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There is more to the U.S.-China trade war than meets the eye, a Mason professor says

September 26, 2018

Maurice Kugler

Will President Trump’s imposition of an additional $200 billion in tariffs on Chinese imports force that country to blink in its trade war with the United States? Not likely, a George Mason University professor said. In fact, Chinese resistance might harden, given its other grievances against the United States.

“It’s not just the tariffs,” said Maurice Kugler, a professor of public policy who spent two years as a senior economist at the World Bank. “Trump just approved a large sale of arms [$330 million] to Taiwan, which was protested by Chinese diplomats. And [the Chinese] are already taken aback by the U.S. approach to North Korea, which has excluded China from the table. That is like adding insult to injury.”

Kugler said Trump’s trade war comes from the belief that a hardline approach will push China to engage in fairer trade practices, especially when it comes to stopping China’s alleged theft of American intellectual properties. The United States also wants more opportunities for its exporters and investors to operate in China.

But there are better ways to achieve those goals than playing hardball, Kugler said.

“You could be in a position of strength if the U.S. teams up with other allies who have similar concerns about unfair trade practices and goes through the WTO [World Trade Organization],” Kugler said. “You could be firm in a way that is in accordance with international law and rules of cooperation. What the U.S. is doing, even as it evokes national security concerns, is not in the spirit of what was agreed to in the context of the WTO.”

Still, Kugler said he found it interesting that China reacted to the most recent U.S. tariffs by imposing just $60 billion in tariffs in retaliation.

“I don’t think that is necessarily a show of restraint,” he said, “but that might be an indication the Chinese are running out of U.S. exports to put tariffs on. In that sense, the U.S. has more room to maneuver. At the same time, there might be other weapons in the arsenal for China, but not the U.S. such as currency devaluation as economic warfare escalates beyond tariffs.”

But what if neither side blinks? The effects might be felt around the world, Kugler said.

The International Monetary Fund pegs the potential downturn of the global economy at 0.5 percent, roughly $430 billion, by 2020 if the tariffs stay in place.

“There will be a global loss to the extent that these two economies, which are the largest in the world, shrink because they cannot reap the gains that you get from international trade, thereby creating international rippling effects, as well,” Kugler said.

Maurice Kugler can be reached at 703-993-3804 or mkugler@gmu.edu.

For more information, contact Damian Cristodero at 703-993-9118 or dcristod@gmu.edu.

About George Mason 

George Mason University is Virginia’s largest public research university. Located near Washington, D.C., Mason enrolls 37,000 students from 130 countries and all 50 states. Mason has grown rapidly over the past half-century and is recognized for its innovation and entrepreneurship, remarkable diversity and commitment to accessibility.