When a Trade War is not a Trade War

Opinion Piece by Prof. Michael Jeive

The news is full of reports on the current trade tensions, trade war or conflict between the USA and China.

What began with a gradual changing of positions, especially in the USA between 2016 and 2018 has rapidly escalated. The attitude towards China in the West, initially in the US, but also across Europe has hardened significantly. Internationally, the prospects of some form of conflict (whether trade conflicts or otherwise) between an increasingly assertive China and other regional or international powers is on the rise. While in the US a populist president attempts to energise his grassroots support by focussing his ire on perceived enemies both within and especially without US borders, within China the US is increasingly perceived as attempting to halt China’s natural rise back to regional if not global pre-eminence.

While it may be anathema for liberals, the use of trade as weapon is a traditional realist or geopolitical approach. We should not forget that the vast majority of governments across the globe are not simply liberal, and that both the US and China as well as most Asian governments fall into this category. A realist or realpolitik approach, epitomised by many by former Secretary of State Henry Kissinger (who negotiated the US/China détente during the Vietnam War to take advantage of and exacerbate Sino – Soviet tensions thus weakening the Soviets in the Cold War) would see maximising national power as the greater goal. Realists tend to see global political and international relations as geopolitical game whose rules change little over time. The struggle for power and influence, the mobilisation of partners through alliance formation or vassals states through clientist relations, conflict, war, scarcity and economic competition—all of these are seen as constant patterns and modes within an anarchic global system and they endure despite changes over time in ideologies, institutions, or technology.

Political liberals might point to the abolition of slavery and the diminution of great power wars as signs of enlightened human progress. Political realists might point instead to the brutal similarities, despite the passage of some 2,500 years, between how the powerful Athenians treated the weaker Melians in ancient Greece and how the stronger Serbians treated the unarmed Bosnians of Srebrenica in the modern Europe of the 1990s. Although realists recognize the potential for cooperation and peaceful relations among states, they tend to be pessimistic regarding the human condition and political behavior. Realists emphasize the fallibility rather than perfectibility of human beings or, as Robert Gilpin once put it, political realists “never had much hope for the human species to begin with” (Gilpin 1996, 3).

(Michael Mastanduno (2014) Realism in Asia in Pekkanen et al 2014)

The trend for a revisionary reading of relations between the developed West and China is further taken up in The Economist’s Changuan column:

Western relations with China have long whiffed of hypocrisy. Politicians mumbled about welcoming China’s rise when they meant that they did not know how to stop it. Such leaders hoped instead to manage the impact of that soaring growth so that, on balance, China, their countries and the world would all be better off. Chinese officials, in turn, continue to talk of seeking “win-win co-operation” with America, even as they privately accuse Team Trump of plotting to contain their country. The same officials boast of open markets but, when Western governments raise specific cases of brutal treatment of foreign firms, blandly reply that they cannot get involved in commercial disputes. (Source: The Economist)

The US President and some of his more ardent China critics accuse China of using its military, spies, economic power and propaganda prowess to undermine the U.S. around the world and influence its domestic politics claiming that such activities will no longer be tolerated. At the same time, more and more people within the Chinese government and corridors of power seem to be reaching the conclusion that the conflict is not about trade, but about preventing China’s re-emergence as a regional or global power

As Keyu Jin argues in a Caixin opinion piece,

Yet, in China’s view, what the U.S. is really reacting to is not only the specifics of its trade policy, but also its overall development model and its aspirations to become a major global power — aspirations that are not out of reach. In fact, the Chinese believe, Trump’s trade war effectively proves that China has become a real and present threat to American hegemony.

Whether this is true or not is irrelevant; what matters is Chinese perception. Whereas in the past, when only a few conservatives warned of U.S. attempts to “contain” China, virtually everyone in China now buys into this narrative, including a growing number of young people.

Having grown up amid prosperity and confidence, exposed to Western lifestyles and educations, China’s millennial generation — born in the 1980s and 1990s — were supposed to usher in an era of even greater openness and freedom. Yet these young people — who have previously reported much warmer feelings toward Western countries and Japan than their parents and grandparents — are having their faith in Western ideas tested by Trump’s actions.

The real danger is that rising nationalism could embolden a contingent of the Communist Party, known in China as the New Left, that denounces capitalism and its Western proponents, and calls for a return to the Maoist socialist order of 40 years ago. (Source: Caixin Global)

While a full-blown return to Maoist policies is still barely conceivable, it is clear that the post-Bo New Left have been emboldened in their criticisms of the liberal order, more insistent in their calls for red songs and red culture and more determined that the political, and especially orthodox party political views must be upheld in all places at all times at all costs. This has included the quashing of dissent; politicisation of the anti-corruption activities; demands for CPC leadership in all aspects of society; confirmation of Xi Jinping as Core Leader & Helmsman, removal of term limits for Presidency (and Vice-Presidency) and enshrining of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era in the constitution.

