The China-U.S. Trade War and Future Economic Relations

The relation between China and the United States is arguably the most important bilateral relation in the world today. The U.S. and China are respectively the largest and the second largest economy in the world. They are also respectively the largest and the second largest trading nation in the world. They are also the most important trading-partner country of each other. If China and the U.S. work together as partners towards a common goal, many things are possible. Despite China and the U.S. being the largest trading-partner country of each other, there exists significant friction and potential conflict in their economic relations. The friction originated from U.S. grievances about the lop-sided trade balance in China’s favour, the allegedly under-valued exchange rate of the Renminbi (the Chinese currency), the lack of market access for U.S. firms to China. These grievances culminated in the decision of U.S. President Donald Trump to impose three separate rounds of new U.S. tariffs on imports from China of cumulatively US$250 billion worth in 2018, starting a trade war between the two countries. It is essential to know the true state of the China-U.S. trade balance before effective solutions can be devised to narrow the trade surplus or deficit. The impacts and potential impacts of the 2018 trade war between China and the United States on the two economies are analysed and discussed. The long-term forces that underlie the economic relations between the two countries beyond the 2018 trade war are analysed. In this connection, how a “new type of major-power relation” between the two countries can help to keep the competition friendly and avert a war between them and the way forward for China-U.S. relations is discussed.