US-China trade war looms
The West’s double standards and hypocrisy with respect to the rest of the world generally, and China in particular, never cease to appal me.
In a public speech in September 2005, Mr Robert Zoellick, at the time deputy secretary of state, prior to that the United States trade representative, and subsequently president of the World Bank, urged China to become a “responsible stakeholder” in the international system. That was about 21/2 years after the illegal invasion of Iraq by the US and Britain, the catastrophic consequences of which continue to plague the world.
Now, US President-elect Donald Trump, in accordance with his vituperative anti-China invective, has appointed as head of the National Trade Council Mr Peter Navarro, who, among other things, is the author of two books entitled Death By China: Confronting The Dragon – A Global Call To Action and Crouching Tiger: What China’s Militarism Means For The World.
The appointment of Mr Robert Lighthizer as US Trade Representative has been confirmed; another China trade hawk, he has been quoted as criticising those who embrace free trade “even as it helps China become a superpower”.
There are three initial points, among many, that can be made:
…no global economic power ever in history has risen without warfare and imperialism. Thus, China’s aspiration to a peaceful rise would be unprecedented.
• What can possibly be wrong with China becoming a superpower? That is what it used to be. As recently as 200 years ago, China’s gross domestic product corresponded to 33 per cent of the world’s total. That was before the dumping of opium on its markets, the wars, the plunder, impoverishment and exploitation imposed by the West (subsequently aided by Japan). By 1950, it had been reduced to less than 4 per cent. Why can the US be a superpower and China not?
• Imagine if Beijing appointed to senior government positions officials who had published books with titles such as Death By USA or What American Militarism Means For The World; there would be an international outcry and condemnation. But if it’s Americans about China, then it’s okay?
• The West got rich in a global lawless jungle in which only might was right. Whether it was trade that followed the flag, or the flag that followed trade, trade and empire were closely associated. (I strongly recommend reading Power And Plenty: Trade, War, And The World Economy In The Second Millennium by Ronald Findlay and Kevin H. O’Rourke.) In the course of this winner-takes-all era of Western imperialism, as the West got rich, China got poor. As China tries to find its place again in the global economy, it is sanctimoniously admonished to abide by the rules!
It is important to remember the context in which the rules were made. There were, as stated, no rules governing, let alone preventing, Western imperialist powers from plundering their colonies and other subjugated regions, notably China. Nor were there rules governing trade relations between the imperialist industrialised powers. Trade conflicts of one form or another were frequent. With the Great Depression, the trade conflicts turned into trade wars.
It was in the wake of the cataclysms of World War II that the rules were written. These rules, it must be immediately added and stressed, have served the world economy extremely well as peace and prosperity flourished in an unprecedented manner.
Throughout the second half of the 20th century, as the rules were written and their corresponding institutions were established, the West (with Japan) remained in a dominant position. It is only in the course of this century that the West’s domination came to be challenged. The challenge came from various sources of the “Third World” that sought to level a playing field that was heavily tilted in favour of the West. African cotton farmers, for example, urged Washington to end its trade-distorting cotton subsidies that had ruinous consequences for Africa. They soon learnt, however, that what is sauce for the Western goose need not be sauce for the African gander: rules apply to others, not to the hegemon!
CHINA’S CHALLENGE TO THE WORLD ORDER
But by very far the biggest challenge of all, in scope, scale and character, emanated from China, which in the space of not more than a decade catapulted itself from a marginal minor player in trade to a daunting trade superpower.
China’s keenness to join the international rules-based trading system was illustrated by, among other things, its determination to accede to membership of the World Trade Organisation (WTO) – an objective achieved in 2001 after 15 years of complex negotiation. Discrimination against China by the West, however, has continued, most recently through its refusal to grant China “market economy status”, which was due last year.
Has China cheated? Of course it has. In the years prior to its accession, whenever I was asked whether I thought China would adhere to its WTO obligations, I invariably replied that if it did, it would be the first to do so. No nation has got to a position of economic power without cheating. For example, the most egregious violator of intellectual property rights in the first half of the previous century was the US. China’s trade practices and policies do not stand out as particularly abusive when compared with those of the Western powers.
The problem today with the rules, however, is that the WTO, the trade rules-making body, is moribund.
Once the US was no longer able to dominate the WTO, it sought to establish rival rules and institutions, such as the Trans-Pacific Partnership among 12 Pacific Rim countries (excluding China) and the Transatlantic Trade and Investment Partnership between the European Union and the US.
US President Barack Obama was quite open in arguing that a major rationale for the TPP was that it would ensure the US, not China, would write the rules. The idea that they might be co-written did not presumably crop up.
So China is being admonished to adhere to the rules under conditions in which the rule-making body has been effectively rendered impotent by the established nations that were the authors of the rules.
What should have happened in the early 21st century was a combined effort on the part of both established and emerging trade powers to adjust the rules, mindsets and institutions in the light of the new players and new circumstances. This did not happen.
With the general deterioration of the global geopolitical environment and the impotence and irrelevance of the institutions of global governance, there has been a surge in nationalism in the US (and of course elsewhere), manifested in the virulently mercantilist rhetoric of President-elect Trump, more than echoed by his appointed trade officials. Mercantilism breeds offensive trade policies, including protectionism, which generates trade conflicts.
IMMINENT TRADE WAR WITH CHINA
Let me be clear: With the trends currently prevailing and the extremely vitriolic and insulting anti-China rhetoric (Death by China, indeed!), a trade war between China and the US (with Japan probably joining in) appears inevitable. Trends, however, are not irreversible. They can be reversed. But this will not happen out of the clear blue sky.
First, it is vital to recognise the seriousness of the threat. While there have been warnings for at least a decade that the rules-based trade regime was deteriorating, business leaders and policymakers engaged in denial and wishful thinking. Realism was branded pessimism.
Second, having faced reality, business leaders must engage with policymakers in seeking to reverse the trends. Mindsets need to evolve. Westerners with political responsibilities cannot be given licence to make the kind of provocative invective such as those of Mr Navarro and Mr Lighthizer.
As I have argued on several occasions in this column, no global economic power ever in history has risen without warfare and imperialism. Thus, China’s aspiration to a peaceful rise would be unprecedented. To make it happen, very much depends on China, but it also depends on the behaviour, policies, attitudes and language of the established powers, especially the US. “Death by China” cannot provide a road to peace.
As things stand in early 2017, we are on the road to mayhem.
• The writer is emeritus professor of international political economy at IMD business school, with campuses in Lausanne and Singapore; and visiting professor at Hong Kong University.