Easy to Start but Difficult to End US-China Trade War


SCMP says in its report “Jack Ma says it’s his responsibility to let Alibaba go, warns of protracted US-China trade war” on September 18, “He (Jack Ma) also warned that the trade friction between the US and China will be a protracted affair because it is about two countries competing with each other. Even if US President Donald Trump retires, and the next president comes on, the conflict will continue, he said.”

It quotes Jack Ma as saying, “It’s going to be long-lasting, it’s going to be a mess, maybe 20 years.”

I believe Jack Ma is right in his prediction.

The US has no definite goal in a war. Even if it wins, it changes its goal to make it not attainable. For example, its war in Iraq aims at removal of Iraqi weapons of mass destruction. It has attained its goal when it has found that there were no such weapons there. However, it did not end the war and changed to a goal for a regime change favorable for the US, which is not achievable due to difference in culture. It did not end the war until it found it could not afford it.

The war gave rise to ISIS, a disastrous byproduct that US has never expected in starting the war. It does not win the war but brings disaster to itself. That is US way of fighting a war.

The goal of US trade war with China is to stop China’s rise. Even if it could attain that, it would not stop. It would want regime change in China, which due to difference in culture, will be entirely unattainable. The Chinese Communist Party will grow even more popular and stronger due to China’s tradition of patriotism.

China may lose at first but will be the final winner due to its perseverance.

However, China may not even lose at first as China is now stronger than the US in economy. If China wins and the US wants to end the war, will China easily accept a ceasefire? No. There are too many problems the US has gives rise to China: Taiwan, South China Sea, human rights, etc. China will not stop until it has entirely eliminated US hegemony. That, perhaps according to Jack Ma’ calculation in his mind, will take 20 years.

The US, though losing will not accept its loss until it is entirely unable to remain fighting. That was well proved by its war in Vietnam. Though losing, it fought on because it would no lose face. That has given rise to its most humiliating loss in war.

For the trade war, when it chooses to end the war, China, being the winner, would not accept an end without the US losing face. As a result, the negotiation for ending the war will be a very difficult prolonged process. It may take more than a decade perhaps.

Therefore, we have to be prepared for a protracted US-China trade war.

Comment by Chan Kai Yee on SCMP’s report, full text of which can be viewed at https://www.scmp.com/tech/article/2164725/jack-ma-says-its-his-responsibility-let-alibaba-go-warns-protracted-us-china.

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China’s exporters could quickly ditch U.S. market, says ex-central bank head


Tom Miles September 20, 2018

GENEVA (Reuters) – The direct economic impact on China of the trade war with the United States appears limited, though it could rapidly prompt China’s exporters to switch away from the U.S. market, the former central bank governor in Beijing said on Wednesday.

Zhou Xiaochuan, who stepped down in March after 15 years at the monetary policy helm, also told Reuters that China’s economy, which he expected to roughly match last year’s growth rate of 6.5 percent in 2018, needed to evolve beyond a model based on urbanization.

It would be a pity if the trade war led Chinese firms to withdraw from the U.S. market. “But I think it will force China to look at many other markets. So it’s not necessarily a good thing for the United States,” he said in an interview.

“I think the speed of (geographical) diversification can be relatively fast and beyond many people’s expectations.”

Zhou played down the direct economic damage to China from the trade clash, which he said had been estimated at 0.2-0.8 percent of GDP, but said the impact of the conflict could be deeper in terms of business confidence.

China’s yuan has weakened more than 8 percent against the dollar since the end of March, when the bilateral trade tensions started to flare.

On Tuesday, Beijing added $60 billion of U.S. products to its import tariff list in retaliation for U.S. President Donald Trump’s planned levies on $200 billion of Chinese goods.

The country was changing its growth strategy, and needed a new economic motor to take over from the trend of urbanization as the major ingredient in economic growth, said 70-year-old Zhou.

“Whether this is reaching the peak or has peaked and maybe going down, we need to find some new economic growth driver. So the Chinese government has emphasized … supply side reform to encourage new technology and other (areas).”

A demographic shift also pointed to lower savings and lower investments, he said.

