US-China Trade war: The Broader Perspective

Trump will declare victory in phase one
Empowering Weak & Oppressed

Tahir Mahmoud

Jumada' al-Akhirah 07, 1441 2020-02-01

Special Reports

by Tahir Mahmoud (Special Reports, Crescent International Vol. 48, No. 12, Jumada' al-Akhirah, 1441)

The US-China trade war has consumed attention of the Western corporate media for quite some time now. It is unlikely to fall off the headlines anytime soon. It was Donald Trump who was primarily responsible for launching the trade war with China. His regime launched the tariff war against Chinese products without fully grasping the complexities and nuances of international trade and global politics. Nevertheless, the overall narrative of holding China accountable for its trade practices does resonate with many ordinary Americans who have lost most of their manufacturing jobs to China.

The US-China trade war is one of the manifestations of some of the serious flaws of the way globalization is currently working. The US-initiated trade war is taking place because Washington has lost control of the international trade system it had set up after the Second World War. In fact, the transfer of manufacturing jobs from wealthy countries to economically less developed ones was a deliberate policy of US corporations and the Western established contemporary economic order. It depended on other countries being poor and their labor doing work for pennies. Thus, one can rightly conclude that the US-China trade war is taking place primarily because the Chinese are playing the trade game on their own terms. China does not wish to stay poor.

Beijing began utilizing the presence of foreign know-how to upgrade its economy and step out of the globalization framework set up by the US, where it would simply be a cheap manufacturing garage for Western powers. Since the Trump regime views the world through a strictly transactional perspective, it assumes that China’s economic achievements are the primary challenge to Washington’s global supremacy, forgetting the soft-power aspect.

While the trade war between the US and China is presented strictly in economic terms, its underpinnings are mainly political. These were very visible during the Hong Kong demonstrations when the bill, the Hong Kong Human Rights and Democracy Act, was passed almost unanimously by both houses of the US Congress. There are many key aspects that throw doubt on the strictly economic depiction of the trade war. Solid economic numbers that justify a trade war by both sides have not been conveyed and there is no comprehensive study that explains the numerical reasoning behind the US-initiated trade war.

To this day, all that is known are the aggregate numbers as no one has conducted a thorough academic study to dissect what US companies operating out of China are saying. There is also no comprehensive study on how much extra production has come from the additional duties. Thus, both sides do not exactly know if the current measures produced jointly desired results. Therefore, it appears more likely that it is a political battle played out on the economic board.

In broader sense where one looks beyond economic data, China got hit very hard and the US got hit hard. Many companies that moved their operations from China to Vietnam, Malaysia, or other Asian countries are not going to pack and immediately move back to China, even if the US and China sign trade agreements aimed at de-escalation of the tariff war. The erratic Trump regime is unpredictable and strictly from a microeconomic perspective, it makes no sense for a company that recently moved to another country, to foot another costly bill to move back. The US-China rivalry is here to stay; savvy businesses understand this. Washington is an empire in decline and like all empires in collapsing phase, it will act recklessly, thus, China-US relations are still unstable.

Some might ask why China is getting hit harder than the US when there are no in-depth studies indicating this? The reason is that the recently signed phase one of the trade agreement is restructuring the Chinese economy as dictated and framed by US economic thought. For example, the New York Times reported that China agreed “to refrain from forcing foreign companies operating in China to transfer their technology to domestic firms, and to open up more of its economy to foreign investment. These measures could help American and other foreign businesses that are interested in selling in China’s markets [and] investing there… In return, the United States has reduced some tariffs on Chinese imports and canceled additional tariffs.” The agreement also stipulates what Beijing can and cannot do to its currency. These are some strategic policy issues for which the US only eliminated tariffs on Chinese goods, while Washington determines the parameters of China’s economic policies. Imagine the reaction if Beijing managed to get the US to conduct its economic policies based on China’s perspective on what economics should be.

On the other hand, China’s promise and ability to buy close to $77.7 billion of US manufactured goods by 2021 is doubted by many experts. The reality is that most Western economies, especially the US, have hurt their manufacturing industries by adopting the outsourcing model. Thus, reinvigorating the US manufacturing sector will require more than just signing a trade agreement. It would require a great deal of government involvement in the US economy, an approach that the US political caste views as heresy.

It appears that China also sees the trade war with the US more in the geopolitical context than purely in the economic one. In an English-language editorial in January, the Chinese state-owned Global Times stated that Trump is using the Iran crisis to hurt China’s economy by aiming “…to thwart China’s development by implicating China or even dragging China into military clash… the US-Iran conflict fits into this tactic because China has big and growing reliance on energy from Iran and other Mideast [Middle East] countries, which makes it vulnerable to regional strife and turbulence.”

Beijing is not seeking to be the dominant global power. It simply wants to be a respected regional power with a global reach. Splitting the globe between the Chinese and US spheres of influence would require China to do a lot more than just produce large amounts of goods that look promising on economic spreadsheets. China would have to put forward a globally appealing soft-power paradigm and that is nowhere on the horizon.

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