Why the U.S.–China Conflict Will Never Go Away
There’s no end in sight to the U.S.–China trade war. And that’s because it’s no longer just a trade war—it’s a political, economic, and low-level military conflict. The question isn’t when it will end, but how it will spread. In future blog posts, we’ll dive into the ways this conflict is likely to evolve—and how international businesses should prepare for what we’ve been calling the New Normal for over a year now.
Before anyone gets upset, let me be clear: this isn’t how I think things should be. This is simply my view of how things are—and how they’re likely to unfold. My role, both on this blog and with our clients, is to offer strategic guidance—not political opinions. If you’re looking to place blame, I’m just the messenger.
We’ve never believed there would be a quick resolution to U.S.–China trade tensions—and that view has only solidified over time. Those who predicted a quick deal (think investment banks and brokerages) tended to frame the conflict strictly in economic terms. You’ll still hear arguments like: “There has to be a resolution because it just makes economic sense.” Or, “The numbers dictate that a deal will happen.”
If you’ve been reading this blog from the beginning, you know why. For China, economic logic isn’t the primary driver—preserving the power, legitimacy, and control of the Chinese Communist Party is. Economics plays a role, but it’s not the central issue.
President Trump’s Motives Behind the Trade War
Apparently, the same holds true for the Trump Administration.
When the trade war first began, we weren’t sure what the U.S. was ultimately trying to achieve. We kept asking: What’s the real objective here? Was it one of the following?
Purely trade/economic goals
Early on, we concluded this couldn’t be the sole motivation. If it were, the conflict would’ve ended quickly—China would’ve bought more soybeans, and that would’ve been that. But investment banks and brokerages—who tend to interpret everything through an economic lens—took much longer to realize this wasn’t just about trade balances.
China’s structural policies
From the start, the Trump Administration focused heavily on China’s systemic unfairness—particularly its intellectual property theft and its blocking of foreign companies from key sectors of its economy. We came to believe this was the real driver behind the U.S. position. And because we never once believed China would meaningfully change in these areas, we were consistently pessimistic about the likelihood of a resolution.
In our view, the only path to a deal was if the U.S. economy faltered badly enough that President Trump would back down to avoid jeopardizing his 2020 reelection. But now, with anti-China sentiment having gone bipartisan, we have to wonder if resolving the trade war could actually hurt his electoral chances instead.
Geopolitical strategy
I often reference a high-level, invitation-only U.S.–China conference I attended at Berkeley Law in August 2018. The event gathered around 100 experts across a range of fields related to China. Most participants believed the trade conflict stemmed from economic issues, with a nod to China’s structural policies. But a smaller group—mostly military and strategic thinkers—argued forcefully that China’s military expansion had gone too far, and that the time had come to push back.
I found that view unsettling—not because I had the expertise to refute it, but because I, like most people, dislike the idea of war. History shows that wars often fail to achieve their aims—see Vietnam, Iraq, Libya, Afghanistan. At the time, I thought it was too soon to say whether this was Trump’s intention. Today, I believe that while it may not be his personal strategy, it’s clearly the plan of some within his administration.
By late 2018, I began to believe the international business community was focusing too much on tariffs and not enough on what was happening to U.S.–China relations beyond just tariffs. In December 2018, in How to Avoid Being Detained in China, I wrote about how Meng Wanzhou’s arrest could impact U.S.–China business relations. Then in January 2019, in The Huawei Indictments are the New Normal, we wrote about how what was happening between the U.S. and Huawei would impact U.S.–China relations. And all the while, I was watching my law firm’s international trade lawyers killing themselves with the workload from a steady stream of anti-dumping and countervailing duty cases being brought against Chinese products.
In April, 2019, the Wall Street Journal quoted me in a cover story Trade Deal Alone Won’t Fix Strained U.S.-China Business Relations on why a U.S.–China trade deal wouldn’t fundamentally shift U.S.–China relations:
But rattled businesses on both sides of the Pacific are skittish about rushing back in to revive the once-booming investment activity between the two countries.
“There is no way any deal between China and the U.S. will cause everyone on both sides to say, ‘We were just kidding,’” said Dan Harris, managing partner at Harris Sliwoski, a law firm that specializes in investment with China. “The tariffs and the arrests and the threats and the heightened risk have impacted companies and that will not go away.”
The day before President Trump’s now-infamous May 5 tariff tweet, I decided to go public with my belief that the tariffs were not the key issue in analyzing U.S.–China trade relations. By that point, I believed that neither the United States nor China truly wanted relations to improve—and that we should expect them to worsen. See e.g. Does China WANT a Second Decoupling? The Chinese Texts Say That it Does.
In my May 4, post, The US-China Trade War: Winter is Coming I wrote about how “the United States is aggressively and unabashedly doing what it can to isolate China and to remove it from the world of international trade” and how shutting out China would become a regular feature of U.S. trade agreements . (See US Commerce’s Ross eyes anti-China poison pill for new trade deals.) I see future trade deals between the United States and the EU and Latin America forcing those regions to align with the United States against China. The new United States/Mexico/ Canada deal already does that. See The New NAFTA’s Real Target? China.
I know few people want to hear this, but I expect the EU, Canada, Australia, and most of Latin America to eventually follow the U.S. in reducing ties with China. My law firm has a big EU presence, and much of our China work is for European clients—so I take no pleasure in making this prediction. My firm has many EU and Latin American clients and a presence in both places, so I take no pleasure in making this prediction.
Since the inception of the US-China trade war we have been saying that we do not see its end because we have always seen it as more than a trade war. At first, we saw the US tariffs as an effort by the United States to get China to “open up” and “act right” on things like the internet and IP. But because we did not see China changing on these things, we did not see the trade war ending. Vice-President Pence’s speech on China earlier this week has only reinforced for me that the trade war between China and the US will not be ending any time soon, if ever. The New York Times has called that speech the Portent of a New Cold War between the United States and China and China’s own Global Times wrote an article entitled, Pence speech shows Washington’s tougher policy on China. Don’t blame us. We are just the messengers. Things are getting very tough between China and the United States right now and the trade war is just a symptom of that, not the disease.
The United States is aggressively and unabashedly doing what it can to isolate China and to remove it from the world of international trade. The new free trade agreement between the United States and Canada is further proof of this as it essentially blocks Canada and Mexico from engaging in free trade with China. See What Trump’s new trade pact signals about China. Word is that shutting out China is going to become a regular thing in all new US trade agreements. See US Commerce’s Ross eyes anti-China ‘poison pill’ for new trade deals. Will the EU and Japan and Latin America play ball on this? I predict that most if not all of them will.
So yes, the above is why we will continue to write about what North American and Latin American and European and Australian businesses should be doing to deal with the new normal regarding China. We are writing these things because we value our credibility and because we presume our readers value our no-holds barred advice— threatening emails or not.
Whether we like it or not, the U.S.–China cold war has begun—and it will spread. The two big questions now are: what will that look like, and what should your international business do about it?
