By Prof Munmun Majumdar
The New York Times had aptly summed up the gist of Mike Pence’s speech at the Hudson Institute on 4 October 2018 with the headline, “Pence’s China Speech Seen as Potent of New Cold War”. Mike Pence’s passionate defence of American interest suggested that the problem between China and the US goes far beyond a trade war. The National Security Strategy of December 2017 and the National Defense Strategy of January 2018 also indicated the overall emphasis of the US China relations as one of strategic competition. Against the background of the recent turn of events between US and China it is completely logical to agree that trade is only the instrument; the objective is indeed strategic competition.
It was President George W. Bush that first dubbed China a “strategic competitor” almost twenty years ago. The mood of American businesses towards China on intellectual property (IP) and technology theft began to turn sour during the Bush administration. The subsequent wars in the Middle East gave China a virtually free hand in East Asia. Although President Barack Obama’s “rebalance” was intended to refocus on China, but Barack Obama’s rhetoric was hardly matched by action. Subsequently, Trump has been able to successfully position his administration’s approach to China as an overdue correction to the perceived failures of his predecessors. This has resonated positively across the security and defense community as well as with the human rights and religious freedom advocates, even if they may not always agree with his methods.
The broad bipartisan consensus is a development that no American politician can ignore. Any subsequent presidential candidate will find it difficult to soften China policy without being faulted of being weak. In any case, the new legislation that has been put in place with strong bipartisan support to make it difficult for China to acquire US technology defines a new framework for the relationship that any successor administration will find it extremely hard to change. It is indeed worth noting that the US’ current stance on China is not divided along party lines and that despite their differences, the Democratic Party has asked the Trump administration to be tough with China on regulatory behaviors, unfair trade practices, and human rights issues etc.
The tit- for- tat strategies adopted by the United States and China is possibly one of the nastiest outcomes of the collapse of the trade talk between them in Washington. This is not the first time such a thing has happened. But what is new is that what started as skirmishes over tariff issues now includes conflict over technology, diplomatic and geopolitical matters with feeble indications of calling it a day. An immediate question that arises is why did the US-China trade talk fail in the first place?
Many analysts say that the two had different expectations about the implementation of the draft agreement that became complicated with the dynamics of domestic politics in their individual countries. The core of the problem lies in the structure of China’s political system that is built around a Leninist Party that claims absolute dominance over every facet of the economy and society. Party dominance gives any Chinese business connected to the Chinese Communist Party (CCP) a privileged position –this practically means every Chinese business because no Chinese business can succeed against the will of the Party. This is precisely what the US and other countries deem as unfair. No Chinese leadership will ever compromise on the dominance of the CCP, and Xi Jinping has placed greater emphasis on CCP control. The creation of the National security Commission chaired by Xi himself clearly show that Xi Jinping is much more than willing compared to his predecessor Jiang Zemin and Hu Jintao, to wield coercive power, both in terms of military and economic. Xi’s visit to the Jiangxi province, which is housing mineral facilities for rare earth minerals is indicative of a strategic move, when he urged the Chinese people to start the new “Long March” with loyalty and unity for the nation’s great survival.
China was of the opinion that the newly drafted Foreign Investment law that was passed at the National People’s Congress provided foreign firms with level playing ground and protection from illegal interference from the Chinese government. They were therefore reluctant to make any further legal changes to improve the outcome of the trade talks. The Trump administration and American firms on the other hand, did not agree with China’s position. Similar to the stand adopted by the European Union and many others the US saw China’s new investment law as something that remains vague on the issues of forced technology transfers, intellectual property rights, and know-how disclosure etc. Unlike China, which wanted to implement the agreement through administrative actions and without any legal commitments, United States on the other hand, wanted to specify changes that China needs to make in legal terms and publicly disclose them in order to institutionalize an enforcement mechanism. Needless to say, that both US and China were anxious and concerned about consequent domestic fallout and criticisms from not being able to arrive at robust concrete deals. Nonetheless, it remains to be seen whether US and China as in December 2018 in Buenos Aires would ultimately resolve the deadlock but as of now the US-China discord has spread beyond trade to foreign exchange and politics. The standoff between the US and China after the breakdown of the trade talks demonstrate that it is not simply triggered by the spontaneous reactions of strong leaders. Instead it displays a bitter fact that the two great economies have embarked on a war over a new global order. The escalation of US-China trade war to an economic and political warfare between the two big powers has the potential to bring about a fundamental transformation of US-China relations, affect the global trading system etc. The IMF Director Christine Lagarde has warned that retaliatory tariffs by the US and China will cause reduction of growth.
In this rivalry between two powers where trade is an instrument of strategic competition, it will become increasingly difficult for say the ASEAN countries to neatly separate the economic dimensions of their relationships with China from political and security dimensions. Then again the consequences of the trade war between the US and China becoming a technology war is enormous with the onset of the Fourth Industrial Revolution that is not only all encompassing but is also moving at an exponential speed. For India, the Fourth Industrial Revolution presents both opportunities and challenges for enhancing productivity and sustaining growth. Navigating the US and China trade war however, has added another episode to the existing complexities of India’s foreign policy challenges.
While the US President Donald Trump firmly believes that trade wars are “good” and “easy to win”, Chinese President Xi Jinping has warned that a trade war will produce “no winners”. What is certain is that the rising trade tension will definitely begin to bite at some point of time and become a source of volatility, which is unquestionably caused by the two countries’ fight over global hegemony.
(The writer teaches Political Science at the North-Eastern Hill University, Shillong).