Who wins a U.S.-China trade war? The one that loses least: Don Pittis

Who will win the escalating trade disputebetween the United States and China? According to Canadian experts on China and trade, the only thing that's certain is that people in both countries would lose from a full-blowntrade war.

Despite the direconsequences for each side, it is not entirely clear that either country will readily concede in what has become a global game of chicken.

One problem is that the trade battle is not simple.

U.S. President Donald Trump's mental image of an "out-of-control trade deficit"with China,as well as China's "theft" of U.S. technology, does not adequately describe what may actually be a battle for global economic supremacy.

Lines in the sand

Exactly how it willall end is far from clear. But the U.S. is not the only one drawing lines in the sand.

"China is not going to fundamentally change its industrial policy just because another country says: 'Do this,'"saidJiaWang, deputy director of the China Institute at the University of Alberta.

As China grows and challenges the U.S., Wang says conflict was inevitable.But if cooler heads prevail,there is still thepossibility that a settlement can be reached.

But the danger nowexists that the latest round of threats Trump's proposed tariffs on $200 billion US in goods, and China's $60-billion response yesterday will lead to a full-scale trade war, she said,with devastating consequences for the people of both countries.

In the U.S., prices are bound to rise since consumersdepend on Chinese importsnot just for finishedgoods, but as parts and constituents ofthings made by American companies.

In the case of China, businesses there will suffer from the loss of exports to the U.S.

"Chinese [companies]that are in the export business will definitely feel the pinch, and some smaller ones may not survive," said Wang.

While the United States remains the bigger and stronger economy, China has other advantages, says Gregory Chin,an associate professor at Toronto's York University who has been studying China's modernization for 30 years and has written extensively on the country's economy.

Since Chinais a command economy, the country has ways to support its businesses through a prolonged trade war that might not be available to Trump and his administration. As a free market democracy, the United Statesdoes not have the same kind of ability to manipulate its economy.

Wrong impact

"As this trade war drags on, [American] farmers and others aregoing to start, I think, voicing their concerns," saidChin, noting those concerns could wellshow up at the ballot box in the upcoming U.S. midterm elections.

Trump's brutal negotiating tactics may also have had an unintendedimpact by creating solidarity betweenChina's leaders and its common citizens, Chin said.

"When the Chinese are put into this type of situationwhetherthe leaders or whether it's the common persononthe street[it] doesn't respond well to bullying," he said.

"To think that somehow the Chinese are just going to cower and just say, 'OK, Donald Trump, you won, we give up,'it's just not going to happen," saidWalidHejazi, withthe University of Toronto'sRotmanSchool of Business.

HejazisaidthatChina learned its lesson after its humiliation involving the Chinese company ZTE, which was forcedto pay billions in fines and comply with strict rules in order to continue buying U.S. componentsessential for its telecom equipment.

China would be willing to suffer a lot so that it no longer depends on the U.S., but whether that could be seen as a loss or a long-term win is not so clear.

"It's too big to see it as black and white, one winner [and]one loser," saidPascaleMassot, a China trade specialist who has advised the Canadian governmenton trade and foreign policy. "It's too big and too complicated with too many ramifications."

It is also misguided to think of this dispute as all about Trump, Massot said.

Before its meteoric rise, China was seen by the United Statesas a benign force to be nurtured. Suddenly Americans ofdifferent political stripes have begun to perceive China's growing cloutas a direct threat.

Defending itself from that threat could be seen as a win for the U.S., even in the face of short-term losses.

What does Trump want?

Where Trump has made thingscomplicated has been his failure to articulate exactly what the U.S. wants and how it wantsto get there, Massot said.

"It's not only China that is trying to understand what the American president is trying to do," she said.

If the U.S. wants to maintain its place as top dog by preventingChina from growing its economy and pursuing newtechnology, that's not likely to happen.

Above all, China wants to maintain confidence in its own economy. It also wants global stability. And it may be willing to make some concessions to ensure that growth continues.

That need for stability is also why Chinawould be unlikely to consider using its massiveholdings of U.S. treasury bonds as a trade war weapon, saysMassot.

In some ways, China has become the adult at the negotiating tablea supporter of the global trade rules that a Trump-ledU.S. has begun to abandon.

And Trump's behaviour may have pushed China to compromise on vital issues such as access to its market and intellectual property more than it would have under a less-disruptive president, says Massot.

Finding that sweet spotmight require more delicatehandling than the U.S. president has shown himself capable of in the past. But Massot thinks it is far from impossible.

"It could be very interesting for the future of the global economy to have a China that is both ready to support rules-based order and maybe willing to compromise on certain issues that we care about," saidMassot

That could mean that everyone would win a little more, and loseless.

Follow Don Pitts on Twitter @don_pittis