Analysis of the Costliness the Sino-US Trade War

Analysis of the Costliness of the Sino-US Trade War

The recent Sino-US trade war is essentially a costly competition, and its costliness lies mainly in the following core aspects: technology and market dominance, credit and monetary system, and continuous performance and strategic depth capabilities.

 Asymmetry 1: Technological advantages and dominance in high-quality markets

In the fields of technological innovation and high-end manufacturing, the United States has long had an overwhelming advantage. This is not only reflected in its own strong R&D capabilities and patent reserves, but also in the fundamental position and irreplaceability of American technology in the global supply chain. Even world-class semiconductor giants such as TSMC must accept the constraints of the US technology export control policy because their key production links rely heavily on US technology and equipment. In other words, the United States has institutional voice and strategic control in the global science and technology system.

At the same time, the United States remains the world's largest high-quality consumer market, and its standard system, payment capabilities, rule of law environment and continued demand for high value-added goods determine the configuration direction of the high-end links of the global industrial chain. In contrast, China's comparative advantages are still concentrated in cheap labor and low-end manufacturing capabilities. These advantages are obviously substitutable and are facing fierce competition and diversion from emerging economies such as India, Mexico, Vietnam and South America.

Asymmetry 2: Structural suppression of the dollar system and national credit

The United States occupies an institutionally dominant position in the global financial system. As an international reserve currency and trade settlement tool, the dollar's status is based on the United States' long-term stable national credit, a globally trusted financial system, and a sound legal and regulatory system. Almost all of the international mainstream credit rating agencies are owned by American companies. The US government and its agencies can influence the financing capabilities of other countries' companies and sovereigns through the credit rating mechanism, and even manipulate the flow of international capital.

For China, this has created significant asymmetric pressure. On the one hand, China's economy is highly dependent on bulk raw materials such as oil, grain, and metal ores, which means that it must use a large amount of US dollars for international purchases; on the other hand, export earnings are the main way to obtain US dollars, and the US-China trade war has further compressed China's channels for obtaining US dollars by raising tariffs, restricting the export of high-tech products, and setting limits with its allies. In the global financial ecosystem, China faces the structural constraints of "export restrictions, rigid import demand, and dependence on the US dollar."

Asymmetry 3: Sustainability and strategic depth of the trade war

From the perspective of strategic sustainability, there is also a clear gap between the resources and response capabilities that China and the United States can mobilize in the trade war. Part of the goal of the United States in launching a trade war is to return manufacturing to the mainland, thereby revitalizing the "rust belt" industrial zone, improving employment levels, alleviating social divisions, and strengthening national security. In the field of strategic materials such as steel and aluminum, localized production can drive the recovery of upstream and downstream industries such as energy, transportation, and raw materials, and has strategic continuity and political domestic demand foundation.

Relatively speaking, China's export-oriented industries face greater challenges. With the increase of tariff barriers in the European and American markets and changes in the investment environment, foreign-funded enterprises have accelerated their relocation, and their export capacity has been significantly limited, resulting in a temporary overcapacity in domestic industrial production. At the same time, due to factors such as the relocation of the industrial chain, the reduction of jobs, and the dual downturn in real estate and finance, a series of chain reactions may occur at the social level, including difficulties in finding jobs for college graduates, rising structural unemployment, and weak consumer expectations. If there are no effective countermeasures, it may even trigger a trend of "reverse urbanization", with a large number of people returning to rural areas, further impacting the urban-rural structure, fiscal revenue, and social stability.

Conclusion

The Sino-US trade war has long surpassed the traditional tariff friction, and is a systematic contest involving technology, currency, industrial chain, credit system and geopolitical pattern. In the foreseeable future, the structural gap and asymmetry between China and the United States will continue to exist. This asymmetry determines China's passive position in the global game. Faced with this reality, China needs to re-examine its global strategic positioning, find new growth engines and breakthroughs, and while stabilizing its internal economic structure, enhance the resilience and strategic maneuvering space of the external environment, so as to gradually take the initiative in asymmetric competition (this article is purely academic discussion, and I do not hold any political stance, hereby declare).

Peter Lee  in Toronto