China v America; A new kind of cold war

 

 

 

 

Source: The Economist magazine.

FIGHTING OVER trade is not the half of it. The United States and China are contesting every domain, from semiconductors to submarines and from blockbuster films to lunar exploration. The two superpowers used to seek a win-win world. Today winning seems to involve the other lot’s defeat—a collapse that permanently subordinates China to the American order; or a humbled America that retreats from the western Pacific. It is a new kind of cold war that could leave no winners at all.

As our special report in this week’s issue explains, superpower relations have soured. America complains that China is cheating its way to the top by stealing technology, and that by muscling into the South China Sea and bullying democracies like Canada and Sweden it is becoming a threat to global peace. China is caught between the dream of regaining its rightful place in Asia and the fear that tired, jealous America will block its rise because it cannot accept its own decline.

The temptation is to shut China out, as America successfully shut out the Soviet Union—not just Huawei, which supplies 5G telecoms kit and was this week blocked by a pair of orders, but almost all Chinese technology. Yet, with China, that risks bringing about the very ruin policymakers are seeking to avoid. Global supply chains can be made to bypass China, but only at huge cost. In nominal terms Soviet-American trade in the late 1980s was $2bn a year; trade between America and China is now $2bn a day. In crucial technologies such as chipmaking and 5G, it is hard to say where commerce ends and national security begins. The economies of America’s allies in Asia and Europe depend on trade with China. Only an unambiguous threat could persuade them to cut their links with it.

It would be just as unwise for America to sit back. No law of physics says that quantum computing, artificial intelligence and other technologies must be cracked by scientists who are free to vote. Even if dictatorships tend to be more brittle than democracies, President Xi Jinping has reasserted party control and begun to project Chinese power around the world. Partly because of this, one of the very few beliefs which unite Republicans and Democrats is that America must act against China. But how?

For a start America needs to stop undermining its own strengths and build on them instead. Given that migrants are vital to innovation, the Trump administration’s hurdles to legal immigration are self-defeating. So are its frequent denigration of any science that does not suit its agenda and its attempts to cut science funding (reversed by Congress, fortunately).

Another of those strengths lies in America’s alliances and the institutions and norms it set up after the second world war. Team Trump has rubbished norms instead of buttressing institutions and attacked the European Union and Japan over trade rather than working with them to press China to change. American hard power in Asia reassures its allies, but President Donald Trump tends to ignore how soft power cements alliances, too. Rather than cast doubt on the rule of law at home and bargain over the extradition of a Huawei executive from Canada, he should be pointing to the surveillance state China has erected against the Uighur minority in the western province of Xinjiang.

Read the complete article on The Economist magazine site here.

The US-China trading relationship will be fraught for years to come

China is happy to buy more American goods, including soyabeans and shale gas, in an effort to cut the bilateral trade deficit, a goal which is economically pointless but close to Mr Trump’s heart. It is willing to relax rules that prevent American firms from controlling their operations in China and to crack down on Chinese firms’ rampant theft of intellectual property. Any deal will also include promises to limit the government’s role in the economy.

The trouble is that it is unlikely—whatever the Oval Office claims—that a signed piece of paper will do much to shift China’s model away from state capitalism. Its vast subsidies for producers will survive. Promises that state-owned companies will be curbed should be taken with a pinch of salt. In any case the government will continue to allocate capital through a state-run banking system with $38trn of assets. Attempts to bind China by requiring it to enact market-friendly legislation are unlikely to work given that the Communist Party is above the law. Almost all companies, including the privately owned tech stars, will continue to have party cells that wield back-room influence. And as China Inc becomes even more technologically sophisticated and expands abroad, tensions over its motives will intensify.

At some point this year Mr Trump and Xi Jinping, his Chinese counterpart, could well proclaim a new era in superpower relations from the White House lawn. If so, don’t believe what you hear. The lesson of the past decade is that stable trade relations between countries require them to have much in common—including a shared sense of how commerce should work and a commitment to enforcing rules. The world now features two superpowers with opposing economic visions, growing geopolitical rivalry and deep mutual suspicion. Regardless of whether today’s trade war is settled, that is not about to change.

Source: The Economist Magazine.