US-China trade tensions set to escalate

The Escalating Trade Rivalry Between the US and China

The trade rivalry between the United States and China has reached new heights this week, with both countries considering new restrictions that experts believe are just the beginning of increased pressure.

During the Trump administration, the competition between these two economic powerhouses intensified, with the US imposing tariffs and trade barriers against Beijing. While there have been some differences under the Biden administration, recent reports suggest that the US government is preparing to restrict Chinese companies’ access to US cloud-computing services.

The Wall Street Journal reported that the US will soon require US cloud-service providers, such as Microsoft and Amazon, to obtain government approval before offering cloud-computing services to Chinese companies that utilize advanced artificial intelligence chips.

Meanwhile, China has announced its own restrictions on certain metals used in semiconductor chip production, posing a threat to US supply chains. These metals, including gallium- and germanium-related products, are crucial for technological superiority and are not only used by consumers but also by the US military.

Intensifying Economic Competition

According to Robert Sutter, an international affairs professor at George Washington University’s Elliott School, the economic competition between the US and China is set to intensify.

“The catalyst, if you will, is that over the past… really six years now, the US has fundamentally changed its approach to China, and it’s become very competitive,” Sutter explained.

Sutter believes that there is strong momentum behind this more aggressive approach towards China, and while major corporations may not appreciate the increased competition, it appears to be prevailing.

“And if you’re going to do this effectively, more is needed, and so they’re going to do more, it seems to me,” Sutter added, referring to the mounting pressure.

Former US Trade Representative Robert Lighthizer, who recently released a book on trade policy and confronting China, supports moves like restricting Chinese companies’ access to cloud computing. In his book, Lighthizer calls for additional tariffs and further restrictions on technology from China, arguing that the US is playing into China’s hands by relying on their technology and transferring technology to them.

“I think some level of decoupling is inevitable,” Lighthizer remarked.

Lighthizer believes that China will continue to export goods to generate a trade surplus while increasingly restricting supplies of resources and technology that the US could strategically utilize.

“They are locking up future production of a whole variety of products,” Lighthizer warned.

The battle over technology is particularly critical due to its military and warfare implications. Lighthizer finds it “insanity” that certain components of US military technology originate from China, emphasizing the need for the US to reduce its reliance on imports for such technology.

Treasury Secretary Janet Yellen’s recent visit to China aimed to improve economic relations, but she also criticized China’s “punitive” actions against US companies.

“I’ve been particularly troubled by punitive actions that have been taken against US firms in recent months,” Yellen stated.

However, Yellen’s visit coincided with China’s announcement of export restrictions on gallium and germanium products, indicating that tensions persist.

According to Michael O’Hanlon, a senior fellow and director of research in foreign policy, China has realized that a passive approach is no longer optimal. While he doesn’t believe China is currently mounting a significant pushback campaign regarding the metals, further US actions could intensify the situation.

Lighthizer argues that the trajectory of the US trade relationship with China under the Biden administration heavily favors Beijing. He believes that while military escalation should be avoided, the US must change its economic policy to gain the upper hand in this rivalry.

“The current trajectory has to be changed. Stabilizing it in its current course will make us number two in the world,” Lighthizer warned.

Prioritizing Tech and Competition

Looking ahead, experts suggest that the US needs to prioritize certain areas, particularly in technology, to effectively compete with China. This includes ensuring alternative sources of rare earth elements outside of China and developing chip technology domestically.

Victoria Coates, a senior research fellow at the Heritage Foundation and former official in the Trump administration, emphasizes that artificial intelligence is a major priority for the US in this competition, as well as anticipating China’s next moves.

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