Opinion - How to prevent an economic cold war between the US and China

Yahoo

24-04-2025

The U.S. and China, the world's largest economies, have been balancing between two divergent paths for 25 years. The first is collaborative partnership —leading from cooperative interdependence toward productive wealth generation and technological progress. The second is a costly and destructive economic cold war.
Pulling China into the World Trade Organization was an attempt to take the first path. President Trump is taking us on the other.
A 145 percent tariff is more than a wall to stop trade between the U.S. and China. It too easily could be, like Hitler's invasion of Poland in 1939, the start of a world-wide economic war.
Am I being too dramatic? Not really. The U.S. economy is $30 trillion and China is $19 trillion. The next biggest economy, Germany, is $4.9 trillion, then Japan at $4.4 trillion and India $4.3 trillion. One hopes the EU ($20.9 trillion) could pull itself together sufficiently to offer a constructive counterbalance, but that is unlikely.
The U.S. and China are by far the biggest trading partners for virtually every nation in the world. Not one country will escape this war. Some could be crushed by it. (A longer academic article that I co-authored explored how this came to be.)
Add in the American-imposed wall between China's Huawei-provided telecommunication systems and the American-approved systems (Ericsson and Nokia), and the hard choice gets more difficult and more divisive.
The cost will be immense: massive costly decoupling, supply chain disruption, a deep decline in productivity and innovation and global recession thrusting hundreds of millions into poverty. Not to mention the many additional forms of retaliation yet to be applied.
Trump's 'knock them in the teeth and then work out a deal' approach has gotten the expected response from China. The real problem is that there is no actual 'deal,' just confusion and anger.
What exactly does Trump want from China? Is the plan to sustain the tariff wall in order to rebuild domestic manufacturing? (Do we really want to bring back low-wage apparel production or electronics assembly to an economy already at full employment?) Or is it the opposite: to force tariff and non-tariff concessions in order to expand trade? Both? Neither?
Was the punch in the teeth the whole point? If so, now what?
Successful negotiations require clarity of purpose and specificity in demands. 'Smaller trade deficit' does not cut it as a specific demand. The U.S. must identify exactly what it wants, and when.
Hopefully, one of the demands will be continued support for the rules-based system. To this end, the U.S. must work with China to develop a set of rules acceptable to both (and other key players). This will not be a mere trade agreement but a peace accord about how to move forward together on negotiating the rules of the road in the rapidly evolving international marketplace.
This is a tall order in the best of times. But nothing will better serve America's or China's essential interests. Only American strength and resolve will persuade China to negotiate a new workable, rules-based framework.
American strength is not found in punches to the teeth. It is in the power that comes from recognition and acceptance of differences that must be reconciled. The Trump administration must convince the Chinese government that it can both accept China's powerful place in the world and retain the best of the current rules-based order that has served the world economy so well. But, how to do it?
First, the U.S. needs economic statecraft that is more like China's — strategic, tactically coherent and comprehensive, aimed directly at building up American competitiveness. It must be built upon long-overdue measures to improve U.S. competitiveness at home.
This would include more modern infrastructure; strategic immigration reform to secure a larger supply of trainable, high-quality labor; regulatory reform to promote investment and ease the cost of doing business; incentives to drive more efficient and transferable health care across industry; expanded technical education to create a workforce geared to smart manufacturing; and federal support to reduce the investment cost of manufacturing in the U.S.
For example, American manufacturers, when competing with Chinese producers in export markets, could receive targeted financial, technological and regulatory support equivalent to the difference in U.S.-China cost inputs or exchange rate distortion.
Second, the U.S. should convince China to re-establish a new and more effective Strategic and Economic Dialogue, including the rich network of technical dialogues that underlay this diplomatic program. These include the Cyber Working Group, the Climate Change Working Group, the Joint Committee on Science and Technology, the Water Quality Action Plan, the Law Enforcement Cooperation Dialogue, the U.S.-China Innovation Dialogue, the U.S.-China Investment Forum, the Eco-Partnership Dialogue, the Energy Policy Dialogue and the Agriculture Joint Working Group, among others.
Restoring a solid and peaceful U.S.-China economic partnership is more important than ever. Despite Elon Musk's dreams, we're conjoined on this planet for the next century or longer. The U.S. and China need the same thing — national and economic security and a stable global trading system. The alternative is economic war, or worse.
The U.S. needs clear strategic economic statecraft comprising trade, finance and industrial policies that can more effectively deal with China. It needs to be planned with an eye to 2035 and beyond. The alternative benefits no one.
Robert A. Rogowsky is professor of trade and diplomacy at the Middlebury Institute of International Studies and adjunct professor at Georgetown University's School of Foreign Service. He is a former chief economist and director of operations at the U.S. International Trade Commission.
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