Long one of the world’s most respected central bankers, Zhou no longer has a say over economic policy, but is vice chairman of the Boao Forum – Asia’s Davos – and was leading a delegation of former ministers and experts discussing WTO reform in Geneva.

More global market participants might start using the yuan as China improves the exchange rate regime and the currency becomes more usable and convertible, he said, but China was not actively pushing for them to use it.

Internationalization of the yuan, also known as the renminbi (RMB), was always intended to be very slow, but the pace largely depended on the situations facing other currencies. “So if the other currencies have some problem, the global market may decide to use more RMB,” he said.

Reporting by Tom Miles; editing by John Stonestreet

Source: Reuters “China’s exporters could quickly ditch U.S. market, says ex-central bank head”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


EU unveils Asia infrastructure plan, denies rivalry with China


Robin Emmott September 19, 2018

BRUSSELS (Reuters) – The European Commission proposed on Wednesday a foreign policy plan to improve transport, energy and digital infrastructure links with Asia but denied seeking to counter China’s ambitions that have raised suspicion in Western capitals.

The plan, which would be backed by additional funds from the EU’s common budget from 2021, private sector loans and development banks, amounts to a strategic response to China’s largesse in much of central Asia and south-eastern Europe, where Beijing has invested billions of dollars.

The 13-page strategy outlined by the EU executive did not specify how much the bloc would spend, but the Commission is relying on a proposed 60 billion euro ($70 billion) fund that would act as an insurance for investors if projects fail.

That fund could raise more than 300 billion euros between 2021 and 2027 by attracting investors into projects by offering a guarantee to cover the costs if a project fails.

Although not all money would be spent in Asia, the Commission’s strategy, once agreed by EU governments, would make spending on infrastructure links with Asia official EU policy.

EU foreign ministers are expected to approve it at a meeting on Oct. 15, three days before an summit between European and Asian leaders in Brussels.

Since 2013, China has launched construction projects across more than 60 countries, known as the Belt and Road Initiative, seeking a network of land and sea links with Southeast Asia, Central Asia, the Middle East, Europe and Africa.

EU foreign policy chief Federica Mogherini said the Commission’s proposal was not linked to any Chinese policies.

The Asian Development Bank estimates Asia requires more than 1.3 trillion euros a year in infrastructure investment, not all of which can be met by China, the Commission said.

“Our proposals, our policies and our calendar are not determined elsewhere,” Mogherini told a news conference when asked if the plan was a challenge to Beijing. “It is not a reaction … to another initiative … be it in Beijing, Washington, Moscow or Timbuktu.”

However, EU officials said they are concerned about what they see is a Chinese investment model which lends to countries for projects they may not need, or be able to afford, making them reliant on Chinese help once under way.

A Chinese-funded highway to link Montenegro’s Adriatic coast to landlocked neighbor Serbia has so indebted Montenegro that the International Monetary Fund has told the country it cannot afford to finish the project.

Jan Weidenfeld, an expert on Europe-China relations at the Mercator Institute for Chinese Studies (MERICS) in Berlin, said the EU plan was “very much a response to Belt and Road.”

“The main message is that when you’re creating large-scale infrastructure projects, you need to abide by certain norms or standards, whether they be environmental or financial. The EU sees a window of opportunity to steer Chinese policies here,” Weidenfeld said.

($1 = 0.8566 euros)

Additional reporting by Noah Barkin in Berlin; Editing by Robin Pomeroy

Source: Reuters “EU unveils Asia infrastructure plan, denies rivalry with China”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


U.S., China have lots of ‘ammunition’ and trade spat could escalate -WTO chief


Roberto Azevedo, Director-General of the World Trade Organization (WTO), attends an event of “The Future of International Trade, New Issues, Challenges and Opportunities” in Rio de Janeiro, Brazil September 19, 2018. REUTERS/Sergio Moraes

September 20, 2018

RIO DE JANEIRO (Reuters) – The trade dispute between the United States and China could well expand into other areas given the significant “ammunition” the two countries have, the director-general of the World Trade Organization (WTO) said on Wednesday.

Speaking at an event in Rio de Janeiro against the backdrop of growing trade tensions between Beijing and Washington, Roberto Azevedo said the WTO has focused on trying to increase dialogue between the two countries.

