The long, dense economic relationship appears to have passed its peak, writes Patrick Lawrence.
By Patrick Lawrence
Special to Consortium News
President Donald Trump’s trade war with China is swiftly taking a decisive turn for the worse.
Step by step, each measure prompting retaliation, a spat so far limited to tariff increases, now threatens to transform the bilateral relationship into one of managed hostility extending well beyond economic issues. Should Washington and Beijing define each other as adversaries, as they now appear poised to do, the consequences in terms of global stability and the balance of power in the Pacific are nearly incalculable.
The trade dispute continues to sharpen. Later this week Beijing is scheduled to raise tariffs already in place on $60 billion worth of American exports — the latest in a running series of escalations Washington set in motion nearly a year ago. Two weeks later the U.S., having increased tariffs on $200 billion worth of Chinese products earlier this month, is to consider imposing levies on an additional $325 billion worth of imports from the mainland.
Xi and Trump: In lighter mood. (YouTube)
The fallout from these mutually imposed taxes on trade will be considerable all by itself. Global supply chains will inevitably be disrupted — a potential threat to worldwide economic stability. U.S. importers are expected to start shifting purchases away from China in favor of alternative suppliers with lower cost structures. American investors are likely to reconsider the mainland as a production platform, in many cases diverting investment dollars elsewhere.
For its part, China is already rotating its gaze westward toward the Middle East and Europe. As if to underscore the point, the East Hope Group, a large Chinese manufacturer, announced late last week that it plans to invest $10 billion in Abu Dhabi’s industrial sector. Beijing is already drawing Western Europe into its trillion-dollar Belt and Road Initiative. In time, Europe could begin to replace the U.S. as a source of the foreign investment capital China needs.
Decoupling
In the financial markets, this process is termed “decoupling.” The long, dense economic relationship between the U.S. and China, the reasoning runs, appears to have passed its peak.
With bilateral trade talks stalled, both sides have begun to indicate — directly or by inference — that they are now prepared to draw blood. Once the long-term damage begins, as appears increasingly likely, it is difficult to see how there will be any turning back from it.
Two weeks ago, the White House issued an executive order barring purchases of telecommunications equipment from any foreign company deemed to pose a threat to U.S. national security. It also requires American companies to obtain licenses before exporting U.S. telecoms technology to such firms. While an administration official described the order as “company and country agnostic,” it is all but explicitly intended to damage the global position of Huawei, the highly competitive Chinese company that is a leader in cellular telephone sales and 5G telecommunications networks.
Huawei has long been in Washington’s sights. Chief among the allegations against it, the company is accused of providing China with a “back door” into its telecoms networks, so allowing Beijing to spy on any entity using Huawei equipment. The U.S. has never provided evidence of this, and both Huawei and Beijing vigorously deny any such arrangement. The only known back door into Huawei systems was created by the National Security Agency, which hacked its servers at some point between 2010 and 2012; this was revealed in the documents Edward Snowden made public in mid–2013. In effect, the U.S. accuses China of doing what it has already done.
Cargo ship leaving Miami. (Ines Hegedus-Garcia via Flickr)
“When it comes to policy caprice motivated by paranoia and Deep State lies, the attack on Huawei is in a class all by itself,” David Stockman, the former White House budget director, wrote on his blog earlier this month. “The whole case has been confected by Washington-domiciled economic nationalists who think prosperity stems from the machinations of the state and that state-sponsored ‘national champions’ are essential to winning the race for global economic and technological dominance.”
Contradictory Narrative
There is little question that freezing Huawei out of the U.S. market and depriving it of U.S.–made components will do damage, in all likelihood lasting, to the company. The Eurasia Group terms the administration’s executive order “a grave escalation with China that at a minimum plunges the prospect of continued trade negotiations into doubt.” But as it has on other policy questions, the Trump administration is tripping over its own contradictory narratives at this point.
Dan Coats: Spreading warnings. (Hudson Institute via Flickr)
Last week the president suggested that the Huawei dispute can be negotiated as part of a broader agreement on trade. At the same time, Dan Coats, the director of national intelligence, has been crisscrossing the country to warn U.S. companies, universities, and other institutions of the perils of doing business with China. Coats’s focus is on the high-technology sector.
