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The US and China must stop their dangerous game of trade chicken

With the global economy at stake, it is time to ease tensions through dialogue

Will U.S. President Donald Trump and his Chinese counterpart, Xi Jinping, continue to chose escalation over dialogue?   © Reuters

The U.S. and China have fired the opening shots of a trade war. It is hard to see their moves as anything other than reckless acts that endanger the global economy. The two countries should immediately reverse course on their punitive and retaliatory measures and ease tensions through dialogue.

Washington has imposed a hefty 25% tariff on $34 billion worth of imported Chinese goods in reaction to alleged intellectual property violations. Beijing responded by setting in motion reciprocal tariffs of the same scale and rate, making the possibility of a collision between the world's two largest economies a reality.

If true, the alleged theft of U.S. technology and information by Chinese companies is malicious indeed. However, it is unacceptable for Washington to retaliate unilaterally and refuse to work with other industrialized countries, including Japan and European states, in urging Beijing to address the issue.

That Beijing is not budging an inch only adds fuel to the fire. U.S. President Donald Trump has suggested the possibility of imposing high tariffs on nearly all Chinese products shipped to the U.S. The worry is that both sides will choose escalation over dialogue.

The Trump administration continually berates China not only for its huge -- and growing -- trade surplus with America but also for its "Made in China 2025" program to develop strategic high-tech industries. This attitude clearly shows the increasingly hard-line position Washington is adopting to counter China's bid to achieve economic and technological hegemony.

For decades, China has adhered to its unique economic system under the Chinese Communist Party's one-party rule. Under this arrangement, the leadership is reluctant to liberalize capital transactions, setting barriers to the entry of foreign players by placing restraints on capital-ownership ratios and forcing them to hand over their technology to Chinese business partners. Chinese President Xi Jinping's regime is also tightening the reins on private enterprises and foreign-based companies. As long as this restrictive environment exists, so too will potential causes of trade tensions.

That said, tit for tat retaliations by the U.S. and China will only hurt each side. Higher import and export costs could push companies to realign their supply chains, and higher prices of automobiles and farm products might weigh heavily on consumers. The trade row could also disrupt the world economy and financial markets.

Washington and Beijing would be wise to recall the Smoot-Hawley Tariff Act of 1930, the American bill that most economists believe triggered the spread of protectionist policies and exacerbated the Great Depression, thus becoming a factor behind the outbreak of World War II. We urge the U.S. and China to show restraint: We cannot afford a repeat of the same mistake.

A U.S.-China trade war would deal a blow to Japan. A plunge in Chinese exports to the U.S., for example, would dampen demand for Japanese-made machine tools and semiconductor manufacturing equipment. Such concerns are already being reflected in the depressed stock prices of Fanuc, one of the world's premier industrial robot makers, and Komatsu, a leading construction machinery company.

The Trump administration has restricted steel and aluminum imports from countries other than China, as well. Japan, European states and other countries need to work together to contain protectionism at a time when more and more nations may well be tempted to travel down that dangerous path.

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