Increasingly, the Trump administration’s trade war is not about tariffs but about keeping China in its place, regardless of the costs to US companies and consumers – and the world. The trade conflict is heading in a dangerous new direction
27 May 2019 | David Dodwell | South China Morning Post
Lift one’s eyes to the global horizon and, at present, there seems nothing but bleakness. Compared to the relative calm and common sense of elections in India, the Philippines and Australia, the more distant upheavals feel alarmingly disruptive. Brexit is a shambles. European elections are veering in dangerous directions. And US President Donald Trump’s trade war with China looks more ruinous by the day.
At the end of the day – distressing as it is to watch such self-harm being so deliberately inflicted – the Brexit chaos has little impact here in Asia. In the short term, so too with Europe’s right-veering elections.
But the US administration’s escalating conflict with China has become a source of existential concern not just for China, but for Asia, and the entire global economy.
A peaceful, increasingly prosperous world built carefully over seven decades out of the ashes of the second world war is being attacked at its foundations.
As Martin Wolf at the Financial Times noted last week: “Under Donald Trump, the US has become a rogue superpower, hostile, among many other things, to the fundamental norms of a trading system based on multilateral agreement and binding rules.”
Harvard’s Jeffrey Frankel expressed similar concerns on Project Syndicate last week. US trade policy is “now a hot mess of conflicting goals”, he said, not only imposing a debilitating tax burden on US companies and consumers, but also reflecting a fully fledged commitment to a protracted trade war, decoupling, a loss of gains from trade and the dismantling of long-standing global supply chains.
At the Washington-based Peterson Institute, Chad Brown and Eva Zhang reckon the Trump administration’s tariff strategy is sweeping the US back to the disastrous days of the profoundly protectionist 1930 Smoot-Hawley Tariff Act.
Before the trade conflict began in earnest last year, US tariffs on Chinese goods averaged just 3.1 per cent. By the end of 2018, the first wave of tariffs had lifted the average to 12.4 per cent. Taking into account the new tariffs announced this month, average US tariffs on Chinese goods will jump to 18.3 per cent. If tariffs are lifted across the board to 25 per cent, the average will rise to 27.8 per cent.
“The latest steps will impose new costs on the American economy and will introduce even more uncertainty about Trump’s end game,” Brown and Zhang concluded.
Johns Hopkins’ Anne Krueger, commenting on Project Syndicate, is blunt: the Trump administration is acting like the thief who says “your money or your life”. “…there is no actual negotiation to speak of. By acting like an insecure bully, Trump has left the US increasingly isolated in the global economy. American producers and consumers are already paying the price.”
What began for Trump as a battle for trade and against global supply chains, with a grudge over trade deficits held primarily against China, has over recent months morphed into something much more sinister. The parallels are not with the trade war against Japan, culminating in the Plaza Accord in 1985, but with McCarthyism and the cold war waged against Russia.
And this new battle is no longer being shaped or driven by Trump, but by zealots who see China as an existential challenger, and who share a mission to keep “Red China” in its place. They are supported by a large proportion of ordinary Americans who remain anxious about, and even deeply hostile to, China.
People around Trump like Mike Pompeo, Mike Pence, Peter Navarro and Steve Bannon start from a premise that China is an enemy with malevolent intent who is using existing global trade rules to undermine the freedom-loving West and, in particular, using new technologies and investments embedded in global value chains as a kind of Trojan Horse to attack the United States from within.
For them, the problem is not a trade deficit, or too many China-made shoes in Walmart stores, but a rising China. They are not driven by China’s disrespect for US intellectual property rights or Beijing’s state-owned enterprises or subsidy policies, but by an anxiety about an insidious competitor who is developing technologies that the US can neither control nor, in some instances, understand.
Hence the funk over “Made in China 2025”. The charges against companies like Huawei are not that the company is into espionage in cahoots with Beijing, but that Huawei appears to have the potential to do espionage, and perhaps to do it undetected.
As Bannon said in an interview with the Post last week, Huawei “is a major national security threat, not just to the US but to the rest of the world. We are going to shut it down.” He felt Trump’s ban on the Chinese tech giant was “10 times more importantthan walking away from the trade deal”. And for him, the same must be done to any Chinese company that becomes a technology challenger to the US.
This is why Bannon calls for Chinese companies to be denied initial public offerings in the US, for US insurers and pension funds to cut investments in Chinese companies, and why he has revived the McCarthy-era Committee on the Present Danger to target China. This list could include not only Huawei and perhaps 50 of its suppliers, but also companies like ZTE, HikVision and drone maker DJI. Whatever happens in the trade war, this list will steadily grow.
While Bannon no longer sits in the White House, he clearly retains a strong influence on Trump – not least because Trump knows his China trade agenda provides a strong campaign platform into next year’s presidential election.
Note Trump’s interview with Fox News last week, when he said he believed China wanted to replace America as the world’s leading superpower. But this is “not going to happen with me … I think that’s their intention. Why wouldn’t it be? I mean they’re very ambitious people, they’re very smart.”
The Trump administration is in the process of creating a massive crisis for the global economy. For those of us who do not believe China is yet an enemy, or that it harbours ambitions of becoming a global hegemon, Trump’s antics are a sure way to make it one. This is what the Thucydides Trap looks like.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view