One key element in this calculation is the concept of Comprehensive National Power. The ideas itself has ancient roots, but in its modern form is related to the idea of soft power suggested by Robert Nye in his 1990 book. Soft Power is the power of influence which acts in addition to the hard power of military force. In the nineteenth century, the UK used its cultural power to influence the most powerful families in its imperial dominions, bring their sons  (and later daughters too) to Oxford and Cambridge,  their military officers to train at the elite officers schools in the UK and promote English literature and science as the global bench mark. Substitute Harvard, Stanford and Caltech, and US policy is much the dame today. China increasingly invites the children of elites in Africa to study at Peking University, some of these probably the grandchildren of those who studied at Oxford. However, Comprehensive National Power is more than just hard and soft power. There are various methods for calculating CNP, but include aspects including Critical mass (land, population, energy and resources), economic strength, technological strength, military strength and cultural appeal. It is precisely her that we see the nexus of the rising conflict between the US and China – not simply trade, but technological capability. The Made in China 2025 (中国制造2025) programme aims to comprehensively upgrade China’s technological capabilities reducing its dependency on western developed economies for key components especially semiconductors (see the ZTE crisis).

Central to a realist geopolitical approach would be to consider the ultimate interests and therefore goals of the conflict parties. China’s goals appear quite transparent – their policies laid out in plans and policies. The US appears less certain in its ultimate direction, but increasingly determined in its approach.

And it is worth remembering that Beijing’s endgame is not necessarily to ensure the financial health of its country this year or the next. If China were to suffer short-term pain to gain a real and lasting advantage over the United States — or at least not lose any advantages it does have — it might be willing to struggle a bit today.

“The negotiation between the two great powers isn’t about how many soybeans or Boeing airplanes they buy by the end of the year,” said Kevin Warsh, a former governor of the Federal Reserve. “We are at a pivotal moment in history. The actions of the U.S. and Chinese governments in the next 12 months will set the course for the relationship of the two great powers of the 21st century.” (Source: NY Times)

The current direction of travel of the US- China Trade War is certainly troubling, but not necessarily surprising when considered from a realist perspective. Some elements in both camps are lobbying for a meeting between Xi Jinping and Donald Trump on the fringes of the upcoming G20 summit. According to the Wall Street Journal “Mr. Trump has dedicated a team to plan for his summit meeting with Mr. Xi, … One of the people involved in the planning is Christopher Nixon Cox, grandson of former President Richard Nixon, whose trip to China in 1972 eventually led to diplomatic relations between the two nations. Meantime, the planning team on the Chinese side includes Liu He, Mr. Xi’s economic envoy…The plan is to get Trump in a room with Xi, get a small win and declare an end to the whole thing,”. However, there are strong forces in both Washington and Beijing arguing forcefully against such a compromise and for a decoupling of the US economy from China and at the current moment; it appears the hawks may have the upper hand.

Will Beijing be willing to suffer short-term pain in the form of falling orders and negative economic impacts of the Trump Tariffs in the hope that it can hold out until rising prices in the US and the impacts of its own targeted tariffs erode support for the current US policies? Might  global US corporations influence their own governments policy and put their weight behind the doves in the administration? The outcomes of the current trade conflict are unclear. In times of such uncertainty, it would be advisable for those closely engaged in international relationship with China and the US to revisit their risk assessments. For international companies dealing with the US and China the geopolitical situation has become increasingly volatile, uncertain, complex, and ambiguous (vuca). Their risk analyses need to be constantly updated and should ensure that political risk is included and weighted as highly as more traditional business risks. For scientific collaborations, the technology transfer clauses in agreements need to be carefully checked and new agreements drafted to ensure that win-win is not just an empty phrase. For all of us, we might hope that calmer heads on both sides will prevail and this trade war does not develop into a more dangerous conflict.

Additional sources:

Huang, S., 1992. On comprehensive national power – zonghe guoli lun. Beijing: Chinese Social Sciences Press.

Nye, J.S., 1990. Bound to lead: the changing nature of American power. New York, NY: Basic Books.

Saadia Pekkanen, John Ravenhill and Rosemary Foot, eds., Oxford Handbook of the International Relations of Asia (Oxford: Oxford University Press, 2014)