M D Nalapat
WHEN President Donald J Trump launched a trade war against China last year , the expectation of most observers of the global financial scene was that tensions would subside in a few months, if not weeks. The Chinese would buy more US sorgum and soybean, and Trump would declare victory and roll back the tariffs imposed on Chinese exports to the US. After all, the two countries were the most important trading partners of each other, and numerous US enterprises had either set up facilities in China or were making handsome profits selling Chinese products in the home market. China too bought a large volume of US goods, but far less than what it exported. Chinese importers see to have an affinity for Europe more than for the US, and very often, if a European item was available at a competitive price, that was preferred to the US substitute.
Thanks to the burgeoning Chinese market, European countries have scrambled to establish close ties with China, with the UK and Germany leading the pack seeking to win favour with the government in Beijing. They are facing competition from US companies, that ensured that President Clinton did away with the most powerful lever Washington had over China, which was the annual certification that the world’s most populous country needed from the US administration before the annual Most Favoured Nation clause was renewed. Clinton did away with the need for certification early in the new century, thereby pleasing both US business interests as well as the Chinese Communist Party. After Clinton, President George W Bush seemed to back away from the China-friendly policy followed by his father, President George H W Bush, only to return to a China-friendly approach once 9/11 occurred and the attention of the US turned once again to the Middle East and to Afghanistan. President Barack Obama, guided as he was during much of his term by those close to Bill and Hillary Clinton, continued the Clinton-era policy by talking tough but acting soft. Being from the business community, it was assumed that Donald J Trump would be as China-friendly as his three immediate predecessors.
However, such an assumption was made by policymakers across both sides of the Pacific and the Atlantic only because a few had cared to go through the statements about China that the billionaire New York entrepreneur had been making for almost forty years. Trump had been consistent in his view that the US was the loser – a big loser – in trade with China, and that tariffs were the best way to ensure that US interests and companies retain their lead in global business when faced with competition from Chinese entities. Once he became the 45th President of the US, Trump appointed two “hawks” on China, academic Peter Navarro and negotiator Robert Lighthizer to positions from where they changed policy towards China to the opposite of what it had been till then. Tariffs have by now been put on almost all Chinese exports to the US, even while the demands made of China by Navarro and Lighthizer can be met only if the Chinese Communist Party is willing to face a public backlash that may seriously weaken its hold on power.
Donald J Trump is an old-fashioned patriot who wants his country to remain Number One globally in the 21st Century, the way it was for much of the 20th. Trump is a shrewd businessperson who navigated several crises to ensure his businesses not merely grew but thrived. He knows that once China becomes the undisputed Number 1 economic power globally, the immense soft power of the US will begin to melt away. The dollar, despite the huge internal and external debts of the US, remains the medium of international exchange and a stable currency. KFC, McDonalds, Coca-Cola and other US brands are world leaders not because of price or quality, but because they are American. The same goes for Hollywood. The intangible boost given to every US activity (especially business) because the country is the world’s Number One would begin to diminish once China took over that slot. From then onwards, it would be Chinese entities that would enjoy the dividends that come from belonging to the World Number One.
According to not just Trump but many others, it is the US that has enabled China to become an economy that is on the tip of overtaking its biggest business partner. Companies have transferred knowledge and access to Chinese partners, something that Trump wants to stop. In fact, the US President has gone as far as to hint that US companies should leave China en masse. Along with US enterprises, European and Asian companies are taking the hint and have started leaving the country. After Tsai Ing-wen defeated the KMT’s Eric Chu and took over as President of Taiwan in 2016, she has been quietly encouraging Taiwanese companies to “look southbound” ie to countries that are competing with China in attracting investment, such as Indonesia, India and Vietnam. Since the Trade War got launched more than a year ago, and which shows no sign of abating, leave along ending, hundreds of Taiwanese companies have listened to the advice given by Taiwan’s new President and begun the process of locating their manufacturing activities elsewhere than in China.
As Trump calculated, this has slowed down the Chinese economy, thereby pushing further into the future the day when China will overtake the US in GDP. If Trump had his way, that day would not come at all. He is intent on weakening the Chinese economy to a level that will impact on political stability, while constantly messaging his hostility. What is taking place in Hong Kong can be explained less by politics than by the fact that several young Hong Kong residents of Chinese descent are unable to find a job that would pay them enough to rent an apartment of a tolerable size in a city where rents and property values have skyrocketed while wage increases have remained sluggish.
The calculation of President Trump and the “China hawks” around him (including National Security Advisor John Bolton and the immensely capable Vice-President Mike Pence) is that the Hong Kong situation can get replicated in other cities once economic growth slows down further. It is a bold but risky move by a President who seeks to achieve in China what President Ronald Reagan achieved in the case of the Soviet Union, which was to create economic and diplomatic conditions that led to an implosion of internal support and external reliance. China is not the Soviet Union, and unlike the bureaucrats that ran the USSR, has a dedicated and capable leader in Xi Jinping. What the trajectory of the China-US contest will be is not yet clear. Will the US continue as World Number One, or China step into that position? That question is what the US-China “trade” war is all about.
—The writer is Vice-Chair, Manipal Advanced Research Group, UNESCO Peace Chair & Professor of Geopolitics, Manipal University, Haryana State, India.
