China–US Trade Frictions Shaping New Equilibriums with the EU and the US

The following sections are included:

• Preface
• About the Authors
• Acknowledgments
• Contents
• Abbreviations and Acronyms

Trade tensions between China and the US began in 2018 when the Trump Administration introduced new tariffs on Chinese imports. This move was aimed at forcing China to make changes to what the US defined “unfair trade practices.” China’s trade practices and their effects, including the growing trade deficit, the theft of intellectual property, and the forced transfer of American technology to China, are strongly denounced by the US. Based on these assertions, the US has de facto adopted a new protectionism stance, clearly not in line with the WTO principles, and has also put in doubt the functioning of the very organization it had once helped form. As the US has resorted to “snubbing” the WTO, this organization is now sustained by China, which is calling for a reform of the WTO so it can respond more efficiently to the needs of the evolving trade relations among nations. The trade tensions escalated and affected the entire global economy until January 2020, when the duelists reached the so-called Phase One Agreement, thereby ending their trade confrontation…

China has achieved incredible economic development in only 40 years with the introduction of a Reform period by Deng Xiaoping at the end of 1978, when the Reform and Opening-up policy was officially launched, and which is still in progress. This reform process is in a continued “adjusting mode” to meet the needs of China which is facing a continuously changing international landscape that impacts not only China but also the entire world. This chapter provides a brief outline of the initiatives adopted by China to transform the country into an economic superpower, the recent trade “turbulences” with the US, and the challenges China now faces together with the other nations. These factors not only contribute to changing the current world order as we know it, and thus leading toward a new world order of multilateralism or tripolarism, but also impact the globalization process, which is now conditioned by the impact of COVID-19.

The trade confrontation between China and the US was provoked by protectionist and unilateral measures adopted by the US President Donald Trump, who has embraced his “America First” policy to protect US’ interests without realizing that the world is evolving into a more sophisticated ecosystem where the contribution of every nation is necessary to build a sustainable development model, starting from more constructive cooperation for the protection of our environment and thus fight climate change together…

There will be no winner in a trade war, should one happen between China and the US. At the time of writing, although the trade confrontation was resolved with the signing of the Phase One Agreement, new tensions began to simmer due to the COVID-19 pandemic. However, the two parties should continue to cooperate and reinforce their trade relations and not reverse their advancements. If the parties should unwind what they concluded in January 2020, there is a risk of a new trade confrontation in which US and China will be the biggest losers, even as the rest of the world suffers. What is more, a trade confrontation would go against the very principles of trade, which are: (1) negotiation, (2) consultation, and (3) dialogue. In order to avoid a disaster, both sides should engage more in consultations and strive to act rationally rather than emotionally and work together to shape a trade agreement in order to find solutions and favor two-way flow of investments.

The EU and China are now sharing a common future, and this is a fact which emerges from the following circumstances: China is implementing the Belt and Road Initiative as part of its foreign policy with the clear intent to revamp the ancient Silk Road and is also negotiating a new bilateral Investment Agreement with the EU; both initiatives are intended to reinforce trade relationships between the two blocs.

The inevitable surge of Chinese investments in the EU that is expected in consideration of the development of the Belt and Road Initiative (BRI) and the implementation of the new comprehensive bilateral investment agreement, is likely to substantiate themselves with more mergers and acquisitions (M&A) transactions. Therefore, it seemed appropriate to introduce to the readers the M&A Regime in the EU; in fact, in the EU there exists a complicated framework which regulates these transactions, and each single Member State, when witnessing the realization of determined investments taking shape through this method, have to refer to the EU regulations and investors have to abide by these rules. A greater familiarity and understanding of these rules is a must for investors willing to expand their presence in the EU through M&A transactions…

In a few decades, China has become a world economic giant. It all started with the market reforms implemented by Deng Xiaoping in 1978. In 2017, the “Middle Kingdom” surpassed the US to become the largest economy in the world (based on purchasing power parity). Despite the huge leap in its economy, China has not yet managed to free itself from its dependence on the US dollar, as evidenced during the 2008 Global Financial Crisis…

We have already examined the upcoming EU–China Comprehensive Investment Agreement and briefly concluded that the best solution to restore confidence (at least in part) between China and the US would be to negotiate a new bilateral investment agreement. However, it seems appropriate to expand upon these topics in this chapter to better understand the reasons behind these initiatives. While the US has focused its attention to reinvigorate the role of unilateralism and counter Chinese competition, the EU has chosen a different path and is trying to bolster bilateralism and seeking a more constructive cooperation with China. Of note, both the US and the EU are, in any case, trying to secure their commercial shares worldwide, just like China…

Trade rivalries between China and the US are not new, but they have intensified with the new protectionist measures embraced by the Trump Administration intended to protect economic interests which the US believes have been endangered by Chinese trade practices. The introduction of new tariffs is also aimed at reducing the deficit accumulated by the US as a result of the augmented imports from China. However, China has always adhered to globally established trade practices and WTO rules since its accession to the organization. China remained open to negotiate with the US, and finally the two were able to reach a Phase One Agreement, which could lead to a more ample and comprehensive investment agreement in the future. The fact that China was able to achieve impressive economic progress in a relatively short period of time (40 years) was the result of its reforms and opening-up process, which is still in progress and has allowed the Middle Kingdom to expand its presence abroad and assume a prominent position at the international level. China is perfectly aware that its increased economic power and thus its influence also bring more responsibilities. Therefore, China is working by trying to engage the entire global community and pushing not only to reform the WTO but also to build a more inclusive and just trade order…

We would be hesitant to make such long-term calls in relation to COVID-19. It is entirely possible that five years from now, the policy implications from the pandemic on any individual country, China included, may be rather small.

The following section is included:

• Bibliography