U.S.–China economic tensions: origins and global implications

Abstract

America’s levying of punitive tariffs on China in 2018 triggered the possibility of an escalating global trade war. The forces that led to these disruptive events have been building up for more than a decade. America’s concerns are driven by its huge bilateral trade deficits with China and alleged unfair trade and investment practices. The basis for these concerns, however, is often misunderstood. Developing an enduring solution will require follow-up commitments and adjustments that will supersede any agreement likely to be forged in 2019. Trade tensions will persist until a more institutionally grounded solution is developed for which a revamped World Trade Organization and a bilateral investment treaty are possible options. The pressure on China to reach a lasting trade agreement with the U.S. is also pushing Beijing to strengthen its regional alliances and develop its soft power approaches. East Asia and Europe have the most to gain economically in helping the two major powers to reach an agreement, but the key players in both regions are not yet in a position or motivated enough to play such a role without a major shift in China’s strategy.