Trump's trade war with China will continue until the US achieves its 'ultimate objective'

(Thomas Peter-Pool / Getty Images)
  • If US tariffs against China were really about the trade deficit, the trade war would’ve ended months ago, ANZ says.
  • Instead, the bank’s chief economist in China says the threats are part of a broader economic power struggle.
  • As a result, the US is unlikely to change its policy stance, even after November’s mid-term elections in.

The US will continue ramping up its trade war with China until it has reestablished authority in the global economic pecking order, ANZ says.

“The Trump administration is not simply targeting the bilateral trade balance between the US and China. If it is, the trade friction would have been eased back in May,” said Raymond Yeung, ANZ’s chief economist in China.

Underpinning the US tariffs is a directive from the US Trade Representative (USTR) following an investigation into Chinese trade practices under section 301 of the US Trade Act. The investigation was approved by Donald Trump in August 2017.

The USTA report highlights Chinese practices towards intellectual property and technology transfer, which form part of “China’s stated intention of seizing economic leadership in advanced technology”.

But Yeung highlighted another report from January of that year, issued by the President’s Council of Advisors on Science and Technology (PCAST).

“The PCAST report urges the administration to protect the US’s national security and respond to China’s industrial policies proactively,” Yeung said.

As such, it “suggests the focus was actually on China’s rising industrial competitiveness itself, not about fair trade”.

Instead, Yeung pointed back to the primary catalyst behind the tariffs; ongoing US concerns about the threat posed by China’s growing technological prowess.

During the May talks, China agreed to import more US goods and thought it had a deal, only to see President Trump announce tariffs on $US50 billion worth of Chinese goods just a few days later.

At the time of writing, global markets are braced for another escalation now the consultation period on the next round of US tariffs has come to an end.

The general consensus is the Trump administration will go ahead and announce tariffs on another $US200 billion worth of Chinese exports.

That’s despite the protests of some US companies, who said they would have to lay off staff to absorb the costs from more tariffs.

However, Yeung says it won’t end there.

“The administration’s policy towards China is also targeting other aspects such as technology transfer, and the ultimate objective is to ensure that the US remains the largest economy in the world,” Yeung said.

“This policy direction is unlikely to change even after the US mid-term elections in November.”

Unfortunately, Yeung says it probably won’t work.

If the US really is concerned about China as a legitimate threat in the global technology arms race, then trying to nullify the threat through trade probably isn’t the way to go about it.

“We do not see China agreeing to US demands on this front. Hence, the chances that the trade dispute can be settled are low,” Yeung said.

As a result, “US-China trade tensions look likely to become the new normal in the Xi-Trump era, which will continue to weigh on the economic outlook and be a source of ongoing volatility in global financial markets”.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.