There are two lessons to draw from this spectacle. Trump’s position on Huawei gives the game away: If the company is truly a national security threat, it makes no sense to offer it as a chip to be bargained in trade talks with Beijing. Equally, Coats’s barnstorming tour is a clear indication that the national security apparatus is actively seeking to cast China as a strategic threat to the U.S. — as the Pentagon declared it to be in a defense review earlier this year.
Beijing has so far shown restraint in its responses, but there are signs it is stiffening its spine. On Friday it issued a draft of its own set of tighter regulations governing potential cyber-security breaches. Xi Jinping had earlier visited a rare-earth processing facility in Jiangxi Province — a move read as the Chinese leader’s subtle suggestion that Beijing may consider blocking exports of minerals that are essential components in a variety of high-tech devices.
U.S.-China trade session, Jan. 30, 2019, Washington. (White House/ Andrea Hanks)
Turning off the supply of rare earths is not the “nuclear option” China may consider it, as there are alternative suppliers. At the same time, the mainland accounts for nearly three-quarters of world supplies. When it blocked sales to Japan during a diplomatic dispute in 2010, prices rose precipitously and there was mayhem among manufacturers dependent on Chinese supplies.
Xi made a remark in Jiangxi that is not to be missed. “We are now embarking on a new Long March,” he said, referencing the famous retreat Mao led after Chinese Nationalists defeated the Red Army in 1934. “And we must start all over again.”
With formal talks lapsed for the time being, there is now no shortage of signaling from either Washington or Beijing. But Xi, China’s most assertive leader since the Great Helmsman, appears to understand the moment as larger than mere gestures. U.S.–China relations have entered a decisive phase. America cannot win in a long-term confrontation with China. Unless Washington opens to a more cooperative partnership with Beijing — an unlikely prospect — this could be the moment China begins to displace the U.S. as the preeminent power in the western Pacific.
Patrick Lawrence, a correspondent abroad for many years, chiefly for the International Herald Tribune, is a columnist, essayist, author, and lecturer. His most recent book is “Time No Longer: Americans After the American Century” (Yale). Follow him @thefloutist. His web site is www.patricklawrence.us. Support his work via www.patreon.com/thefloutist.
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Good article as far as it goes. Unfortunately, the basic concept, that this is a “trade war” is unsound. Obviously, trade IS an issue. It’s certainly true that Wall St would probably be happy with an opening up of Chinese markets to US style financial shenanigans. However, the essence of this fight is to prevent China gaining a leading role in 21st C tech’. (5G, AI, aerospace, quantum computing etc) US demands boil down to China giving up its sovereignty (do what we demand & we’ll lift sanctions when WE feel it’s right — an agreement between equals it is not).
50 years ago the US would have competed with China, as it did with the USSR over “Space”. Sadly now, the US is sunk in decadence — it’s only real strengths are military, the dollar & it’s long suffering stupid, selfish & gutless “allies”
This is a well-written essay, but it’s a tad too sympathetic to Chinese historical determinism. China was the most powerful country in Asia for most of its history, and it’s back in that position again today. But there’s no reason why we should believe that China’s rise to the top is inevitable. Its debt problems, aging society and endemic systemic corruption are all huge challenges that must be overcome. Meanwhile, low-tier manufacturing will move out of China to other emerging markets in Asia. If the U.S. and China are in a tech cold war, global companies aren’t going to produce advanced tech products in China for export to the U.S., and probably not Europe or Japan either. Moreover, it is China, through its bid to (in its eyes) to correct past injustices, and re-assert sovereignty over the Senkaku Islands, Taiwan and probably Okinawa (if we are to believe some of the more hawkish Chinese voices), which is the primary destabilizing force in East Asia. The U.S. military’s presence in the region is the only thing that’s preventing Beijing from using force to resolve those territorial disputes.
The Empire the US built and acquired after WWII could not last no matter who is president. We have been advised of this coming reality for 30 or 40 years. Washington can’t adjust b/c it is controlled by a two party system that is owned by the 10%.
