vowed to take action to eliminate the alleged unfair competitive advantage. As a response to the harsh comment made by the U.S. Treasury, China pledged to remove a long list of U.S. exports, including beef, pork, poultry, seafood, dairy, rice, infant formula, animal feed, and biotechnology.

Eventually, on January 15, President Trump and Xi Jinping signed a Phase One Agreement at the White House, where it stated that the U.S. will reduce tariffs on Chinese goods while China increases their purchases of American agriculture, financial services, currency, technology, intellectual property, and foreign exchange in the coming years. Unfortunately, due to COVID-19, this promise was hard to keep. According to the Center for Strategic and International Studies (CSIS), the agricultural exports were supposed to grow more than 50 percent under the Phase One trade deal, yet during the first quarter of the year, it was only at 3.2 percent. As this deal could not be successfully fulfilled in the first half of the year, the Phase One trade deal was considered a failure.

When the Phase One trade deal was signed, President Trump insisted that negotiations on a Phase Two trade deal would immediately address issues that were not discussed in the first deal due to COVID-19. As the pandemic worsened, however, the deal was temporarily placed on hold. On July 10, President Trump officially announced that the Phase Two trade deal would not be likely to happen at all. Ultimately, it could be understood that Phase One of the trade deal was unsuccessful as the pandemic and the relationship between these two countries were on a loose end.

Who Will It Affect More, the U.S. or China?

Even though both parties are expected to be significantly damaged by the trade war, China seems to have more control over their economy than the U.S. Back in April 2018, before the trade war was escalating, a spokesman from the Ministry of Commerce in China said that they do not intend to go on any trade wars with the U.S. Yet, they are “not afraid to fight a trade war” and are ready to adopt “comprehensive countermeasures” if it were to happen.

This stance shows how the government in China believes in their current system and are confident they will not lose this war. For instance, although Chinese shipments to the U.S. have declined, they still have neighboring trade allies to depend on. In fact, China may not have to worry much about its reduction in exports to the U.S as its main exporters are Japan, Hong Kong, and South Korea. China has also been the fastest-growing economy in the world, and even during the trade war, China has been continuing to strive economically.

In the case of the U.S., their companies lost around 1.7 trillion dollars on their stocks. The companies were forced to cut wages for workers and raise prices on products for companies and consumers. According to the Economist, around 30 percent of the value of goods China exports to America comes from other countries. Known as the "the world's factory," China mostly imports electric machinery, oils, and copper from other countries, and manufactures products which are later sent to the U.S. That is, third-party countries are also significantly involved in these trades. Therefore, if the U.S. decides to cut all exports with China, the U.S. will lose its connection with other exporters as well. According to Professor Kang Munsung (Division of International Studies), both countries will suffer losses. However, considering that China's technology level is still below the U.S., the short-term economic blow is expected to be greater.

The Impact on South Korea

Experts still cannot clearly grasp the results the U.S.-China trade war will bring to the world economy. Nevertheless, what is definite is that uncertainties are growing in the external economic environment of South Korea and are expected to serve as a game-changer that may change the landscape of international commerce in the short- and long-term.

It is an undeniable fact that the U.S. and China both account for a large portion of South Korea’s trade surplus, which is why the relationship with both countries is crucial. According to the analysis of the East Asia Foundation (EAF) in 2018, South Korea’s exports to China constituted about 26.8 percent, the number rising to 34.4 percent with Hong Kong included. In other words, China accounts for more than one-third of South Korea’s exports, whereas the U.S. occupies 12 percent of the export surplus. On the other hand, when considering South Korea’s overseas investment, the U.S. was the largest overseas investment destination with 23 percent, and China was the second largest with about 14 percent. Also, in terms of exchange rates affecting trade and investment, the U.S. dollar and the Chinese yuan were extremely influential in recent periods.

Professor Park Innwon (Department of International Studies) expects that in the short-term, the electricity, electronics, wireless communication, and auto parts industries are going to experience a negative impact due to the trade war. In addition, South Korea will face a mid- to long-term drop in overall exports and major industries if the U.S. and China fail to diversify their trading partners or restructure their supply chain. However, Professor Park stated that the impact on the Korean economy is expected to gradually be alleviated because both the U.S. and China will devote their fullest effort to search for alternative solutions for the internal problems caused by the trade war.

South Korea Encountering Difficulties

According to Professor Park, trade wars through levying tariffs can be predictable, and countermeasures can be prepared accordingly. However, in the case of the U.S.-China trade war, it is difficult to forecast the results as it did not derive from the short-term correction of the trade imbalance but from the nature of the hegemonic competition between the G2. This competition involves the issues of intellectual property protection, the trade imbalance between the two countries due to China’s currency manipulation, and the collapse of the international trade order, which has been feared since China entered the World Trade Organization (WTO).

