Chinese worker loading aluminium tapes at an aluminium production plant in Huaibei STR/AFP/Getty Images

The Drums of Trade War

With Chinese President Xi Jinping willing to make some concessions to the US, the world may yet avoid a trade war. But the reason Sino-American relations have soured is the Trump administration's worldview, not external balances.

BEIJING – Last month, US President Donald Trump’s administration fired the opening salvo in what is quickly shaping up to become a full-blown trade war. While trade friction has long been an issue in the Sino-American relationship, few expected such an escalation, not least because economists widely view trade wars as damaging to all parties. So how did we get to this point, and can we turn back before it’s too late?

First and foremost, Trump does not seem to understand how trade works. He thinks that America’s $500 billion trade deficit with China amounts to a loss, the result of “incompetent” US administrations allowing their Chinese counterparts to take advantage of them. In fact, according to Trump, the US already lost a “trade war” with China years ago.

But trade balances are far more complex than Trump makes them out to be. For starters, much of what China exports includes components manufactured elsewhere, meaning that the country’s trade surplus actually includes the trade surpluses of many other countries.