Since wall street bought a bunch of manufacturing companies and exported them to China the US hasen’t had a real economy. It has been one bubble economy after another. A stock bubble, tech bubble, dot com bubble, and a killer 8 trillion $ housing bubble, and a completely unnecessary bank bailout.
The US has to regain a real economy and stop the insane military spending. Regardless of China.
Trump, in effect, is walling the US off from the rest of the world, as Ming-Qing dynasty China did until 1911.it turned out badly for Chinese people. It’s likely to turn out badly for the US.
One solution to rare minerals is to break the illegal clinton & bush era mining agreements around the Grand canyon and Nevada which has turned our resources into cash from russia and canada into the pockets of the deep state “elected” in D<C and these states. It would be nice if every now and then a real journalist who publishes a full story would get a complete story published. Consortium does better than most but still needs to step up their game.
An article that includes explaining why all NAFTA and trade agreements since Kennedy have been total sellouts of USA in exchange for party owned companies of the "elected"
‘”Trump’s position on Huawei gives the game away: If the company is truly a national security threat, it makes no sense to offer it as a chip to be bargained in trade talks with Beijing.”
Absolutely the case.
Trump has been caught before in this same kind of contradictory stance, as with tariffs on steel and aluminum.
I think the truth is that he is a man ready to use any gimmick to get what he wants, regardless of logic or facts or principle. Another way to say that is to speak of a criminal mentality.
It is exactly what the mob has always done in making someone an offer they can’t refuse. “Don’t want to pay protection money? Well, don’t be surprised if your joint gets burned down.”
Trump essentially wants to transfer huge amounts of trade surplus from China to the United States, not by any change in the economic activity or policies of the two countries but by fiat.
But of course, the world doesn’t work that way.
The United States’ trade deficits are its own doing, not China’s. The United States doesn’t save, and it doesn’t tax adequately. It consumes, and a productive country like China is only too pleased to supply what it wants. That makes a flow of goods in one direction and a flow of money in the other. Economics 101.
Trump seems to think he can command the wind and the waves. He has an immense ego, and there is the fact that he is a good deal less clever than he thinks he is.
Trump believes that by intimidation and threats, he can make something happen that cannot happen through the ordinary operations of the economies. In this we see him most like the thugs that came to run a number of European countries in the 1930s.
He genuinely does not understand – or if he understands, he doesn’t care – what is behind the surpluses and deficits and just insists that they will be changed as a matter of his personal will. Does that not remind us of anyone from history?
At any rate, it comes down to his admiring “the strong man” and believing he, and he alone, can play that role for the United States. And there are more than a few Americans that believe him too. After all, the great American journalist and historian who documented the rise and fall of the Nazis, William L. Shirer, once said that he thought the United States might be the first country to go fascist voluntarily. He based that thought on his observation of many attitudes and beliefs and trends in the United States.
Trump’s “MAGA” is nothing more than thinking you can make that heart-warming post-WWII slogan, “the American Dream,” come alive again, many decades later and in an entirely different set of circumstances. “The American Dream” was based in a world where almost every competitor was prostrate from war while America remained relatively unscathed. So, America supplied, for a while, a huge share of the world’s demands, but its share has been declining ever since.
In today’s world, all the old competitors have not only come roaring back, but a lot of new ones have come into being, and that reality is the future.
Naturally, many Americans want to believe otherwise. Trump’s base – the nation’s Wal-Mart shoppers and the residents of its huge gulag of trailer parks – certainly does, and its hopes comes tinged with everything from superstition to religiosity.
America’s elites, the members of its power establishment, do not believe in the same way, but they are deeply concerned about America’s relative decline. They have been working away for years on the problem, as in their past bashing of Japan or China, but they are not ready to work for fundamental change in America, as, for example, in its tax and savings structures and its grotesque inequalities.
They do believe that America’s still great remaining strength can be used to extract concessions from the world without sacrificing anything at home and without sacrificing its role as the center of world empire, a role that comes with many perks and privileges. And while most of them do not like Trump’s style or background, I think for now they are willing to see whether he can get the ugly job done. One thinks of the infamous German industrialists and bankers’ – as well as notable American ones – early support for Hitler, although I do not mean to say the situations are identical.