“I’m very concerned,” he said at the event. “To be honest, I don’t think it’s over. They have lots of ammunition and it can expand to other areas beyond just tariffs … and trade.” He did not elaborate.

On Tuesday, in the latest sign of deteriorating commercial relations between the world’s two largest economies, Beijing added $60 billion worth of U.S. products to its import tariff list in retaliation for U.S. President Donald Trump’s planned levies on $200 billion worth of Chinese goods.

Trump has long railed against the WTO, and his government has eroded its power by blocking appointments to its appeals chamber as existing trade judges’ terms end. If the United States manages to paralyze the WTO’s dispute system, it would end 23 years of WTO enforcement, the keystone of international efforts to prevent trade protectionism.

Azevedo said it would be possible to have a global trade dispute resolution body without the United States, but it is unclear whether Washington would be in favor of such an organization.

Reporting by Gabriel Stargardter and Rodrigo Viga; editing by Jonathan Oatis

Source: Reuters “U.S., China have lots of ‘ammunition’ and trade spat could escalate -WTO chief}

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


China to penalize $60 billion of U.S. imports in tit-for-tat move


Susan Heavey, Yawen Chen September 18, 2018

WASHINGTON/BEIJING (Reuters) – China and the United States plunged deeper into a trade war on Tuesday after Beijing added $60 billion of U.S. products to its import tariff list in retaliation for President Donald Trump’s planned levies on $200 billion worth of Chinese goods.

The tit-for-tat measures are the latest escalation in an increasingly protracted trade dispute between the world’s two largest economies.

On Monday, the U.S. administration said it will begin to levy new tariffs of 10 percent on about $200 billion of Chinese products on Sept. 24, with the tariffs to go up to 25 percent by the end of 2018.

“China is forced to respond to U.S. unilateralism and trade protectionism, and has no choice but to respond with its own tariffs,” the Finance Ministry said in a statement on its website on Tuesday.

Beijing will impose levies on a total of 5,207 U.S. products – ranging from liquefied natural gas to certain types of aircraft as well as cocoa powder and frozen vegetables – at 5 and 10 percent, instead of previously proposed rates of 5, 10, 20 and 25 percent, the finance ministry said.

Both countries’ tariffs come into force on Sept. 24.

So far, the United States has imposed tariffs on $50 billion worth of Chinese products to pressure China to make sweeping changes to its trade, technology transfer and high-tech industrial subsidy policies.

Beijing has retaliated in kind, but some analysts and American businesses are concerned it could resort to other measures such as pressuring U.S. companies operating in China.

While both sides said they were open to talks, Trump launched a Twitter broadside at China, accusing Beijing of targeting rural voters who had supported his presidency by hitting agricultural goods.

“China has openly stated that they are actively trying to impact and change our election by attacking our farmers, ranchers and industrial workers because of their loyalty to me,” Trump wrote.

It was not clear what statement from Beijing Trump was referring to in his post. A short video published this summer by Beijing had suggested that farmers would not vote for Trump if their incomes were hurt by his trade policies.

Trump’s latest escalation of tariffs on China comes after several rounds of talks yielded no progress. U.S. Treasury Secretary Steven Mnuchin last week invited top Chinese officials to discussions.

In light of the U.S. action, China is reviewing plans to send a delegation to Washington for new talks, the South China Morning Post reported on Tuesday, citing a government source in Beijing.

The Wall Street Journal reported that Beijing was considering sending Vice Commerce Minister Wang Shouwen to trade talks this month but not Vice Premier Liu He, a senior official who is close to China’s president.

U.S. Commerce Secretary Wilbur Ross said on Tuesday the next step on holding “constructive negotiations” was up to China.

Trump warned on Monday that if China takes retaliatory action against U.S. farmers or industries, “we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.”

‘VERY UNFORTUNATE’

A senior Chinese securities market official said U.S. trade actions will fail as China has ample fiscal and monetary policy tools to cope with the impact. The government has already been ramping up spending on infrastructure.

“President Trump is a hard-hitting businessman, and he tries to put pressure on China so he can get concessions from our negotiations. I think that kind of tactic is not going to work with China,” Fang Xinghai, vice chairman of China’s securities regulator, said at a conference in the port city of Tianjin.

