Trump’s trade war with China: How we got here, what happens next

When US President Donald Trump hosts his Chinese counterpart Xi Jinping for dinner in Buenos Aires on Saturday, the stakes could not be much higher.

It will be the first bilateral meeting between the two leaders since the start of the US-China trade war, which is set to escalate further in January if the two leaders fail to reach a deal this weekend.

The dinner is widely perceived as the last chance to avert a broad-based economic clash that would likely last for at least two years, with ramifications for the global economy.

Before the sideline meeting, Al Jazeera examines how the world’s two largest economies got here and what happens next.

A competitive rivalry

Trump’s hostility to Chinese economic policy dates back to his presidential campaign in 2016 and has been consistent over the past two years.

He adopted a markedly different tone to those struck by previous American leaders, framing the US-China economic relationship as competitive and adversarial, rather than one that benefits both parties.

In 2018, the Trump administration instigated a trade war on Beijing, imposing tariffs on a total of $250bn of Chinese imports. For its part, China has slapped tariffs on $110bn of US imports.

On January 1, a 10 percent US tariff on $200bn of Chinese imports is due to increase to 25 percent, which would pose a much bigger problem for the affected industries.

“A 10 percent tariff, businesses can kind of work around,” said Edward Alden, Senior Fellow at the Council on Foreign Relations. “The Chinese currency has fallen a little bit against the US dollar. Companies can maybe take a slight hit on their profit margin. Ten percent is manageable. Twenty-five percent is less manageable. It’s going to have a bigger real-world impact.”

Trump also threatened this week to impose tariffs on a further $267bn worth of Chinese imports if the two sides fail to reach some kind of truce on Saturday, which could have a far wider effect on consumer goods.

“If Trump goes forward with the next step, which is tariffs on the remainder of Chinese imports, then that hits directly a lot of consumer products, like smartphones and things that have so far been spared,” Alden said.

Trump’s tough line on China has so far been popular among his political base and has commanded rare bipartisan support from the Republican and Democratic parties in the US Congress.

Since he entered office, the US has been far more proactive and confrontational about addressing a long-standing list of grievances with China’s model for economic development, particularly in relation to technology.

As a relative latecomer to industrialisation compared with the United States, China has borrowed, or from the US perspective “stolen”, much of the technology that it uses to advance its own industrial capabilities.

The US charges that China has stolen trade secrets, violated patents, forced companies that are investing in China to share their technology with Chinese partners and hacked industrial targets.

“These are all techniques the Chinese are using to move up the innovation ladder,” said Alden. “They want to be a leader in the next generation of technologies, from next-generation semiconductors, to electric vehicles, to artificial intelligence.”

Beijing’s aspirations were outlined in its Made in China 2025 initiative, first announced in 2015, which charts a path for China’s economic development from the world’s factory to a global technology leader.

Alden said the US sees such advancement as a potentially long-term security threat.

“If China acquires the sort of technological leadership that it is seeking, it will pose a much greater military threat to the United States than it does now. So, economics and security are very much tied up here,” he said.

China has defended its ambitions for more self-sufficiency, arguing that it needs to boost its own hi-tech capabilities in the face of restrictions on some imports from Western countries.

The Trump administration has also blasted the US trade deficit with China, rallied against Chinese state subsidisation of industry and criticised its failure to open its domestic economy more for foreign investment.

“I think the trade deficit is a symbol and it’s not the key thing. Economists can’t really agree on whether it’s important or not,” said Kerry Brown, associated fellow for the Asia-Pacific programme at Chatham House. “I think the issue is really about competition in technology and in other areas where China needs to be dealt with – that’s the attitude in America – that it’s got to now open up and reform itself much more,” Brown told Al Jazeera.

“This idea of being a Marxist-Leninist state-led kind of market does not appeal to America and they want to see fundamental change there. That’s the difference. That’s the big broad issue. And I’m not sure that that can be resolved, certainly not in one meeting. That huge issue of competitive rivalry between China and America will not go away.”

Heading towards a new Cold War?

Alongside the tariffs, the US has also stepped up wider economic and geopolitical pressure on China this year, raising the prospect that this may be the start of a broad, multi-front confrontation similar to the Cold War between the US and Russia.

In August, the US increased its export controls, restricting the sale of advanced technologies to China and also passed a new law that heavily curtails Chinese investment in the US technology sector.

In September, the US placed sanctions on a branch of China’s military over its purchase of Russian military jets and surface-to-air missiles.

Meanwhile, Vice President Mike Pence has intensified the confrontation with China in the geopolitical sphere, accusing Beijing of a number of alleged offences.

In a stinging speech in October, he accused China of attempting to meddle in the US midterm elections, which China rejected, and criticised its military build-up in the South China Sea.

At the Asia-Pacific Economic Cooperation summit in November, he mocked China’s Belt and Road infrastructure initiative as a “constricting belt” and a “one-way road” that amounted to a form of debt diplomacy and warned smaller countries not to take part.

Speaking at the same event, China’s President Xi reiterated that Belt and Road was not a “trap”, nor did Beijing have a “hidden agenda”, while he also criticised “America First” trade protectionism.

“What we are looking at here is not just a narrow trade war, but a broader economic war that is reminiscent of the sort of tactics that the United States used against the Soviet Union during the Cold War,” said Alden.

In advance of Saturday’s dinner, both sides have expressed openness to the prospect of a deal.

But the US has also threatened to expand its tariffs to cover all Chinese imports if Beijing does not agree to its demands.

Serious doubts remain as to whether Beijing will make the kinds of concessions that Washington is demanding.

“The chance of any deal between the US and China being done at the G20 is very low,” said Duncan Innes-Ker, regional director for Asia and Australasia at the Economist Intelligence Unit. “US officials have been downplaying hopes for a resolution and the back-channel discussions that would usually precede a breakthrough have mostly foundered.”

Innes-Ker added, however, that the “situation involving Donald Trump is inherently unpredictable, so a surprise agreement is possible. If that does happen, there is a high risk that the deal will subsequently fall apart.”

Brown said the best-case-scenario may be some kind of framework for a “limited, pragmatic deal”.

“And then they can play this, separately, as a victory for each other. The best outcome is that they both come away thinking that they’ve won.”