You can try fighting by the methods Trump is using, but those methods risk, through acts like the blithe laying on of massive new tariffs and sanctions, not only reduced economic activity in the world, they risk ultimately real wars.
Even if they don’t go so far as war, they are shaking up some fundamental post-WWII arrangements that America is going to miss. Decades-old allies, like some of those in Europe, are beginning to re-think their relationship with such a hostile, single-minded America and to glance around in other directions, as towards the very China Trump attacks and towards Russia, a country whose openness to business would have resembled a miracle under the communists and whose wealth of natural resources offers altogether new opportunities.
The real pity is that Trump at his core is not that much different from the rest of the fools who have been leading this country for the past several decades. He’s just “old school” in his style: he doesn’t wear soft kid gloves whilst attempting to strangle his geopolitical competitors the way all his chums before him did, the sonorous Barack Obama included.
Constant warfare is a big part of US consumption.
The problem that bothers the US policy makers is real: what to do about the balance of payments deficit? The Trump team seems to be nit-picking areas where imports can be reduced, for instance by blocking Chinese tech exports. All of these moves are nonsense because they miss the real problem: the US economy has a long standing structural quandary. It devotes so much of its resources to flashy, ornamental and useless defense high tech weapons and gismos that it is running itself into the ground. It is becoming increasingly clear that the US is subject to an arms industry racket which is draining its resources and ruining its real potential. What needs to be done is to cut the military budget in half and redirect the resources to improving the infrastructure of the country and making investment once again profitable inside the USA. Where is the politician who dares make these proposals? Wake up America. We are becoming a country of idle over-weight vets running around on motorcycles wearing red MAGA hats, supported by billionaires, while the rest toil.
It is strange to discuss confrontation with China only in terms of trade deals so soon after Obama’s “pivot to Asia,” Trump’s militarism with respect to North Korea, and the militarism of both the Obama and Trump regimes as regards Russia and also through western and central Asia, which are clearly areas in which China has no less natural interest than the United States.
Among these, surely tariffs are the least of most anyone’s worries.
This will likely come to a head sooner rather than later, and the conflict can be understood in broader terms as between a hegemonic global model and a multi-polar global model. The hegemonic global model has been an American project since the demise of the Soviet Union, usually presented in euphemism – “globalization”, the “exceptional” nation, the “rule-based international system”, etc. In recent years, US politicians have overstepped by a reckless use of the international financial system to deter designated adversaries. Presently moving through Congress are bills designed to use sanctions (“maximum pressure”) to attack both Russia’s Nordstream natural gas pipeline to Europe and China’s claims in the South China Sea. While confidence that such measures can inflict enormous harm is justified, the corresponding confidence that America’s preeminent position atop the world’s economic structures is not subject to challenge or change is misguided. The challenge has been ongoing for over five years now, and the change will likely appear suddenly. The preference would be for the U.S. guided to a soft landing into a multi-polar world, but Washington’s policy hawks seem committed to rolling the dice.
Washington’s policy setters are gangsters who operate largely through intimidation, extortion and racketeering. If you look up the definitions of those words you will see they describe to a tee what the American government does. Shutting down Nordstream (and all the other sanctions over transparently absurd claims) is meant entirely to damage the Russian economy and destabilise the country’s government, plus to steal away customers in the energy sector. They are protecting nobody’s “rights of navigation” in the South China Sea, rather they are telegraphing to Bejing that Chinese trade with the world can be shut down on a moment’s notice by Uncle Sam, specifically they are trying to put the kibosh on the Chinese “Belt and Road Initiative.” The cusses in Washington have gone so far as to tell Canada that it does not have control over the Northwest Passage, long considered to be within its internal waters–you know, all those islands connected by ice for most of the year. Hence forth, Washington decreed that they are international waters and that it would control them. If that’s being a good neighbor to a country that has supported your every crazed demand for over 200 years, the “Great White North” needs to get a restraining order from the World Court against Uncle Sam, plus they need to find better friends elsewhere on the planet.
I tend to substitute the euphemism “rogue nation” for those others.
Excellent comment.
