Will a Trade War with China Erupt?



Last week, the West and Beijing exchanged harsh statements, warning of the start of a large-scale economic confrontation.

Premier of the State Council of China, Li Qiang, delivered an extensive speech at the World Economic Forum, largely addressing Western partners. Don’t think the Davos event was moved to summer. China now, with quite justified ambitions, holds its own World Economic Forum to rival the Swiss one. The venue is the beautiful city on the east coast of China — Dalian.

In the firm yet peace-loving manner characteristic of modern China, the head of the Chinese government warned that the world is on the brink of a trade war and cautioned the West against a complete breakdown of relations, which could occur if it continues its chosen policy.

Of course, it’s hard to imagine a «complete breakdown» when China’s trade turnover with the EU and the US vastly exceeds Sino-Russian trade, and China’s economic relations with Europe and America are the engine of global development. But, according to Li Qiang, protectionism and sanctions will lead to the final fragmentation of the world, the end of globalization initiated by the West, and hinder economic growth. «If countries think only about maximizing their own interests, disregarding the interests of others, and even turn the wheel of history backward by severing ties and breaking chains, creating ‘dividing lines,’ it will only increase the operational costs of the global economy, disrupt economic connections between regions, and exacerbate contradictions and disputes», said Li Qiang.

In the opinion of the Premier, these ongoing processes will draw the world into a vicious circle where all countries compete for a shrinking piece of the global pie. The Chinese official called for cooperation instead of hostility, opposing bloc confrontation and the severing of ties, supporting the stability and smooth operation of industrial and logistics chains, deepening technological and scientific exchanges, and promoting the liberalization and simplification of procedures necessary for the development of trade and investment. For the benefit of the entire world and universal development. But his calls went unheard.

In an interview with CNN, NATO Secretary General Stoltenberg stated that NATO countries might impose economic sanctions on China for its support of Russia’s special military operation in Ukraine. In his opinion, China is trying to maintain good relations with both Russia and the West, but this cannot last long. The NATO Secretary General mentioned that discussions are underway within the alliance about possible sanctions against China. According to him, China «shares many technologies that are key to Russia’s weapon production, which it uses against Ukraine». «NATO countries should consider imposing anti-Chinese sanctions if Beijing does not change its position on the Ukrainian conflict». He added that China helps Russia develop its military economy, trying «to create the impression that it is not at the forefront of this conflict».

China’s Foreign Ministry quickly responded: «The international community has its fair opinion on NATO’s role in the Ukrainian crisis, a product of the Cold War and the largest military alliance in the world. NATO should rethink its actions rather than make slanderous attacks on China».

This is not the first exchange of such statements and even concrete actions. China has already expressed strong protest against the recent US decision to impose sanctions on Chinese companies under the pretext of connections with Russia. These sanctions are not based on international law and are not sanctioned by the UN Security Council, stated an official representative of the Chinese Ministry of Commerce, He Yadong. According to him, such a move is a typical act of unilateral bullying and economic coercion. The US should immediately stop unreasonably suppressing Chinese companies, he said, adding that China will take all necessary measures to resolutely protect the legitimate rights and interests of domestic enterprises.

In light of the planned 38% tariffs on Chinese electric vehicles imported into the EU, China has launched an anti-dumping investigation into European pork supplies, which amount to around 2 billion euros. China threatens to take similar actions against alcoholic beverages and cosmetics. Next could be European, and perhaps even American, luxury cars, whose tariffs are currently minimal at 15%. But they could be 25%, or even 50%. Why not, if Europeans do not make a deal and stop stifling Chinese companies in their markets?

At the same time, China has cautiously condemned the fourfold increase in tariffs on electric vehicles imported into the US, up to 100%. The fact is, the only «electric car» currently exported from China to the US is Tesla. So let Elon Musk (head of Tesla) handle it, Beijing decided.

But Washington did not stop there. Tariffs on batteries for electric vehicles have been raised from 7.5% to 25%, solar panels from 25% to 50%, semiconductors from 25% to 50%, and steel and aluminum from 0–7.5% to 25%. And this is more serious.

Meanwhile, Canada is also preparing to impose higher tariffs on Chinese imports, primarily electric vehicles. And then it will be the turn of other high-tech Chinese products. The North American continent will be closed to Chinese supplies. Naturally, China will not sit idly by.

As for Europe, about a third to 40 percent of Chinese exports go there. The EU is China’s largest trading partner. And according to China’s Ministry of Commerce, since the beginning of this year, Brussels has implemented 31 restrictive measures in the field of trade and investment cooperation with China, 25 of which are related to trade protectionism. This seriously hinders Sino-European trade and economic cooperation, the Chinese ministry calculated, proposing «dialogue and consultations». But will it work?

Meanwhile, according to a report by the UN Conference on Trade and Development (UNCTAD), in 2023, the volume of foreign direct investment (FDI) in the world decreased by 2% to $1.3 trillion. The percentage seems small, especially compared to 2022, when FDI inflows plummeted by 12% after the start of the special military operation. But the trend is evident, as FDI is the most sensitive and important indicator of economic activity and growth prospects. «The decline is caused by rising trade and geopolitical tensions amid a slowing global economy», conclude UN experts in the report. They believe that «crises, protectionist policies, and regional restructurings are destroying the global economy, fragmenting trade networks, regulatory environments, and global supply chains». This, in turn, «undermines the stability and predictability of global investment flows».

But if a trade war against China truly begins and it retaliates, it will not be easy for anyone. Not even those who instigate it to dominate the world at any cost.