China’s economy may suffer under Donald Trump’s cold war but the US shouldn’t count on stopping it
Andrew K.P. Leung says that whatever US’ reasons, and whatever methods it may use, China is far too integrated into global supply chains for the US containment strategy to end its upwards trajectory
US Vice-President Mike Pence's ferocious anti-China speech was the latest salvo in what The New York Times has called a “new cold war”. It followed a recent US-Mexico-Canada Agreement (USMCA) with a “poison pill” clause that forbids parallel agreements with “non-market economies” (read China).
Similar clauses are expected in future US agreements with Japan and the European Union. A Western economic wall is being built to isolate the Middle Kingdom.
Concurrently, the White House has made an issue of the yuan exchange rate, and the US might designate China a currency manipulator, moving towards a currency war.
Watch: Mike Pence accuses China of meddling in upcoming elections
The Diplomat, a Washington-based geopolitical magazine, published an article on October 3, portraying China as scheming to dominate the world, first by following Western rules and international institutions, then eventually bending them to suit its “authoritarian” version of “neo-mercantilism”. The Economist waded in with a cover story on October 4, stating that “China has designs on Europe”.
While China's economy will suffer from America's cold war, its economic trajectory is unlikely to be disrupted
China's rapid and unorthodox rise has brought disillusion and consternation to the world's extant superpower. Its alleged violation of intellectual property rights, its perceived lack of market reciprocity, and its recent assertiveness in the South China Sea are seen as direct threats to American national interests. Many of these worries, which are bipartisan, are shared by key members of the EU and other US allies.
Beijing is not exactly blind to these concerns. It has been implementing measures safeguarding intellectual property and it has opened up selected sectors of its economy in pilot free-trade zones. However, these measures are deemed too little, too late.
Beijing often reiterates that China harbours no hegemonic ambitions. Such assertions are not entirely untrustworthy. China doesn't have the capacity to match America's global military dominance. Nor can it supplant the supremacy of the dollar any time soon. However, as China has grown into a thousand-tonne panda, it can no longer hide its size, weight and consequential influence under a bushel.
In any case, rather than beggar-thy-neighbour or aggressive policies, the Chinese dream of national renaissance would fare better through President Xi Jinping’s call for a global “community of common destiny”, playing by multilateral rules and global connectivity with win-win benefits.
American all-out anti-China coercion has four discernable objectives: (a) redress China's trade imbalance with the US, including pressuring the Chinese currency to appreciate, (b) fully opening up China's financial and commercial markets for American businesses, (c) prohibiting China from getting proprietary technology through market concessions, and (d) restraining China's support for “Made in China 2025" hi-tech industries. Some of these objectives cut to the quick of China's long-term economic competitiveness and stability.
China should be able to import much more of what America is willing to export to China; for example, agricultural and consumer products as well as shale gas. While China may open up more of its financial and commercial markets, the Soviet Union’s collapse remains a spectre dictating a cautious approach.
Similarly, after the Plaza Accord of 1985, meant to correct trade imbalances by depreciating the US dollar against the yen and the Deutsche Mark, Japan's lost decades with massive yen appreciation have become a sobering tale.
As for technology, China knows it cannot force the transfer of cutting-edge intellectual property. In any case, the near-death experience under US sanction of ZTE, one of China's leading hi-tech firms, shows how dependent China's semiconductor industry remains on foreign core technology. The experience is a clarion call for China to pull out all the stops to achieve technological independence.
Made in China 2025 doesn’t seem a sinister plan for world domination, otherwise Beijing would not have been so upfront about it from the start.
In the final analysis, while China's economy will suffer from America's cold war, its economic trajectory is unlikely to be disrupted.
As the world's second-largest economy, China is fully embedded in the globalised supply and value chain. Few countries can be entirely segregated from China economically. Even as US-led agreements like the USMCA try to exclude China, the countries involved – America included – are dependent on China's vast market.
For example, while under the USMCA, Canada and Mexico may no longer be able to forge a bilateral agreement with China, they may join a regional trading bloc such as the Regional Comprehensive Economic Partnership now under negotiation or the proposed Free Trade Area of the Asia-Pacific, where China is one (albeit a prominent one) of a large group of countries.
In any case, the World Trade Organisation's community of nations, of which China is the largest trader, is unlikely to crumple.
In its latest Global Financial Stability Report, the International Monetary Fund assessed China's balancing economy following the trade war as “broadly stable”, following a fairly positive report card on July 26. What is more, China is surging ahead with innovation and advanced technologies in the forefront of the fourth industrial revolution.
Externally, despite some setbacks, the Belt and Road Initiative continues to deepen trade and investment links in Asia, Africa and the Middle East.
Chinese currency is increasingly being used for bilateral trade settlements, including energy contracts. While unlikely to usurp the greenback’s primacy, internationalising the renminbi serves as a buffer against the eventuality of a frontal currency war.
The US denies that it is trying to contain, let alone thwart, China's rise. Be that as it may, it appears wishful thinking that an all-out trade or cold war could derail China's trajectory.
If anything, America-inspired pressures on China are likely to shock and impassion the Chinese nation to redouble efforts in reform and opening up and in hastening the realisation of the Chinese dream.
In any event, while huge challenges and risks are likely to persist, the US and China are not necessarily destined for conflict, if leaders and the peoples on both sides dare to think outside the box. As Singapore’s founding father Lee Kuan Yew once observed, competition between the US and China is inevitable, but conflict is not.
Andrew K.P. Leung is an independent China strategist. Email: [email protected]
