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Anyone who doubts that we are headed for a U.S.-China trade war has not been paying attention to the punitive import tariffs that President Biden announced Monday on strategically important parts of the Chinese economy. In addition to a 100% import tariff on Chinese electrical vehicles, Biden announced that the U.S. will triple import tariffs on Chinese steel and aluminum, and double import tariffs on Chinese semiconductors and solar cells.

Not to be outdone, former President Donald Trump is indicating that if he is elected again as president, he will increase tariffs on Chinese electrical vehicles to 200% and will impose a 10% tariff on all U.S. imports. He is also chastising the Biden administration for having been too soft on China’s unfair trade practices.

The proposed “Promoting and Respecting Economically Vital American Innovation Leadership” (PREVAIL) Act was introduced to Congress in June 2023. This aims to reform the PTAB for the benefit of patent owners, for example by prohibiting duplicative proceedings.

Previous versions of PERA and PREVAIL have appeared on the legislative agenda in the past with little success, so it remains to be seen whether either will become law.

But the global economic crisis was a huge setback — one from which the world economy has still not fully recovered. Europe continues to battle its debt crisis, with Japan and the United States also in need of fiscal reform. The Middle East and North Africa region is undergoing a historic transition: hopes for a brighter, more democratic future rest crucially on the economic transformation that sustains high and equitable growth. And then there is the challenge of ensuring that rapidly rising incomes in other emerging market and developing economies continue, but in a manner that is socially and environmentally sustainable.

Consider these developments: Income inequality has widened; chronic unemployment and pervasive underemployment have escalated; populations are growing unevenly; and climate change is worsening.

These studies remind us about the escalating cycle impacts of the US-China trade war on the world’s two largest economies because of their significant contribution to global trade. The escalating tariff retaliation between the US and China on industries, businesses, and consumers and other harmful trade discrimination policies portend a risk and frontal challenges to the global trade order. Research by (Rodrik, Citation2018, Lawrence, Citation2018; Shaffer, Citation2021) has demonstrated how US-China trade largely undermines the WTO’s rule-based multilateral trading system and affects the global growth prospects of countries with the worst and darkest economic scenarios (Steinbock, Citation2019). As Yao (Citation2018) noted, the US-China trade war has disrupted world trade, costing the world more than a US$430 billion loss in GDP.

After decades of increasing global economic integration, the world is facing the risk of fragmentation. A shallow and uneven recovery from the global financial crisis (GFC) was followed by Brexit, U.S.–-China trade tensions, and a growing number of military conflicts. The post-GFC era has seen a leveling-off of global flows of goods and capital, and a surge in trade restrictions. The COVID-19 pandemic and Russia’s invasion of Ukraine have further tested international relations and increased skepticism about the benefits of globalization. This Staff Discussion Note explores the potential economic ramifications of a policy-driven reversal of global economic integration, a multidimensional process that the authors refer to as geoeconomic fragmentation (GEF).

The benefits of globalization propagate through multiple channels; the adverse consequences of GEF would be felt in many areas as well. For several decades, trade deepening has helped catalyze catch-up in per capita incomes across countries and a large reduction in global poverty, while in advanced economies, low-income consumers have benefited disproportionately through lower prices. Conversely, the unraveling of trade links would most adversely impact low-income countries and less well-off consumers in advanced economies. Restrictions on cross-border migration would deprive host economies of valuable skills while reducing remittances in migrant-sending economies. Reduced capital flows would hinder financial deepening in destination countries, especially through foreign direct investment which can be an important source of technological diffusion. And a decline in international cooperation would put at risk the provision of vital global public goods.

For those of us who believe that multilateral cooperation is necessary to address the world’s most pressing problems, from climate change to regulating artificial intelligence, the escalating rivalry between the world’s two major powers is deeply troubling. From the US perspective, China’s authoritarian government undermines the foundational liberal values that underpin the global economic and political order. China’s relentless cyberattacks continue to pose an immediate threat to the US economy and American companies, and a potential Chinese blockade or invasion of Taiwan would have far-reaching global consequences.

