The reasons for the US vs China trade war and its possible consequences
Recently, in “The US vs China trade war: background & chronology” article we considered the background and chronology of events of the trade war between the US and China.
Today PaySpace Magazine will continue considering this topic, trying to identify the primary reasons for this trade war, and will attempt to predict the possible outcomes of this rivalry.
The global economy and different philosophies
A lot of economies will feel the negative impact of new US trade restrictions. Some economic experts estimate that the global economy (world GDP) could lose about $600B by 2021 if the trade disputes between the United States and China further escalate.
Thus, the US-China trade war could cost the world $600B. Just think about it.
China uses tactics similar to the one that Russia has been using since 2014 to advance its interests. Namely, it creates situations below the threshold of the US military response in its favor. What China is doing in the face of the prevailing US military power, is very similar to an asymmetric “hybrid” war. In contrast to the Russian approach to this form of confrontation, China has a more pronounced economic component (not a territorial one).
The United States may be right, yet also may be wrong (there is no use in judging the US government), but the fact is, they see the Chinese Belt and Road Initiative as a fraudulent practice of expanding geopolitical dominance. This initiative is accompanied by additional conditions for participants, which can lead to the accumulation of excessive debts, which can only be repaid at the cost of losing control of economic assets and natural resources. You may remember that in December 2017, Sri Lanka leased the seaport of Hambantota to China (China Merchants Port Holdings company, to be accurate) for 99 years in exchange for canceling debts. However, the desire to receive Chinese loans does not fade away. This year, Italy became the first G7 country to join the Belt and Road Initiative.
The military and economic factors of the escalation of a new possible “cold” war were supplemented by ideological factors. While China follows the model of the mandatory regular rotation in power, created by Deng Xiaoping, Chinese communism was perceived in the United States as a political system compatible with American capitalism. The leaders of China looked like technocrats, surrounded by similar technocrats from the Politburo of the Communist Party of China and the Standing Committee of the National People’s Congress. They spent their first term implementing the updated course/policy. The second term was about the preparation of successors, who were selected within the established procedures (albeit limited). Now, there are no two terms limits. Soft authoritarianism has become the norm (we can call it hard authoritarianism). Technocrats have given way to charismatic leaders with a resurgent personality cult. For the United States, this is too much to take, turning a blind eye.
“Cold war” and technologies
The new confrontation between the United States and China is more and more frequently called the Cold War. However, this “cold war” is different from the one between the USA and the USSR. The point is not only about the fact that then it was about the competition between two comparable nuclear states, one of which could not withstand economic stress. Today, it is about two equal economic powers, one of which has many more nuclear weapons. The USA and the USSR were autonomous countries, and they were divided by other countries and oceans. Now the United States and China are the largest trading partners, and they live in one globalised world. Furthermore, they are immersed in the same hybrid environment of relationships of different nature, which has no conventional physical distance (how we used to perceive it in the usual sense).
It has already happened in history when the conflict of the main trading partners led to a world war. However, there are no situations in the 21st century. One hundred years ago, economic integration was built on colonial trade, which quickly crumbled with the outbreak of war. The economies of the United States and China are now linked through markets and production chains to a much greater extent. Perhaps they are linked inextricably.
China is still borrowing American technologies, but the country is increasingly becoming an independent center of technological development. By this, China poses a more dangerous military challenge to the US than Russia. Thanks to an army of hackers, estimated at two million (the same as in the regular army of China), and other quantitative and qualitative indicators, China is not so sensitive to US sanctions today. China uses a public-private partnership system if we are talking about the field of technology development, and this system is much more monolithic and consistent than the American one. In the United States, Silicon Valley is distancing itself from direct cooperation with the Pentagon.
Current US policy on China is quite clear: using pressure to strike a balance of relations that the United States will consider acceptable. But the strategy has not yet been determined. The Chinese economy, over the years of China’s “peaceful upsurge”, has reached such proportions that it has become one of the key economies of the modern world. The United States cannot simply throw China out of the game, without prejudice to its own well-being. The United States simply does not know what to do with China in the long run.
At the end of last year, the United States requested Canada to arrest Meng Wanzhou, the daughter of the Huawei founder (and also one of the top leaders of the Chinese electronics giant). She was charged with violating sanctions against Iran and espionage against the United States. In response, China arrested two Canadian citizens, making it clear to third world countries that loyalty to the United States (in the matter of pressure on China) is unsafe. The story is incomplete and can poison the relations between the two countries for many years. Perhaps if another Chinese company also violated American laws, the reaction would not have been so strong. But Huawei is one of the symbols of a geopolitical dispute between the United States and China. Huawei has confidently challenged the United States in building a new generation of mobile networks that could become the nervous system of the global economy in the coming decades.
The bottom line
The USA and China have entered a new competition. It looks like a well-known Cold War. But now territory is not the subject of rivalry. The main prize of the competition is the ability to create technologies that grant the possibility of independent development. If the lines of the US-China split begin to spread and divide the world, the choice of side will not depend on the number of territories. Countries will choose the side that has more technology.
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