Talks can silence the drums of trade war

Last month, the United States administration fired the opening salvo in what could lead to a full-blown trade war. While trade frictions have long been an issue in China-US relations, few expected such an escalation, not least because economists widely view trade wars as damaging to all parties. So how did we get to this point, and can we turn back before it's too late?

First and foremost, US President Donald Trump does not seem to understand how trade works. He thinks the US' $500 billion trade deficit with China ($337.2 billion in 2017 according to China's calculation) amounts to a loss, the result of "incompetent" US administrations allowing their Chinese counterparts to take advantage of them. In fact, according to Trump, the US already lost a "trade war" with China years ago.

But trade balances are far more complex than what Trump makes them out to be. For starters, much of what China exports includes components manufactured elsewhere, meaning China's trade surplus actually includes the trade surpluses of many other countries.