From China’s perspective, the US and its allies are cynically trying to maintain a world order established through centuries of European and American imperialism. Much to the chagrin of US diplomats, many other countries appear to share this sentiment, as evidenced by the widespread disregard among developing and emerging economies for Western sanctions against Russia. Some may hope that China’s economic slowdown will curb its geopolitical ambitions. But its ongoing difficulties are just as likely to push China toward a confrontation with the US as they are to foster cooperation.

The last thing a fragile world economic recovery needs is a new trade war between the U.S. and China, the world’s largest and second-largest economies. Yet that is where we seem to be now headed as U.S.-China trade relations get caught up in the U.S. presidential election campaign. This does not bode well for the world economic outlook and is particularly bad news for the export-dependent Chinese economy. Higher import costs could also be yet another source of world inflationary pressure.

Yet angst remains, and rightly so, as figures like Trump loom and the US continues to stoke geopolitical fires with China. The International Monetary Fund has warned of increasing signs of fragmentation, noting that trade and investment flows are being directed along geopolitical lines.

One of Trump’s more exotic plans has governments worldwide wringing their hands: he aims to eliminate income tax and replace it with a universal baseline import tariff of 10 per cent, rising to 60 per cent or more for China. One almost expects to hear Trump declare, in an echo of 2018: “High tariffs are good, and an easy swap for taxes.”

Liu Pengyu, a spokesperson for the Chinese Embassy in Washington, told the BBC: "Upholding sound and steady growth of China-US economic and trade ties serves the fundamental interests of both countries and our peoples and is conducive to global economic growth."

Mr Liu added that the two sides should work together on global challenges and hoped the US would move "in the same direction".

From China’s perspective, the US and its allies are cynically trying to maintain a world order established through centuries of European and American imperialism. Much to the chagrin of US diplomats, many other countries appear to share this sentiment, as evidenced by the widespread disregard among developing and emerging economies for Western sanctions against Russia. Some may hope that China’s economic slowdown will curb its geopolitical ambitions. But its ongoing difficulties are just as likely to push China toward a confrontation with the US as they are to foster cooperation.

If there’s one thing both the U.S. Democratic and Republican parties can agree on, it’s being tough on China. The Biden administration has maintained, and even strengthened, tariffs on Chinese imports first imposed by the Trump administration.

A bill demanding the Chinese tech firm ByteDance to sell TikTok or face a U.S. ban of the social media app passed by wide bipartisan majorities in both the U.S. House of Representatives and Senate earlier this year.

[Matthew D. Asbell, Fordham university adjunct professor of law, Ladas & Parry LLP associate, Eric Perrott, trademark and copyright attorney partner, and Hannah Rosenson, Epstein Drangel LLP partner, 7-6-22, “The USPTO Has Enacted the Trademark Modernization Act: But Now What?,” https://www.americanbar.org/groups/intellectual_property_law/publications/landslide/2021-22/june-july/the-uspto-has-enacted-trademark-modernization-act-now-what/, 7-11-24, EP]

To make matters worse, many of those trademarks should not have registered in the first place. The USPTO has also been experiencing an unprecedented surge in trademark applications from overseas, particularly from China. Many of these applications share a number of unusual features, including lists of goods within a class that are unlikely to be sold together in the marketplace and evidence of use (i.e., specimens) that appear to be mock-ups or doctored images.

Striking this balance—strengthening IP protections to promote innovation while minimizing the negative effects of bad actors—is central to the debate regarding two bills proposed earlier this year: the Patent Eligibility Restoration Act (PERA) and the Promoting and Respecting Economically Vital American Innovation Leadership (PREVAIL) Act. Combined, the two bills aim to strengthen IP protections by clarifying and expanding patent eligible subject matter, reducing duplicative litigation, and raising the standard for invalidating patents in certain situations. Proponents of the bills claim that they would facilitate the creation of new start-ups while also protecting them from predatory lawsuits. Detractors, however, assert that these bills would empower bad actors and ultimately hurt competition by making it harder to invalidate overly broad and vague patents.