Washington’s policy setters are gangsters who operate largely through intimidation, extortion and racketeering. If you look up the definitions of those words you will see they describe to a tee what the American government does. Shutting down Nordstream (and all the other sanctions over transparently absurd claims) is meant entirely to damage the Russian economy and destabilise the country’s government, plus to steal away customers in the energy sector. They are protecting nobody’s “rights of navigation” in the South China Sea, rather they are telegraphing to Bejing that Chinese trade with the world can be shut down on a moment’s notice by Uncle Sam, specifically they are trying to put the kibosh on the Chinese “Belt and Road Initiative.” The cusses in Washington have gone so far as to tell Canada that it does not have control over the Northwest Passage, long considered to be within its internal waters–you know, all those islands connected by ice for most of the year. Hence forth, Washington decreed that they are international waters and that it would control them. If that’s being a good neighbor to a country that has supported your every crazed demand for over 200 years, the “Great White North” needs to get a restraining order from the World Court against Uncle Sam, plus they need to find better friends elsewhere on the planet.
India, Vietnam, and the Philippines will thank China for the opportunity to manufacture schlock for sale at Wal*Mart and for the major investments that new Chinese shareholders will have made in their companies. These countries will now have wares to trade along the Belt and Road linking all of Eurasia where everyone keeps getting richer by the day. Since people the world over, except for congenitally retarded neocons, know a good deal when they see one, all these countries will start telling Uncle Sam to cram it when he keeps demanding they sanction their new found friends and trading partners because freedom and democracy, Putin and the other names on Sam’s shit list. They’ll start deciding that all those American bases give them no clout, no influence, no pay-off and no security… nothing useful at all, unless prosecuting the crimes and repairing the damage caused by the garrison soldiers provides local entertainment. It will be time to relocate those rat-holes to the American side of Trump’s Wall.
Will the silver lining be new American self-sufficiency in manufacturing? The development of needed resources using new innovative technologies? A plethora of jobs at good pay for working American men and women? Will American oligarchs once again begin investing in America itself? If you can arrange that with American greenbacks now buying a tenth as many Yuans, Euros, Yen, Rupees, Rubles and even Pesos than they once did because Trump decided to “shake things up,” maybe you can sell all those treasuries needed to run the government in Washington to the Tooth Fairy. It’s not true that “you can never go home again:” just watch the dollars come flooding back to North America when the whole rest of the world stops trading in them. This whole bit of history should be engaging to watch on some future television show similar to James Burke’s “Connections.” If only Barack Obama had eased up on the extreme Trump bashing at that White House Correspondents’ Dinner.
“Watch those dollars come flooding back” – when the real fun starts. Those that don’t understand why there has been little inflation from the bank bailouts will get their answer. And they won’t like it.
As a life-long protectionist, I always believed that our foolish dependence on imports would ultimately end in tears, and it is now clear how right I was. Just to think: we could have saved ourselves all this trouble and misery simply by voting down NAFTA and declining to extend Most-Favored Nation trade status (as it used to be called) to China 25 years ago. But now, putting our industry back on track is really gonna hurt. Pity …
Any US reindustrialization is likely employ robots. The homeless will just keep on increasing.
“Europe could begin to replace the U.S. as a source of the foreign investment capital China needs.”?
China is the leading recipient of FDI but its need for foreign capital is rapidly diminishing and it is the world leader in IP
A fair amount of foreign investment is laundered bribe money from China.
This trade war sounds dangerous – didn’t the Smoot Hawley tariffs precipitate the great depression?
And the inevitable economic war (even if it is a faux war based on lies, driven by the neocons) could well lead to a real war if we let it…..
I can’t help but secretly imagine that perhaps the retaliation that Patrick Lawrence writes about – namely China’s shift to other trade partners – happens smoothly and quickly enough to deprive our neocons of their super power resources to put an end to what Charles Misfeldt in his comments refers to as Crooks, liars, thieves, cowards and traitors running things…..errr ruining things.
I know that’s not the answer because it could be devastating too.
It’s up to the electorate to shift away from the ideologues, both neoliberal and neocons.
But will we demand better government?
Most politicians in power have been too afraid to challenge the idea of “exceptionalism” which is used to keep the primitive war machine going.
