China's trade war advantage is a huge and increasingly sophisticated economy: Don Pittis

As U.S. President Donald Trump threatens what many say is an unnecessarytrade war with China, he may be creating an even more dangerous and powerful trade competitor.

Rather than cowing China into submission with trade threats,experts who study international trade say, Trumpmay instead be hasteningthe day when theAsian giant supersedes the United States as the world's most influential economy.

Trump has instructed the U.S. trade representative to consider slapping $100 billion US in additional tariffs on Chinese goods.The move comes a day after China issued a $50 billion list of U.S. goods, including soybeans and small aircraft, for possible tariff hikes.

• Trump wants $100B in more tariffs on China

There is a certain irony that the conditions that made the United States the world's undisputedeconomic leader, overcoming its British parent in the late1800s,may now exist in China.

China's American example

"So how did our American cousins overtake us so spectacularly and for so long?," asked BBC reporter Iain Haddow in a 2008 capsule history. "Economies of scale and a single market had a lot to do with it."

The fact is, even long after the U.S. separated from Britain followingits 1775rebellion, the U.S. economy depended on the mother country for advanced technology and high-quality manufactured goods.

As late as the U.S. Civil War, the important market for cotton produced in the U.S. South by slave labourremained the fabric mills of the British Midlands. But that had already begun to change.

But by the end of the war in 1865 not only had the U.S. population grown larger than Britain's, but as Haddowobserves, U.S. technology on all fronts had begun to catch up. Soon it had exceededthat of Britain, signalled by the fact that U.S. factories were able to produce more goods with the same amount of labour an increase in productivity.

And while the U.S. continued to produce andexport, its own giant and growing domesticeconomy gobbledup the vast majority of everything it produced.

Wholly dependent

AsWalidHejazi, professor of international business at the University of Toronto'sRotmanSchool of Business, points out, in some respects history may be repeating itself.

"Twenty-five years ago, China was whollydependent on the U.S. and Europe as a market for their exports," says Hejazi.

But in thatquarter of a century the Chinese economy has transformed itself at least as much as the U.S. did in a similar period in the 1800s.

Hejazi says a trade war is not somethingChina wants;most analystsagree that tit-for-tattariffs on both U.S and Chinese goodswill create inflation for Chinese consumers while slowing the overall global economy on which China, the U.S. and Canadadepend.

But in the long run that could well mean themain beneficiary of a full-fledged trade war will be China.

According to Hejazi, even unwanted, Trump's trade war will actuallyspur on the development of the Chinese economy, making it an even stronger competitor.

"Given there is a trade war, it can push China into doing things that could really help it over the longer term in terms of diversifying itself into Asia, into other markets, but also developing its domestic economy."

As economic commentator Martin Wolf recently pointed out in London's Financial Times, "consumptionis at last becoming the most important driver of demand in the Chinese economy."

Unlike the other so-called Asian tigers such as South Korea and Singapore, as domestic demand grows Chinacan become less dependent on exports. Like the U.S., it will have the advantage of "economies of scale and a single market."

Canadian China scholar Jia Wang says the countryiswell on its way to substituting Chinese made goods for high-technology imports, a sore point with Trump, who says China has used joint venture rules to steal U.S. technology.

Wang, deputy director of the China Institute at the University of Alberta, says Beijingstill depends on the U.S. for top quality exports such as Boeing's jetliners, butChina has begun production of its own aircraft. A trade war, she says, will only encourage China to increase import substitution.

Patent leader

But just as when U.S. innovation overtookBritain by producing things like the cotton gin and assembly line manufacturing, China's surge of investmenthas made the country a technological powerhouse in its own right.

"For the past two years at least, China has filed for more patents than any other country," says Wang.

She saysinvestment in its own intellectual property is one of the reasons the country may be willing to come to terms with the U.S. on what is one of the most sensitive issues in trade talks, patent protection. But it is also a sign the horsemay be out of the barn, since in many areas China has becomea technological leader.

Tit for tat

If China could begin to replace American goods such as Boeing jets, couldn't the U.S. just do the same thing with the Chinese products it imports? Wang says that could be harder.

"For the U.S. it's the massive amount of consumer goods the clothing, the shoes, the household electronics, the computers and the phones."

Wang says the sheer volume of imports of inexpensive Chinese goods purchased bylower-class and poor Americans makes it almost impossible for the U.S. to replace those imports by makingthem at home.

"If suddenly the price goes up by 50 per cent, can they still afford it? And that's the real danger."