Commentary: Trump will make China great again

Commentary: Trump will make China great again

Given enough time in office, US President Donald Trump may destroy the strategic alliances that form the foundation of American soft and hard power, says Nouriel Roubini.

FILE PHOTO: U.S. President Donald Trump and China's President Xi Jinping make joint statements
US President Donald Trump waves during joint statements with China's President Xi Jinping at the Great Hall of the People in Beijing, Nov 9, 2017. (Photo: REUTERS/Thomas Peter/File Photo)

NEW YORK CITY: Financial markets were cheered recently by the news that the United States and China have reached a “phase one” deal to prevent further escalation of their bilateral trade war. But there is actually very little to cheer about.

In exchange for China’s tentative commitment to buy more US agricultural (and some other) goods, and modest concessions on intellectual-property rights and the renminbi, the US agreed to withhold tariffs on another US$160 billion worth of Chinese exports, and to roll back some of the tariffs introduced on Sep 1.

The good news for investors is that the deal averted a new round of tariffs that could have tipped the US and the global economy into recession and crashed global stock markets.

READ: Commentary: The brewing discontent with trade and one step to restoring faith in globalisation

The bad news is that it represents just another temporary truce amid a much larger strategic rivalry encompassing trade, technology, investment, currency and geopolitical issues. Large-scale tariffs will remain in place, and escalation may well resume if either side shirks its commitments.

SINO-AMERICAN DECOUPLING

As a result, a broad Sino-American decoupling will likely intensify over time, and is all but certain in the technology sector.

The US regards China’s quest to achieve autonomy and then supremacy in cutting-edge technologies – including artificial intelligence, 5G, robotics, automation, biotech, and autonomous vehicles – as a threat to its economic and national security. 

Following its blacklisting of Huawei (a 5G leader) and other Chinese tech firms, the US will continue to try to contain the growth of China’s tech industry.

READ: Commentary: America’s strategic China blunder on trade and everything else

READ: Commentary: Is Huawei dangerous because it’s Chinese? What about Facebook?

Cross-border flows of data and information will also be restricted, raising concerns about a “splinternet” between the US and China. And owing to increased US scrutiny, Chinese foreign direct investment in America has already collapsed by 80 per cent from its 2017 level.

Now, new legislative proposals threaten to bar US public pension funds from investing in Chinese firms, restrict Chinese venture capital investments in the US, and force some Chinese firms to delist from US stock exchanges altogether.

Wall Street Dec30
Traders work on the floor of the New York Stock Exchange (NYSE). (Johannes EISELE/AFP)

The US has also grown more suspicious of US-based Chinese students and scholars who may be in a position to steal US technological know-how or engage in outright espionage.

And China, for its part, will increasingly seek to circumvent the US-controlled international financial system, and to shield itself from America’s weaponisation of the dollar.

To that end, China could be planning to launch a sovereign digital currency, or an alternative to the Western-controlled Society for Worldwide Interbank Financial Telecommunication (SWIFT) cross-border payments system. It also may try to internationalise the role of Alipay and WeChat Pay, sophisticated digital payments platforms that have already replaced most cash transactions within China.

A BROADER SHIFT TOWARDS DEGLOBALISATION

In all of these dimensions, recent developments suggest a broader shift in the Sino-American relationship toward deglobalisation, economic and financial fragmentation, and balkanisation of supply chains.

The 2017 White House National Security Strategy and the 2018 US National Defense Strategy regard China as a “strategic competitor” that must be contained. Security tensions between the two are brewing all over Asia, from Hong Kong and Taiwan to the East and South China Seas.

READ: Commentary: Taiwan is rebalancing its economic relationship from China to the US

The US fears that Chinese President Xi Jinping, having abandoned his predecessor Deng Xiaoping’s advice to “hide your strength and bide your time,” has embarked on a strategy of aggressive expansionism. China, meanwhile, fears that the US is trying to contain its rise and deny its legitimate security concerns in Asia.

It remains to be seen how the rivalry will evolve. Unfettered strategic competition would almost certainly lead eventually from an escalating cold war to a hot war, with disastrous implications for the world.

READ: Commentary: A cold chill blows ahead of a second US-China Cold War

What is clear is the hollowness of the old Western consensus, according to which admitting China into the World Trade Organization and accommodating its rise would compel it to become a more open society with a freer and fairer economy.

G20 leaders summit in Osaka
FILE PHOTO: U.S. President Donald Trump and China's President Xi Jinping shake hands ahead of their bilateral meeting during the G20 leaders summit in Osaka, Japan, June 29, 2019. REUTERS/Kevin Lamarque

But, under Xi, China has created a surveillance state and doubled down on a form of state capitalism that is inconsistent with the principles of free and fair trade. And it is now using its growing wealth to flex its military muscles and exercise influence across Asia and around the world.

THE ALTERNATIVES TO A COLD WAR

The question, then, is whether there are sensible alternatives to an escalating cold war. Some Western commentators, such as former Australian Prime Minister Kevin Rudd, advocate a “managed strategic competition”.

Others speak of a Sino-American relationship built around “co-opetition”. Likewise, CNN’s Fareed Zakaria recommends that the US pursue both engagement and deterrence vis-à-vis China.

READ: Commentary: The US and China would like nothing more than to end the trade war

These are all variants of the same idea: the Sino-American relationship should involve cooperation in some areas – especially where global public goods such as the climate and international trade and finance are involved – while accepting that there will be constructive competition in others.

The problem, of course, is US President Donald Trump, who does not seem to understand that “managed strategic competition” with China requires good-faith engagement and cooperation with other countries. To succeed, the US needs to work closely with its allies and partners to bring its open-society, open-economy model into the twenty-first century.

U.S. President Trump talks with Chinese President Xi as he welcomes Xi to the United States
U.S. President Donald Trump talks with Chinese President Xi Jinping as Xi arrives for dinner at the start of their summit at Trump’s Mar-a-Lago estate in West Palm Beach, Florida, U.S. April 6, 2017. REUTERS/Carlos Barria

The West may not like China’s state capitalism, but it must get its own house in order. Western countries need to enact economic reforms to reduce inequality and prevent damaging financial crises, as well as political reforms to contain the populist backlash against globalisation, while still upholding the rule of law.

Unfortunately, the current US administration lacks any such strategic vision.

READ: Commentary: Everyone understands China very differently

The Chinese probably prefer that Trump be re-elected in 2020. He may be a nuisance in the short run, but, given enough time in office, he will destroy the strategic alliances that form the foundation of American soft and hard power.

Like a real-life “Manchurian Candidate,” Trump will “Make China Great Again.”

Nouriel Roubini is Chairman of Roubini Macro Associates and Professor of Economics at New York University’s Stern School of Business.

Source: Project Syndicate/el(sl)

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