Thanks for the article and the interesting and informative comments….much appreciated…
But trade wars are easy to win! Our very smart cheeto-in-chief has told us. You wouldn’t doubt him would you?
Actually, one wonders why anyone takes the US and its accusations seriously. Especially by the European vassal states. Yes, your equipment/software will have a backdoor if the US wants one there. That much is clear from the Snowden releases. And a Reuters report this morning gives a hint at how it’s done. Huawei apparently is continuing to make the mistake of sending things out via FedEx. Magically, two of the parcels wound up in the US without the benefit of Huawei changing their shipping request. Huawei would never have known if they hadn’t looked at the routing of the parcel after they got it. Hopefully, there wasn’t any sensitive information in the documents routed to the US because it’s a sure thing that the USG now has copies of them. Same for the European vassals. Angela Merkel’s phone hacked. Electronic interception equipment installed on undersea telephone cables. That’s before we get to the NSA office in all the telecoms spying on us. Most of the world’s telecommunications run through the US. So, not only do we get to listen in on a phone call from Paris to Des Moines, we get to listen in on one from Paris to Shanghai.
And the European vassals continue to toe the American line albeit a bit more reluctantly.
The US has abdicated their manufacturing and innovative technologies, shutting down heavy industry under Reagan and Bush I (replacing it with a “service economy”) while outsourcing high end technology and offshoring technical jobs, initially to China mostly under Clinton and Bush II. Short-term profits soared with the cheaper labor, but giving away high end technologies leading to innovations for China was resoundingly stupid. Chinagate was (is) much more dangerous than Russiagate to National Security. Having given away America’s capabilities to China, no amount of negotiating will “level the playing field” . We can no longer compete with China not because of labor costs, but because of the improvements the Chinese have made in so many fields over twenty years, while America sat stagnant (except of course for overpriced weapons and surveillance tools to watch American citizens).
The US has always imported its Einsteins and Teslas. We Americans are educated to be cannon fodder in wars of vanity. At best, we’re educated to be Trump – Romney style connivrrs and crooks.
Historically, when two hegemonic powers clash the result is always war. What we are witnessing between Washington and Beijing today is no different. But Washington will not allow China to ‘displace the US as the preeminent power in the western Pacific.’ The trade war will become world war.
https://www.ghostsofhistory.wordpress.com/
I am afraid you are right.
Peter McLoughlin, your Web site
http://www.ghostsofhistory.wordpress.com/
does not have a valid certificate (Firefox warned me).
The US is rather more likely to attack China than vice versa. An Iraq style invasion would be hopeless, so a nuclear first strike is unfortunately more likely. :-(
Or perhaps just try to destabilize the government somehow
You know that’s not true. The U.S. will come to the defense of Taiwan or Japan if the PLA tries to forcefully take the Senkaku Islands or Taiwan. There’s no way the U.S. will ever invade China with ground troops.
I look at this picture and see all the representative’s on America’s side of the table are conservative scumbags who have no intention of engaging in behavior that benefits myself or the majority in America. Crooks, liars, thieves, cowards and traitors…
Yeah. Sums my thoughts up precisely.
“a spat so far limited to tariff increases”
Not quite. The US has announced that any Chinese person travelling outside of China can be arrested, as it had Meng Wanzhou arrested in Canada for selling Huawei phones to Iranians. China threatened to execute 3 Canadians in retaliation, so Canada released Ms Meng from prison and put her under house arrest while the legal processes of extradition are now thought to require many years. China hasn’t executed the 3 Canadians, and Ms Meng is in her C$20 million home, and is likely to remain there for the foreseeable future. What happened to Ms Meng can happen to any Chinese executive who travels outside China to the EU or the Americas or Japan.
It’s tempting to conclude that tariffs and action against Huawei are part of the same strategy. I don’t think they are. The tariffs are playing to Trump’s voter gallery. So long as the Chinese can find a way to save face AND give face to Trump, compromise is possible. Huawei is about the Deep State being unable to access Huawei’s facilities. Its a double bluff. The NSA etc (via 5 Eyes) have great access to western controlled telecoms. They don’t want to lose that access by allowing an outside operator, so they accuse Huawei of what they are doing, on the assumption that Beijing does what they do.
Excellent. Thanks.