“So the question about whether or when to have a discussion is very importantly in their ballpark,” Ross told CNBC.

Fang told the Tianjin forum that he hopes the two sides can sit down and talk, but added that the latest U.S. move has “poisoned” theatmosphere.

The European Union trade chief said the tariff issues between the two should be resolved through the World Trade Organization. The EU and the United States have declared a truce in their own trade dispute while they negotiate.

“Trade wars are not good and they are not easy to win, and this escalation is of course very unfortunate,” European Trade Commissioner Cecilia Malmstrom told reporters, echoing one of Trump’s catch phrases that trade wars were easy to win.

China’s yuan currency CNY=CFXS slipped against the dollar on Tuesday after news of the U.S. measures. It has weakened by about 6.0 percent since mid-June, offsetting the 10 percent tariff rate by a considerable margin.

U.S. stock markets opened higher and the Nasdaq index was up 1 over 1 percent by mid-morning.

Reporting by Steve Holland, David Lawder, Ginger Gibson, Eric Beech, David Shepardson, Yawen Chen; Additional reporting by Kevin Yao in TIANJIN, John Ruwitch in SHANGHAI and Christian Shepherd, Michael Martina and Ryan Woo in BEIJING; Editing by Clive McKeef, Kim Coghill and Susan Thomas

Source: Reuters “China to penalize $60 billion of U.S. imports in tit-for-tat move”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


Inside China’s strategy in the soybean trade war


Josephine Mason, Hallie Gu, Karl Plume September 19, 2018

BEIJING/CHICAGO (Reuters) – The executive from one of China’s biggest soybean crushers sat on a panel at a Kansas City agricultural exports conference, listening to an expert beside him explain why China would remain dependent on U.S. soybeans to feed its massive hog herds.

When his turn to speak came, Mu Yan Kui told the international audience of soy traders that everything they just heard was wrong. Then Mu ticked off a six-part strategy to slash Chinese consumption and tap alternate supplies with little financial pain.

“Many foreign business people and politicians have underestimated the determination of Chinese people to support the government in a trade war,” said Mu, vice chairman of Yihai Kerry, owned by Singapore-based Wilmar International (WLIL.SI).

The comments echo a growing confidence within China’s soybean industry and government that the world’s largest pork-producing nation can wean itself off U.S. soy exports – a prospect that would decimate U.S. farmers, upend a 36-year-old trading relationship worth $12.7 billion last year, and radically remap global trade flows.

Just one prong of the strategy Mu detailed – to slash soymeal content in pig feed – could obliterate Chinese demand for U.S. soybeans if broadly adopted, according to Reuters calculations.

Cutting the soy ration for hogs from the typical 20 percent to 12 percent would equate to a demand reduction of up to 27 million tonnes of soybeans per year – an amount equal to 82 percent of Chinese soy imports from the United States last year. Chinese farmers could cut soymeal rations by nearly half without harming hogs’ growth, experts and academics said. FACTBOX:

Soy meal provides the protein and amino acids that pigs need to thrive, but reducing their use will be easier in China than elsewhere because farmers here have long included more soy than needed to keep their hogs healthy, according to industry experts in China and the United States.

The standard 20 percent ration dates to a recipe promoted by U.S. soybean industry advocates in the 1980s as they entered what was then a newly opened market for foreign investment.

Most Chinese pig farmers have continued to use high levels of soymeal even as their U.S. counterparts reduced soy content after advancing the science of optimizing feed ingredients to provide the best nutrition at the lowest cost.

Major Chinese agriculture firms have recently started adopting the same tactics, but the nation’s pork sector remains dominated by smaller operations that – until now – didn’t have a strong financial incentive to justify the time and expense required to overhaul feeding systems and formulas, industry experts said.

Now, China’s 25-percent tariff on U.S. soybeans – a retaliation against levies by U.S. President Donald Trump on a wide range of Chinese imports – is accelerating the push to slash soymeal rations.

“The Sino-U.S. trade tensions will inevitably promote the wider application of this know-how,” said Yin Jingdong, professor in animal nutrition at China Agricultural University.

