The intricate trade war between China and the United States

By Carles Brasó Broggi (*)

Before the economic growth of China, Japan and the so-called Asian tigers (South Korea, Hong Kong, Taiwan and Singapore) also experienced rapid and spectacular development.

A process that took place in an international context marked by the Cold War and the armed conflicts in Asia.

During the Korean and Vietnam wars, the United States began to outsource the production of part of the supplies needed by its army in the territories where it had military bases, especially in Japan and, later, in South Korea and Taiwan.

Much of the American technology to make cars, televisions, and other appliances was transferred to those Allied territories, but not all of it; American parent companies used to keep the most sensitive production in the United States to protect it from potential competitors.

This is how the OEMs (Original Equipment Manufacturers) appeared, that is, Asian companies that provide intermediate or semi-finished goods so that another company, generally a multinational, sells them, already finished, with a well-known brand in the consumer markets of Europe and the United States. Joined.

Currently, the production of smartphones, for example, is carried out by Taiwanese OEM companies, unknown to the general public, which manufacture for large international brands. This form of outsourcing generated significant economic growth in Asian countries, but also large trade deficits in Western economies, as they deindustrialized.

These trade deficits were offset by business profits and the advantages perceived by the consumer in the face of a greater supply of goods at competitive prices.

The relocation process coincided in time with a technological and logistics revolution: trade with standardized containers, computer programs capable of controlling the traceability of goods and the unification of commercial and logistics standards such as, for example, the TEU measure or barcodes.

remote monitoring

All this facilitated the fragmentation of production in stages, traceability and the possibility that complex procedures and components could be monitored regardless of distance or transport. In this way, the global production and supply chains that currently provide us with industrial consumer goods such as clothing, cars, household appliances or telecommunications devices emerged.

Between the 1970s and 2000s, more countries joined these international trade networks.

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Especially important was the alliance between the People's Republic of China and the United States and the opening of the so-called "special economic zones", where China allowed joint ventures with Chinese and foreign capital dedicated to importing machinery and exporting semi-finished goods.

Starting from the links with the lowest added value (such as the assembly of components), China was integrated into global production chains and, since then, the Asian giant has experienced the greatest economic growth in history. Little by little, Chinese companies were able to compete at the most sophisticated levels and when they were able to produce state-of-the-art goods (such as electric cars or smartphones), the United States and other industrialized countries such as Germany stopped considering China an ally for be perceived as a competitor.

The arrival of the internet and smartphones

On the other hand, if the language of containers and the first computer revolution were able to break down the barriers of the Cold War, the arrival of the Internet, smartphones and the large digital platforms meant the erection of a new wall.

China set out to build its own digital platform that would not depend on technology and large American companies. This trend was also due to a desire of the Chinese Government to regulate the ability of technology companies to award themselves functions belonging to the State, such as the collection, filing and management of all kinds of information related to citizens, prerogatives that the Chinese State wants to maintain. at all costs.

Since then, the separation of the digital codes of the United States and China is a reality that breaks with the common language of global trade and threatens to cause the decoupling of global production and supply chains.

To this fact are added the environmental needs and the commitment to decarbonization, which make maritime and air trade more expensive. The arrival of the covid-19 pandemic and the restrictions on the movement of people have ended up messing up the global distribution of consumer products, just as it was organized.

The 2009 crisis, a turning point

On the other hand, the economic crisis of 2009 marked a turning point in trade between China and Western countries. That year, for the first time, Chinese exports to the United States and Europe plummeted due to the crisis in Western consumer markets.

China then decided to relocate the goods that it had not been able to export to its domestic market, encouraging domestic consumption, a trend that has been consolidated in the last decade, fueling the decoupling process.

The pandemic has accentuated this trend because China has recovered more quickly than the rest, aggravating the supply crisis in other markets, such as Europe.

Finally, the rise of China as the second global power brings into question the international status quo. The South China Sea is surrounded by US military bases, from northern Japan to the Philippine Islands. Those bases, product of the victory of the United States in the Pacific War, guaranteed the security of global production chains during the Cold War and the first decades of globalization, when North American companies were hegemonic.

However, in the last decade, China has replaced the United States as the main supplier in most countries in Asia, Africa, Europe and South America. All these issues were somewhat exaggerated by Donald Trump and his imposition of tariffs on certain Chinese products, starting the so-called trade war with China in 2018. However, after his departure, trade conflicts and turmoil in production chains they have not abated.

(*) Doctor in History. Researcher Ramón y Cajal, UOC – Open University of Catalonia