US-China Trade War: Why a deal will be a win

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OPINION

By George Musiime

In one way or another, the entire world caught the fever of the virulent fallout from the Trump administration’s rather unorthodox economic and trade policies as Washington imposed trade tariffs on several countries across the world.

Owing to this, financial markets were rattled, and trade with the US contracted as reciprocal tariff walls sprang up in the targeted territories. Meanwhile, even though some of the outrageous tariffs were paused, tariff rates as high as 145% were maintained on Chinese imports into the United States, while reciprocal tariffs rose to about 125%, casting a shadow on China-US bilateral trade.

This is why, when President Trump and Treasury Secretary Scott Bessent hinted at the United States’ willingness and the possibility of a deal with China, something the Chinese have been calling for, for the sake of stable global trade-there was a resurgence of hope for global economic stability. Washington’s expressed interest in dialogue is a critical moment, and the possibility of a deal to end this trade-impasse, is a bright ray of hope for the whole world in many ways.

One of the more obvious outcomes of the escalating economic tensions between the US and China was a contraction in bilateral trade. Consequently, this would certainly result in slowed growth in two of the world’s largest economies, which also happen to have very opposite views on the challenge of climate change. Whereas one of Trump’s first actions in office as president was to withdraw from the Paris Climate Agreement, China led global decarbonization efforts.

In addition, owing to its position as the ‘factory of the world’, China also accounts for a significant amount of greenhouse gas emission. Thus, an economic slowdown in China at such a critical time, when the world is struggling to meet the net-zero target, would most likely impair the country’s investment in green innovation and the entire energy transition in the world’s second-largest economy.

Moreover, many other countries, both in the global North and South, heavily rely on China for their energy transition as well. This ranges from batteries for electric vehicles in the north, solar panels to power households in the remotest of areas in the south, wind-turbines used on wind farms et cetera. More so, China has invested heavily in the setting up of more major renewable energy sources in Africa, including solar and hydropower plants across the African continent in the past decade.

All of these risks are becoming the first casualties of a sustained economic impasse between the two major global powers. Indeed, since Washington already relinquished, and reneged on its responsibility in as far as curbing down the threat of climate change, crippling China’s ability to enhance global response capacity might be one area where Washington is likely to score points in this conflict.

As it would turn out, climate action targets have remained elusive until today. On the contrary, China has played a key role in the global effort to solve the sustainability puzzle; deploying the most electric vehicles globally, which translates into a significant reduction in mobility-related greenhouse gas emissions.

More to that, through green innovation, China has supported many nations and corporations in reducing their carbon footprint the world over. Causing even a limp in China’s capability for energy transition is not merely bad for China but a major setback for the entire world, and this is something the world cannot afford at this point.

To put this into context, without China’s involvement, both global supply and demand for green technology would suffer serious disruptions, setting the world many years farther away from net zero and carbon neutrality. While the Trump administration aims to restore the United States’ global leadership by beating its nearest competition-the Chinese, this approach seems mindless of preserving the world it seeks to retain leadership of.

Furthermore, one of the commodities likely to suffer the most from this trade-impasse is Oil and Gas; which China has been importing largely from the US (close to 6 million barrels). Therefore, being one of the biggest importers of US oil and gas, unless a deal is reached, the global prices for oil and gas are also likely to suffer significant upheaval. This would mainly arise from low economic activity, less manufacturing and trans-pacific shipping.

As a matter of fact, if China were able even by a fraction to adapt by switching to alternative energy sources, the prices of oil will only be expected to fall dramatically, having severe consequences not only on the US economy but also many southern economies that depend on oil and gas as their major export commodity in the medium and long term. And while this might be good for the global energy transition, it would expose such developing nations to vulnerabilities, including inability to finance development projects, pay off their debt, affecting their debt-worthiness and depriving them of their legitimate right to development.

Moreover, this does not only end with the oil and gas trade between China and the US. As a matter of fact, steel and other imports from China into the US will be hit the same way, affecting their supply and that of products for which they are intermediate inputs. The resulting shock will be felt on both ends of the value chain; at the sources of the intermediate commodities as well as in the markets for the final products in which these commodities are inputs. Clearly, this is not a war waged against China or between Washington and Beijing, but a stab dangerously close to the beating heart of the world economy.

Gandhi is quoted to have said that “There is enough rice for everyone in the world, but there isn’t enough rice for everyone’s greed.” In the same way the world today is enough for the United States, China and all else to thrive without one needing to cripple the others. If anything, the world is better off with both a prosperous China and the United States.

On the contrary, as Washington pursues its selfish national interests, waging the current trade war, leaves collateral damage everywhere between the poles, exposing many nations and billions of humankind to serious economic vulnerabilities, endangering global trade and the global effort to reduce the carbon footprint, and our ability to pushback against climate change. This is primarily why the whole wide-world needs a deal between the world’s largest economies to end the ongoing trade conflict.

George Musiime is a research fellow at the Development Watch Centre.