Trump's trade war with China is no longer about fair trade - but complete decoupling
JEREMY WARNER
Follow Jeremy Warner 21 MAY 2019
Presidents Xi Jinping and Donald Trump have exchanged "beautiful" letters, but they are on a collision course to wider conflict
For obvious reasons, the judgement of history has not been kind on Richard Nixon. Yet even the most duplicitous of political leaders are likely to have redeeming features; the big positive for the disgraced one time US president is China.
Nixon’s meeting with Mao Zedong in Beijing in 1972, it is widely accepted, was one of the most important and impactful diplomatic initiatives by a US president ever, if not the most important. The consequences were far reaching, and - until the advent of Donald Trump at least - were also widely judged to have been an overall success.
Nixon’s visit ended 25 years of isolation for China during which there had been virtually no communication or trade with much of the outside world. With Western relations restored, China set about an ambitious programme of free market reform, tapping into the abundant wealth and knowhow of Western markets as a pathway to development and growth.
At the time, Nixon almost certainly didn’t realise the full import of his rapprochement, which was in any case initially intended for the narrow purpose of merely splitting the People’s Republic off from the more pressing enemy of Soviet Russia. But it was to morph into something much bigger.
Nixon's initiative was born of a more hopeful age, when multilateral cooperation was thought a natural panacea that would help prevent the ravages of past wars and allow nations to progress together to mutual advantage. The ultimate aim was no less than integration of China into the global economy, making it subject to the same “Washington consensus” as ruled in the West. China could in time be made more like us, it was believed.
That strategy has been turned on its head by Donald Trump, who more than anyone has come to represent today’s anti-globalisation backlash. To begin with, his trade war with China could reasonably be justified as an attempt not to trash free trade, but merely to win fairer trade.
As the new kid on the block, China had been allowed a degree of latitude which would not have been tolerated in others. It has ruthlessly taken advantage of the West’s open markets and rules based international system, but has been slow and reluctant to abide by their obligations.
This asymmetry might have been acceptable in China’s economic infancy, but the region has long outgrown its early development goals, and many parts of urban China are now as prosperous as Europe and even America. Trump’s demands are entirely understandable, even if his method of going about achieving them look questionable. It’s high time China started playing by the rules.
Yet over the last month, Trump’s underlying purpose in launching the most serious trade war since the 1930s have become clearer and a great deal more worrying. His goal is not that of merely leveling the playing field, or indeed cracking down on China’s penchant for intellectual property theft. Nor is it even first and foremost about Chinese containment. Rather, after more than 40 years of growing interdependence, it is about completely decoupling the US economy from its Chinese counterpart. That much is now obvious.
What Trump is attempting is a complete reversal of the process begun under Nixon; his stated aim is to replace a world governed by multilateral rules and institutions with one of self contained nations as adjudicated by bilateral arrangements and alliances according to self interest.
It scarcely needs pointing out that this is the sort of complex that existed before the first and second world wars; it is inherently unstable, naturally leads to confrontation and is very unlikely to be a satisfactory answer to the shared problems and challenges of today’s world. It is indeed the perceived failings of this system that led in the aftermath of the second world war to the establishment of the multilateral world Mr Trump is now so keen to dismantle.
Having benefited beyond the dreams of avarice from forty years of American led globalisation, corporate America is now being bent behind President Trump’s quest for a siloed and regionally divided world.
It is only possible to speculate on what Google has been promised in return for its historic decision to stop supporting its Android operating system on Huawei mobile phones; Silicon Valley has always had an uneasy relationship with Trump, who has warned that he is looking “very seriously” at antitrust action against companies such as Alphabet, Google’s parent company.
By the same token, Google has long harboured grand ambitions for the Chinese market. These are now presumably toast thanks to the Huawei decision, so even though Google may have had no option but to comply with the President’s edict, he will still be judged to owe the company big time. The Google decision is afterall the biggest single rocket yet fired in Trump’s escalating trade war with China. Calling off the anti-trust hounds is the least he could do.
What makes Huawei such a defining case is that the company is deeply representative of China’s wider integration into the world economy - not just in terms of its penetration of Western markets, but also in its use of global supply chains. The Huawei mobile phone is for instance barely a Chinese product at all, relying heavily as it does on key components and systems from the UK, Korea, Japan, Germany, and yes, the US too.
This is not because Huawei doesn’t have the technology, but because there was no point in reinventing the wheel and it wanted to bind the rest of the world into shared interest in the product.
If the President is serious about decoupling, then international supply chains will need to be replaced with local ones. Mr Trump might count that as a win, but the duplication and loss of efficiency, nevermind the importance of trade as a way of binding nations together in common interest, is going to be dramatic.
There is nonetheless an opportunity for Britain amid the madness. If America is giving up its position as upholder of the multilateral, rules based system, then there is a vacancy as standard bearer which the UK, with its strong tradition of rule of law, could usefully fill.
The world is fragmenting once more, but all is not yet lost. Nixon was right all those years ago. The way to deal with China is to absorb it, not to isolate it. But any system of cooperation must always be a two way street. For the Chinese, participation must come at the price of reciprocity, accountability, transparency and compliance.