A feed mill owned by Beijing Dabeinong Technology Group Co (002385.SZ), for instance, plans to eliminate imported U.S. soybeans from its feed mix by October, said Zhang Wei, a manager at the mill, one of China’s top farmers and feed makers. The firm will replace soy imports with more cornmeal and alternative protein sources, including domestically produced soymeal, which has typically been grown for human consumption.

At the Kansas City conference, held by the U.S. Soybean Export Council, Mu highlighted reduced soymeal rations as part of a broader strategy, including seeking alternative protein sources such as rapeseed or cotton seed; tapping surplus soybean stocks, including a government reserve, and domestically grown soybeans; and continuing to boost soybean imports from Brazil and Argentina.

Mu’s presentation reflects the line of thinking now broadly accepted by China’s government and its state-run agriculture firms – and marks a shift since the onset of the trade war. When Beijing threatened soybean tariffs in April, Chinese feedmakers and agriculture experts worried the move would inflict more pain on the domestic industry than its top trading partner because China would struggle to replace U.S. supplies.

Seated to Mu’s right at the panel table was Wallace Tyner, a Purdue University economist who had moments earlier argued that the United States and China would suffer about equal financial damage from the soybean trade war.

He called Mu’s remarks a “political speech.” The tenants of the China strategy Mu outlined were achievable, Tyner said in a later interview, “but each one of them cost money.”

USDA spokesman Tim Murtaugh downplayed the threat of China displacing U.S. soybean supplies. The Trump administration, he said, is analyzing import demand and ultimately aims to win back access to the China market under better terms.

“It’s not surprising that China would float this idea, given the trade dispute,” he said.

A REVOLUTION IN TRADE

In the early 1980s, the U.S. farm lobby sold Chinese farmers on the promise that they could use imported soybeans to slash the amount of time needed to their fatten pigs, said Dabeinong’s Zhang and Feng Yonghui, chief analyst and market veteran with Soozhu.com, a Chinese hog consultancy.

The U.S. industry wanted access to a market with more than a billion people and rising per capita income, and the American Soybean Association opened an office in Beijing four years into China’s landmark economic reforms.

“They knew someday that China would need to import,” said John Baize, president of John C. Baize & Associates and a consultant for the U.S. Soybean Export Council.

China’s communist government saw another opportunity in the arrival of U.S. soy – for profits and jobs from the massive soy-crushing industry it would build to process imported beans into meal and oil, with plants strategically located near seaports. Beijing fostered the industry with a tax system that encouraged soybean imports but punished those of finished soy products.

In 1982, China imported 30,000 tonnes of soybeans. Last year, it imported 95.5 million tonnes, including 32.9 million from the United States, according to Chinese customs data. U.S. soybean plantings shot up from nearly 71 million acres in 1982 to nearly 90 million this year, worth a total of $41 billion.

FRAYED NERVES

Now, China is urgently looking elsewhere for imports. Chinese crushers bought all the South American beans they could over the past few months, building record stocks of beans and meal.

In July, the National Development & Reform Commission (NDRC) – the state economic planner – discussed ways to switch up pigs’ diets with major feedmakers and pig farmers, New Hope Group [NWHOP.UL], Dabeinong, CP Group and Hefeng Group.

On September 4, an executive of top bean processor Jiusan predicted that China will only need to buy 700,000 tonnes of soybeans from the United States in the marketing season that starts this month, a tiny fraction of what it bought last year.

With no sign of a resolution to the trade war, Bob Metz, a South Dakota corn and soybean farmer, is making plans to reduce the number of acres he devotes to soybeans next spring. He’s alerted his seed dealer that he may need more corn seed and less soy.

“It makes me very nervous,” he said, because China has been such a dominant buyer of U.S. beans.

James Lee Adams – a retired farmer from Camilla, Georgia, and past president of the American Soybean Association – was among those who worked in the 1980s to open the Chinese market to U.S. soybeans.

Now, he worries the profitable relationship could collapse.

“You develop trade partners over a long period, but you can lose them overnight,” he said. “When you start becoming an unreliable supplier, people are going to start looking elsewhere.”

