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Why Trump’s trade war aimed at foreign investment in China

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The US-China trade war may seem to revolve around the United States’ colossal trade deficit with China, but it actually hinges on investment. Grasping this is key to making sense of why each country is acting the way it is. To better understand the dynamics of the trade war, let us turn briefly to China’s economic history.

The roots of today’s trade war reach back to the late 1970s, when China launched expansive economic reforms and threw open its doors to foreign investment. It set up so-called special economic zones, where tax incentives were offered to attract foreign investment. From 1978 to 1999, China basically served as a low-cost production base for foreign multinationals.

China’s entry into the World Trade Organisation in 2001 was a watershed – it removed uncertainty over tariffs on China’s exports. China has become one of the world’s largest recipients of foreign direct investment, thanks to a wave of multinationals offshoring and outsourcing to the country. Since then, its exports to the US have accelerated.

It follows quite naturally, though it is less known to the general public, that 41.58 per cent of China’s exports to the world in the first six months of 2018 were made by foreign multinationals, according to data from China’s General Administration of Customs. In other words, China’s huge trade surplus........

© South China Morning Post