Mises Wire

A Trade War May Trigger the Rise of Chinese Nationalism

The possible trade war between China and the United States has become one of the hottest topics in the recent international news, though officially the trade war has not started yet. Economic theories have already told us that free trade can benefit the individuals among different countries; and on the contrary, tariffs can make them worse off. Some analysis has also clearly demonstrated the loss that the Americans would suffer from the potential trade tariffs. On the side of China, people would also suffer some negative consequences from the trade war. One is that China might become more protectionist after the rise of Chinese nationalism and populism triggered by a trade war.

Some observers claim that the Trump Administration is using new tariffs as a strategy to push China’s regime to open China’s markets. It is certainly true that China employs protectionist measures of its own. At least in the last decade, the Chinese government has subsidized millions of dollars on its steel industry every year, sets at least a 21% tariff on the foreign auto importation to support China’s state-subsidized auto industry, and blocks the business of the foreign digital enterprises to prevent competition and to control social media.

The Chinese anti-free trade policies are too numerous to record. However, the Trump administration’s use of the coercive tariffs may further aggravate these protectionist impulses.

After China’s official announcement of the potential trade tariffs on U.S. imports as retaliation measures, some Chinese people started to cheer the tariffs on social media, claiming that the trade war is a useful method to fight against ”American imperialism.” 

In the past decade, China’s Communist government has successfully used nationalism and populism, creating conflict with other countries. The result of this manipulation of nationalist and populist sentiment have been damaging to in China to private property, to international business operations, and even to the lives of some citizens. 

In 2012 anti-Japanese demonstrations, angry Chinese protesters in the streets burned Japanese-brand cars, vandalized Japanese brand-shops and called for boycotting Japanese goods, causing over a US$100m loss for Japanese enterprises in China. In these demonstrations, Li Jianli, a Japanese-brand car owner, was attacked and almost killed. Later, in 2017 anti-Korean demonstrations, Korean-brand cars were also smashed, and some of the products in the South Korean retail store chain Lotte were also destroyed by angry protestors. After suffering billions in losses, Lotte decided to quit the Chinese market.

Though the protesters in the above demonstrations were just a small percentage of the Chinese population, their destruction and aggression on private property have already made the many Chinese individuals, consumers and Chinese employees of foreign companies worse off. The withdraw of foreign enterprises (i.e., Lotte) due to the demonstrations has made Chinese customers poorer. Jobs have been destroyed by the exit of the foreign investors.

In the long term, protectionist sentiments, in both the US and China, can become dangerous to international peace.  As a final note, I’d like to quote Ludwig von Mises on the relationship between nationalism and the philosophy of protectionism, which is just in line with the current tension between China and the U.S:

Economic nationalism is incompatible with durable peace. Yet economic nationalism is unavoidable where there is government interference with business. … What is needed to make peace durable is a change in ideologies. What generates war is the economic philosophy almost universally espoused today by governments and political parties. As this philosophy sees it, there prevail within the unhampered market economy irreconcilable conflicts between the interests of various nations. Free trade harms a nation; it brings about impoverishment. It is the duty of government to prevent the evils of free trade by trade barriers. … The philosophy of protectionism is a philosophy of war. The wars of our age are not at variance with popular economic doctrines; they are, on the contrary, the inescapable result of a consistent application of these doctrines.

As what Mises precisely pointed out, the wrong concept on trade protectionism among the many Chinese and American individuals should be changed. Trade barriers can cause more conflicts and can make both the two sides worse off. On the country, the free trade can reduce the friction and enhance more peace.

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