Reporting by Hallie Gu and Josephine Mason in Beijing and Karl Plume in Chicago; Additional reporting by Gavin Maguire in Singapore; Editing by Brian Thevenot

Source: Reuters “Inside China’s strategy in the soybean trade war”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


The Security Risks of a Trade War With China


Why the U.S. Should Be Wary of Economic Decoupling

By Ali Wyne August 6, 2018

Trade tensions between the United States and China continue to rise. In June, U.S. President Donald Trump’s administration announced that it would impose tariffs of 25 percent on $50 billion worth of Chinese exports, with the first wave targeting some 800 goods worth $34 billion. China pushed back with its own set of tariffs targeting the U.S. agricultural sector and industrial heartland. In response, Trump has reportedly ordered his administration to consider a 25 percent tariff on an additional $200 billion worth of Chinese exports. As the showdown escalates, many observers are understandably focused on the potential for a full-fledged trade war that could destabilize the world economy. But they should also consider second-order, longer-term implications—in the security realm. Up until recently, the two nations’ economic ties had served as an effective brake on escalating strategic distrust. A China less constrained by and invested in economic ties with the United States could pose a substantially greater challenge to U.S. foreign policy. For all the Trump administration’s frustrations with managing interdependence, the consequences of decoupling could mean even bigger headaches.

THE ROOTS OF TRADE TENSIONS

The United States buys more exports of Chinese goods than any other country. China, meanwhile, is the United States’ largest trading partner and the fastest-growing market for its exports. Yet neither side considers these deep, multifaceted trade links an unalloyed plus.

Trump often expresses irritation over the size of the U.S. trade deficit with China, but trade tensions between the two countries are rooted less in deficit figures than in high-tech competition. The United States sees China’s technological progress as a growing national security challenge. One of Trump’s top economic advisers, Peter Navarro, warned recently that “China’s investment in strategic technologies may ultimately pose the gravest danger to America’s manufacturing and defense industrial base.” He argued that “tariffs will form a critical line of defense against predatory trade practices China has used to the detriment of American industries.”

China, meanwhile, seeks to become a global leader in advanced manufacturing. Its Made in China 2025 initiative prioritizes ten industries—including information technology, aerospace equipment, and new materials—and aims to raise the domestically produced share of “basic core components and important basic materials” used in China to 40 percent by 2020 and 70 percent by 2025.

As seen with the case of ZTE—until recently China’s second-largest telecommunications equipment maker—Beijing depends heavily on Washington for high-tech inputs. In mid-April, the U.S. Commerce Department issued an order banning companies from selling parts to ZTE for seven years. Although the justification was that ZTE had circumvented U.S. sanctions on Iran and North Korea, the more fundamental concern was that the company could use U.S. technology to engage in espionage or even conduct cyberattacks against Washington. Without chips from Qualcomm and Intel and optical components from Acacia and Lumentum, ZTE could not function, and in early May it announced it had ceased “major operating activities.” A few days later, Trump said he was working with Chinese President Xi Jinping to rescue the company, prompting the Commerce Department to soften its earlier decree, but a bipartisan group in Congress urged the agency to stick with its original order, barring firms from doing any business with ZTE through 2025.
Although the company has just received a lifeline—the U.S. Senate passed a $716 billion defense appropriations bill last week that omitted an amendment introduced by Senator Marco Rubio (R-Fla.) and his Democratic colleague Chris Van Hollen (D-Md.) to reinstate Commerce’s ban on ZTE—Chinese leaders are increasingly convinced that Beijing will not be able to realize its full economic potential unless it becomes more self-reliant. China already saw the currency crisis that rattled the Asia-Pacific in the late 1990s and the global financial crisis that erupted a decade later as evidence that it needed to diversify away from U.S. consumption. Until recently, though, Beijing was primarily looking to shore up its own domestic resilience, and to do so by unwinding its embrace of Washington over time. Now China may seek a more rapid decoupling, less for economic reasons than for strategic ones. The country’s leaders believe that extant U.S. leverage over its economy could thwart the ambitions it has set out in Made in China 2025, which a ranking Communist Party official recently called “the guarantor” of China’s “sovereignty and prosperity.”

In late April, Xi stated that in “the next step of tackling technology, we must cast aside illusions and rely on ourselves.” His conclusion parallels that of Trump, who believes that the United States has eroded its competitiveness by buttressing the postwar order and joining multilateral trade agreements. The New York Times posits that this alignment of views may presage “a time when the economic engines of China and the United States are not so closely linked, particularly in high-tech industries.” A loosening of those links would have not only economic implications but also security ones.

