Despite this year being the 10th anniversary of the global financial crisis, ironically, the largest uncertainty in today’s global economy does not come from any potential systemic financial meltdown, but largely stems from the man-made risk of US-China trade tensions.
Since the beginning of the year, the administration of US President Donald Trump has taken an unyielding approach on Chinese-related trade issues.
In March, citing “national security,” Trump decided to impose 25 percent and 10 percent tariffs on steel and aluminum respectively, which triggered widespread protests from US allies and its other trading partners.
In May, by accusing China of intellectual property thefts, the Trump administration levied US$50 billion in tariffs on Chinese goods, while Beijing pledged to retaliate against US tariffs in “equal amount and equal strength.”
Since then, the trade war has gradually escalated and bilateral trade dialogues have been held several times with no significant breakthrough.
With the closing early this month of the public hearing on the issue of imposing 25 percent tariffs on additional US$200 billion in Chinese goods, the looming shadow of a full-blown trade war in the global economy has substantially increased.
While several interest groups in the US business community have expressed their profound concern and anxiety regarding the deterioration of US-China trade talks, US Secretary of the Treasury Steven Mnuchin announced that Chinese Deputy Premier Liu He (劉鶴) would visit the US for another round of trade talks, while the US$200 billion in tariffs were placed on hold.
Although it remains unknown whether any concrete progress can be accomplished in this round of talks, it seems certain that Washington has determined to level up its economic warfare against Beijing, ranging from tariff sanctions to high-tech containment and more restrictions on Chinese investment.
Furthermore, a US-led coalition against China’s unfair trade practices has formed in the WTO, placing more pressure on Beijing to reform its markets. The coalition shows there is a common concern regarding China’s biased trade practices and economic aggression.
For example, Germany, France and Italy have proposed enhanced screening of Chinese investments in the eurozone, while Britain, Australia, New Zealand, India and others have warned of national security concerns because of infrastructure projects contracted to Chinese firms.
These cases suggest that profound apprehension about China among many countries is widespread and has gradually intensified from economic competition to national security issues and power struggles.
They also reveal that the US-China trade tensions might be the tip of the iceberg, with no easy and instant cure. Deeper structural and inherent divergences might play a crucial role and contribute to persistent confrontations between Washington and Beijing.
If Trump’s attitude toward China is not a credible indicator of the US’ orientation regarding Beijing — with his foreign policy characterized by his highly capricious proclivity — there has been a clear trend in the US Congress, where a bipartisan consensus on adopting a tough approach to China has developed.
This agreement has been embodied in legislative initiatives and proposals to tighten restrictions in various fields of Chinese business activities in the US. This united front also reflects on the Congress passing several pro-Taiwan bills this year.
In other words, the trade tensions might not be simply attributed to the issue of a chronic bilateral trade imbalance. There could be more profound and unspoken reasons behind them.
One of the explanations might lie in Washington’s fears over its hegemonic status that could be surpassed by Beijing in the years to come.
Trump’s first version of National Security Strategy unequivocally defines China as a “revisionist power” and says that “China seeks to displace the United States in the Indo-Pacific region, expand the reaches of its state-driven economic model and reorder the region in its favor.”
These statements show that, in Washington’s view, competition with China has gone beyond economic issues and has ascended to a strategic rivalry.
If China is destined to replace the US as the next global hegemony, the undemocratic features of its political system with its unique state-led capitalism will not only pose the most destructive challenge to US values, but will also drastically deepen Washington’s distrust and misgivings toward Beijing.
As a consequence, the trade frictions actually reflect a profound institutional confrontation between free-market capitalism and a state-led capitalism on the economic front, as well as a political rivalry between a democracy and an authoritarian state.
In this context, it should be no surprise that Trump has boldly said that the purpose of the trade war is to undermine China’s economic power.
Given that China represents a heretic challenger with overwhelming economic capabilities and growing military prowess, it is better for Washington to weaken it sooner rather than later. If the US waits another 10 years, China will become too big and too powerful to contain.
How has the US fallen into the trap of hegemonic decline? One simple and straightforward answer is that US foreign policy toward China has gone awry and been warped by the flawed prophecy of liberals and their rosy anticipation of China’s rise.
Essentially, Trump’s trade war symbolizes the disastrous failure of US liberals’ long-term beliefs. They naively assumed that adopting economic engagements would help Beijing integrate into the world economic system and make Beijing less aggressive, as it would be able to grab copious economic prosperity.
Moreover, the wishful thinking of liberals saw them assume that with increased personal income and an increasing middle class, the Chinese political system would eventually be forced to undertake dramatic reforms, ultimately becoming a democracy.
Regrettably, these prophecies have been demonstrated to be ill-advised. China’s recent abolishment of presidential term limits, tightening restrictions on political control and surveillance, and increasing repression of dissents and minorities suggest that Beijing is actually moving in the opposite direction.
This implies that not only has China succeeded in resisting the so-called “peaceful transition,” but it has also cunningly taken advantage of the global economic system to accomplish the “China Dream” of economic prosperity and military superiority.
As a result, liberals’ rosy dream of cuddling a “Chinese panda” has ultimately become an awful nightmare of nurturing a “Chinese dragon” that will devour them.
As many ironic mistakes as the US has made, Washington, misled by pro-China liberals, has turned itself into not only the largest contributor to Chinese economic success, but also its most generous sponsor of the most formidable strategic challenger.
The misleading liberal prophecy has seen the US shoot itself in the foot.
Trump’s hardline trade policy properly shows Americans’ disillusionment with the false promises of liberals and their unwillingness to be beguiled again.
As an experienced veteran and a survivor in the bloody political struggle in the Chinese Communist Party, former paramount leader Deng Xiaoping’s (鄧小平) grand strategy of “keeping a low profile and biding our time” has bestowed an invaluable strategic opportunity to China and paved the way for its economic achievement.
In contrast, American liberals’ false guidance and wishful thinking have not merely contributed to the US’ US$337 billion trade deficit with China last year, but have fostered its major strategic challenger on the global stage.
This strategic misstep has led to consequential and costly outcomes.
Once again, there is another historical juncture and strategic turning point.
While Chinese President Xi Jinping’s (習近平) ambitious grand proposals of the Belt and Road Initiative, as well as “Made in China 2025,” have triggered nervousness in many countries, Trump’s “America First” policy aims to vigorously re-energize its economic momentum and military capabilities.
Furthermore, Trump’s heavy-handed tariffs indicate an important departure from Washington’s previous China policy, shifting from the engagement approach of liberals and moving in a realist’s direction of pragmatism and containment.
Although it remains too early to say whether the trade collision will escalate into a full-scale strategic rivalry, it is clear that the US is not going to easily allow China’s predatory economic model. The clash between institutional systems is likely to be prolonged compared with the short-term imbalance of economic interests.
Inevitably, Taiwan will be caught in the middle of this economic storm and has no leisure time to make any strategic missteps as Washington does.
The most critical challenge facing the administration of President Tsai Ing-wen (蔡英文) is how to calibrate its long-term strategic goals based on realistic assessments, while cautiously executing its policies to weather this economic uncertainty.
Eric Chiou is an associate professor of international political economy at National Chiao Tung University.
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