A Trade War is an economic war in which both sides suffer loss. In what sense could one side be considered to win a trade war? The criterion for winning a trade war should be made by considering whether or not its intent is achieved. The Sino-US Trade War is a war provoked by the US, and China has no choice but to fight back in self-defense. As the defending side, if China frustrates the US intent in launching the trade war, China will defeat the US offensive and win the trade war.

So, what is America’s intent?

Two documents released by the US show that its goal is adjustment of its trade policy toward China. One is the National Security Strategy of the United States of America issued by the White House in December 2017, and the other is the 2018 Trade Policy Agenda and 2017 Annual Report of the President of the United States on the Trade Agreement issued by the Office of the US Trade Representative in March 2018. The former has explicitly listed China as a competitor to the United States and thought that China challenged American power, influence, and interests, while the latter has made it clear that trade policy should support the national security strategy of the US and propose specific policy goals and measures on foreign trade.

By careful analysis of the two documents we can see that American trade policy toward China has two goals: one being the interest goal, the other, a strategic goal. The trade policy under its interest goal aims to adjust the trade imbalance and the interest imbalance behind it, and focuses on protecting the interests of American companies and workers in the iron & steel, automobile, and other sectors. The adjustment of trade policy under its interest goal is directed against not only China but also the EU, Japan, Canada, Mexico, South Korea and other major exporters of industrial products to the US. The US imposes a 25 percent tariff on steel import products and 10 percent on imported aluminum, and plans to impose a 20 percent tariff on imported cars, calls for higher origin standards during NAFTA renegotiation to impose restrictions on the policies of multinational corporations on the transfer of outsourcing and manufacturing to Mexico, and asks China to open its market, increase imports from the US and reduce the US-China trade deficit. All of the abovementioned policies belong to the trade policies under the US interest goal. US trade policy under its strategic goal, however, is only directed against China and aims to weaken China’s economic growth potential, delay or even interrupt the pace of China’s economic growth, and reduce China’s ability to challenge US power, influence and interests. Its policy focuses on reducing the technological progress and international competitiveness of Chinese enterprises. The Section 301 investigation report initiated by the US into China’s technology transfer, intellectual property, and innovation practices, and various measures adopted by the US against “Made in China 2025” in accordance with its Section 301 investigation report, belong to the trade policy choices under its strategic goal. The US demands for China in trade negotiations are mixed with interest goals and strategic goals, and attempt to achieve the two major goals at the same time.

Although the US is trying to achieve two major goals at the same time, its strategic goal is superior to its interest goal. After the start of the Sino-US trade war on July 6, 2018, the Office of the US Trade Representative issued a procedure for exempting tariffs on certain tariff-added products imported from China and publicized the exemption conditions. These exemptions obscure the US's ranking of the two major goals mentioned above. The Office of the US Trade Representative claims three major factors were taken into consideration of the exclusion decision: first, can the product be imported from outside of China? Second, does the increase in tariffs impose serious economic damage to the applicants or other stakeholders? Third, is the product strategically important? It can be inferred that if the tariff-added products are strategically important, even if such products are only available from China, even if the product is subject to tariffs, it will cause serious economic damage to US stakeholders and will not receive a tariff waiver In other words, the strategic consideration of the US takes precedence over its consideration of interests. The strategic goal of American trade policy towards China must take precedence over its interest goal. The US trade policy goal toward China is the goal that it wants to achieve in launching the Sino-US trade war. It is thus clear that the primary goal for the US to start a trade war is to achieve its strategic intent, that is, to delay the pace of China’s economic growth and delay or even interrupt the process of the great rejuvenation process of the Chinese nation.

If China wants to win the trade war, it must defeat the strategic intent of the US and prevent the US from achieving its strategic goals. Thus, the sign of China’s victory in the trade war is that the great rejuvenation of the Chinese nation has not been significantly delayed. If the pace of China’s opening-up policy is disrupted because of the trade war, the environment for China’s opening-up policy has deteriorated rapidly, China suffers a sharp fall in economic growth, and the time for China to catch up with and overtake the United States in economy is significantly delayed, the US will achieve its strategic goal of the trade war in the real sense, while China will lose the trade war. The key to China’s fight against this trade war is to avoid the above consequences. As long as the process of the great rejuvenation of the Chinese nation isn’t interrupted or markedly delayed by the trade war, China has successfully hindered the realization of the US strategic goal towards China and has thus won this trade war.

To win the trade war, China must strategically adhere to principle of “being invincible first, waiting for the enemy to win”. Sun Zi said, “The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity to defeat the enemy”. It means that people shall first be in an invincible position and then look for an opportunity to defeat the opponent. To be in an invincible position, China needs to insist on market-oriented reform and opening up, earnestly practice new development concepts, promote high-level all-round opening up, especially the all-round opening up outside the US, maintain and improve its long-term growth potential, and strive to maintain medium and high-speed economic growth, in a bid to make its economic aggregate steadily surpass that of the US and smoothly realize its two centenary goals. To look at the opportunity to defeat the opponent, China needs to patiently look for the weakness of the US and wait for the problem arising from the US itself. The weakness of the United States lies in the existence of interest group influence policies, which are conflicts between their interests and strategic goals. To provide benefits or create damage to interest groups supporting Trump, it is possible to change the US policy toward China, so China has the opportunity to exchange strategic interests for strategic space. To win the trade war, China must strategically pay attention to the control over the scope and intensity of the trade war. In order to strategically weaken China’s economic growth potential and delay China’s economic strength, the US intends to adopt multiple unilateral measures and try to force China to change a number of domestic economic policies. Its unilateral measures include: imposing import tariffs on “Made in China 2025”-related products, and restricting Chinese companies’ merger and acquisitions of American high-tech companies, restricting the transfer of intellectual property and technology to Chinese enterprises, and restricting the cultivation and transportation of high-tech talents to China. The addition of a 25% tariff on “Made in China 2025”-related products worth US$50 billion is an established unilateral measure on the adjustment of American trade policy towards China. Other unilateral measures have nothing to do with tariffs. Upon completion of this established step, the impetus of the US government for further imposing tariffs on China will be weakened. Thus, it is possible to control the scope of the trade war. Even if the Trump administration insists on imposing more tariffs on China’s goods to start a new round of trade war, China will suffer limited damage. The process of the great rejuvenation of the Chinese nation is not yet significantly delayed or interrupted thus far. Moreover, the damage suffered to China will be transferred to the US and other countries via foreign-funded enterprises and global value chains to a certain extent, while the harm to the US caused by the trade war will rapidly expand. The pressure from the interest groups harmed by the trade war will cause serious conflicts between the interests and strategic goals of the US. The intention to simultaneously achieve the strategic goals and interests will be lost, and neither of the two major goals will be realized in the end. Therefore, the US also needs to control the scope and intensity of the trade war. China is entirely likely to win the trade war.

(The author is Deputy Director of Modern Finance Research Center, Shanghai Academy)