A MORE REVISIONIST BEIJING?

There are few factors, after all, besides trade interdependence that compel the two countries to exercise mutual restraint and carry on multifaceted cooperation. The United States is a young, racially diverse democracy whose self-conception is molded anew by each wave of immigrants; China is a five-millennia-old, predominantly ethnic Han civilization that clings to a largely immutable identity. The two countries have markedly different, sometimes explicitly antithetical, perspectives on domestic governance and foreign policy—divergences amplified by each one’s insistence upon its own exceptionalism. Absent economic interdependence, U.S.-Chinese ties may well have grown more strained, if not antagonistic, over the past four decades.

There are few factors besides trade interdependence that compel the United States and China to exercise mutual restraint and carry on multifaceted cooperation.

In the long run, a China economically decoupled from the United States could scale back existing bilateral cooperation and take a more overtly revisionist attitude toward the postwar order. The Council on Foreign Relations’ Elizabeth Economy explains in her new book that Xi “is ambitious to lead but embraces globalization insofar as it controls the flow of ideas, as well as human and financial capital.” Beijing could steadily reduce its financial support for leading economic institutions such as the International Monetary Fund; prioritize the development of economic and security arrangements that presently leave out the United States (such as the Regional Comprehensive Economic Partnership and the Shanghai Cooperation Organization) and undertake to construct other exclusionary ones; more proactively attempt to drive wedges between the United States and long-standing allies by casting Washington as an inconsistent and unreliable steward of world order and asserting that Beijing is better suited to adapting that system to contemporary geopolitical realities; and make a more concerted push to challenge Washington on ideological grounds.

Beijing could also further undercut the Trump administration’s “maximum pressure” campaign on North Korea. U.S. Secretary of State Mike Pompeo testified in June that there has been a “modest amount” of backsliding in China’s enforcement of multilateral sanctions on Pyongyang, acknowledging that the Chinese are “not enforcing control over their cross-border areas as vigorously as they were six or 12 months ago.” That admission came shortly before reports of a new U.S. intelligence assessment, based on evidence collected after Trump’s historic Singapore meeting with North Korean leader Kim Jong Un, that Pyongyang not only seeks to “deceive the United States about the number of nuclear warheads” in its arsenal but also may maintain more than one secret site for enriching fissile material.

On Iran, in the wake of the U.S. withdrawal from the Joint Comprehensive Plan of Action, China could decline to join any U.S.-initiated effort to sanction the regime should it resume its pursuit of nuclear weapons. It might even go further, boosting energy ties with and increasing arms sales to Tehran while expanding the scope and depth of its alignment with Russia to frustrate U.S. foreign policy objectives in the Middle East and eastern Europe. It could also accelerate its ongoing militarization of a crucial maritime chokepoint, the South China Sea; more aggressively press its claims in the East China Sea; and increase preparations for an attack on Taiwan, appreciating that a United States that is already militarily overstretched has little desire for an armed confrontation with the country possessing the world’s second-largest economy.

WILL THE DECOUPLING CONTINUE?

Given the breadth, complexity, and interconnectedness of global supply chains, the United States and China would only be able to unwind their current interdependence very slowly. In 2013, when two-way trade totaled $562.2 billion, the Brookings Institution’s Thomas Wright concluded that Washington and Beijing “have no way of significantly reducing trade with each other through protectionism without setting in motion a general unraveling of the global trading system that each relies upon.” That judgment holds even truer today, given that two-way trade was 13 percent higher in 2017 than it was in 2013.

Still, China’s economic strength relative to the United States has increased significantly over the past decade, and it will continue to grow. Xi declared this past October, moreover, that “no one should expect China to swallow anything that undermines its interests.” In other words, expect an increase in both Beijing’s ability and willingness to absorb the pain of economic decoupling with the United States. Trump may well want to accelerate this trend, but the potential security consequences of doing so should give his administration pause.

Source: Foreign Affairs “The Security Risks of a Trade War With China”

Note: This is Foreign Affairs’ article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.