As seen in the recent sanctions against Huawei in the U.S., various unpredictable non-tariff barriers and unstable exchange rates raise uncertainties in the global economy and make South Korea's position more difficult. At the same time, South Korea cannot ignore the war’s influence on the U.S. in terms of intellectual ownership and exchange rate intervention, especially the recent Won’s exchange rate with the dollar and the deeply entangled supply chain with China. Furthermore, Korea is in a complicated relationship with the U.S. and China on security issues, making economic policy management more difficult to separate from security and political sectors.

Countermeasures South Korea Should Implement

After analyzing several problems that South Korea has encountered, Professor Park suggested countermeasures that South Korea needs to implement in order to minimize any economic damage from the trade war. In the domestic aspect, South Korea needs to support small and medium-sized industries to promote domestic production and consumption of parts and materials. Furthermore, South Korea needs to develop a new export market, focusing on the service industry where job creation and independent operation are greater compared to the manufacturing sector. In other words, it is necessary to restructure the industrial sector to be more independent so that it can become more flexible in the face of potential external shocks.

Internationally, it is not easy for a small-scaled open economy like South Korea’s to minimize or overcome the damage caused by hegemonic struggles between countries possessing great power in the international trading environment or the international political order. To resolve such issues, Professor Park suggested that South Korea should actively participate in efforts to overhaul balanced global norms. The example includes exercising political and economic leverage in the WTO and strengthening solidarity through cooperation between many countries to ease conflicts among major trading partners before aiming for economic benefits. Playing a leading role in major economic unions like Asia-Pacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN) will strengthen the country’s status in the international community.

As a preemptive condition, legal and institutional supplementation will be needed, such as establishing a fair-trade order and guaranteeing intellectual ownership, which the Korean economy currently lacks. Professor Park emphasized that lacking in these fields could lead to unnecessary international sanctions, which will hinder technological development and degrade the international status of South Korea.

The Trade War’s Influence Worldwide

Considering the worldwide situation, it seems like South Korea is not the only country receiving pressure from the U.S.-China trade war. For example, Taiwan is expected to experience a significant economic ripple effect as it has a high level of economic openness. Recently, trade with China has become important to Taiwan, and the country is now in a difficult position between the U.S. and China in terms of security and political dynamics similar to South Korea. Moreover, President Trump imposed trade tariffs on Japan, which brought a great amount of backlash to the U.S. from the Japanese government. As tension between the U.S. and Japan has increased, the relationship between Japan and China has become amicable, the two countries proposing a joint statement urging the U.S. to return to the free trade zone.

In the case of the European Union (EU), President Trump has implemented measures to impose tariffs on cars manufactured in Europe. China and the EU seemed to show a sign of cooperation to counter the U.S.'s absurd moves, but many economists are skeptical of actual cooperation taking place between the two. According to the Consumer News and Business Channel (CNBC), both China and the EU have many surplus products that cannot be consumed by the domestic market, and the U.S. market can be the only economic partner that can consume all the surpluses. In other words, this trade war could bring China and the EU closer, but it would be difficult for them to cooperate as its effects would be insignificant.

Steps to Ease the U.S.-China Trade Conflict

It is still difficult to determine a long-term measure to ease this conflict. According to the online newspaper Financial Times, “the conflict between the U.S. and China is not simply economic — it has political, cultural and military dimensions.” This means that it is possible for the U.S. to completely boycott Chinese products or even ban Chinese immigrants and vise-versa. In these circumstances, it is improbable that the U.S. and China will come to an agreement. Both countries want the best for themselves, and the only thing that can be done is finding common ground. They could either change the Phase One trade deal to match both countries’ current economic circumstances due to COVID-19 by lowering their exportation price or considering the Phase Two trade deal to improve the shortcomings of the Phase One deal.

Professor Kang states that this problem cannot be solved simply by an economic policy because it is not merely an economic issue but an examination of China's excessive state-led economic system and an economic hegemony issue. Also, the U.S.’s bashing China attitude is bound to continue as the U.S. presidential election is set to take place, and even if the Democratic Party's candidate Joe Biden is elected, its containment policy against China is expected to continue. Even if President Trump is reelected, it is forecasted that he will also choose a strategy to block China in cooperation with the U.S. allies, as he recognizes that the U.S. alone will face various limitations to block China ⎯⎯ thus increasing the possibility of a new Cold War era.

For both American and Chinese citizens, it is important to remain hopeful that the countries will find a win-win solution. It is still unclear which country is going to be the most affected by the trade war in the long run, but the two countries have to cooperate when considering each countries’ current social and economic circumstances. Indeed, there is still a hope to eventually find common ground if the U.S. and China attempt to communicate with each other rather than considering a physical war. A resolution to solve the long-lasting trade war will thus lie with the two countries’ method of approach in handling the conflict.