Given that innovation is the new frontline in geopolitical competition, it is important that the United States update the legal framework of its IP system to advance its technological leadership. While previous iterations of PERA and the PREVAIL Act have made appearances on the legislative docket with limited success, Congress’ current preoccupation with cutting-edge technology like artificial intelligence might provide the momentum needed to advance one or both bills. Therefore, it is imperative to understand the bills’ potential impact on innovation.

America’s competitors have benefited from the weakened patent protections. Patents rejected here have been upheld in Chinese and European courts. Long guilty of stealing and exploiting American IP, China now profits from American innovation in another way: by expanding its own subject matter and making Chinese patents harder to invalidate. This makes it more attractive for American researchers, investors and entrepreneurs in research-intensive sectors like software and pharmaceuticals to shift capital and patent their inventions abroad.

Governments don’t tend to pursue this strategy because they’re ideologically committed to IP. They do it to position themselves as forerunners in the global innovation economy with its concomitant economic rewards.

On May 14, U.S. Trade Representative Katherine Tai released a review report on the Section 301 tariffs imposed on China and issued a statement indicating that President Joe Biden had directed her to take further action. This includes imposing additional tariffs of 25 percent to 100 percent on strategic products from China, such as electric vehicles, solar cells, and medical supplies. Subsequently, the White House announced new tariffs on $18 billion worth of Chinese imports.

After a period of noticeable easing, China-U.S. relations seem to be becoming tense again. However, given the scope and scale of these new tariffs, along with the Biden administration’s strategic considerations, there is little need to worry about a new trade war between the United States and China this year – even factoring in potential Chinese countermeasures. But next year remains uncertain.

Most Asian stocks fell on Thursday, with losses centered around technology and chipmaking shares as the threat of more U.S. restrictions on China ramped up concerns over a renewed trade war between the countries.

Recent comments by Republican presidential candidate Donald Trump on U.S. defense spending on Taiwan also kept sentiment towards regional markets on edge.

U.S. trade with China has grown enormously in recent decades and is crucial for both countries. Today, China is one of the largest export markets for U.S. goods and services, and the United States is the top export market for China. This trade has brought lower prices to U.S. consumers and higher profits for American corporations, but it has also come with costs.

Finally, the China-U.S. trade tensions are unlikely to escalate because both sides are inclined to manage the situation to serve their domestic policy objectives. International observers, still recalling the intensity of the trade war during the Trump era, are understandably concerned about a sudden escalation in trade relations this year. However, it is more plausible that trade tensions will remain controlled.

On the U.S. side, Biden needs a stable environment ahead of elections. While Biden has frequently emphasized the need for a tough response to China’s overcapacity issues in his campaign rhetoric, a stable external environment is crucial for his re-election campaign. Key swing states currently show uncertain electoral prospects, making stability a priority.

Second, these tariffs are unlikely to substantially impact Chinese exports or fuel U.S. inflation. New energy products, such as batteries and electric vehicles, exported from China to the United States represent a negligible share of China’s overall exports. For instance, in 2023, solar cell exports to the U.S. amounted to $3.35 million, a mere 0.1 percent of China’s total solar cell exports. Similarly, solar panel exports were $13.15 million, just 0.03 percent of the total.

China’s medical product industry might face more significant challenges from the new tariffs. In 2022, China exported $30.9 billion worth of medical supplies to the U.S., accounting for about one-fifth of its total medical exports. This sector could therefore see more substantial disruptions.

It seems that while trade wars and protectionism are bad, they are also politically irresistible, in the US at least. Promises of tax cuts at home, and success in justifying protectionism as an essential part of the battle to contain a demonised China, have diverted voters’ gaze.

Mercifully, and in part because many other countries recognise the powerful contribution that trade has made to growth and prosperity over the past seven decades, mounting US protectionism has so far produced more bark than bite.