The opening salvoes in the newest phase of the US-China trade war have been launched, sending tremors across the global economy. For policymakers, Japan’s trade conflict with the United States during the 1980s may be useful as a guide.
On February 4, the US imposed an additional 10 per cent universal tariff on imports from China, thereby removing a “de minimis” exemption that applied to packages valued at less than US$800, but it then delayed the action on these low-cost shipments.
Looking ahead, global trade may worsen even further before returning to some semblance of stability. All things considered, the opening shots fired this year were fairly mild and Trump has indicated a willingness to use stronger ammunition before coming to the negotiating table.
Will China continue to fire back in a tit-for-tat fashion or adopt a more conciliatory approach in the hopes of quickly reaching a trade settlement?
Uncertainty abounds, but the US-Japan trade conflict during the 1980s – a well-known case study to China’s economic policymakers – may offer insight into how China will navigate external challenges. Drawing on Japan’s experience, we anticipate that the following six dynamics will play a major role in shaping the trajectory of US-China economic relations in the year ahead.
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