The world will soon witness a historic test of wills between China and the United States, two superpowers whose leaders see themselves as supreme. In the immediate sense, it will be a battle over trade. But also at stake is the strategic leadership of East Asia and, eventually, the international order.
As things stand, China holds a stronger position than many people realize. The question is whether Chinese President Xi Jinping will feel confident or brazen enough to want to prove it.
The test of wills was hardly China’s choice; but nor does it come as a surprise. US President Donald Trump’s recently announced import tariffs on steel, aluminum and other Chinese-made goods are in keeping with his brand of economic nationalism. And his decision to accept North Korea’s invitation to hold bilateral talks on its nuclear program reflects the same “bring it on” attitude that he applied to Pyongyang’s earlier threats of war.
The upcoming test will be historic because it promises to reveal the true strengths and attitudes of the world’s rising power vis-à-vis the weakened but still leading incumbent power. For better or worse, the result could shape the world for decades to come.
On the trade front, China’s large bilateral surplus with the US could mean that it has more to lose from a trade war, simply because it has more exports that can be penalized. It is often said that surplus countries will always be the biggest losers in any tit-for-tat escalation of tariffs and other barriers.
But this assumption misses multiple points. For one thing, China is more economically resilient to the effects of a trade war than it used to be. Trade as a share of its total economic activity has halved in the past decade, from more than 60% of gross domestic product in 2007 to just over 30% today.
China also has major advantages in terms of domestic politics and international diplomacy. As a dictatorship, China can ignore protests by workers and companies suffering from US tariffs. In the US, where mid-term congressional elections will be held this November, the outcry from exporters, importers and consumers facing higher costs will be heard loud and clear.
In terms of international diplomacy, Trump’s trade war will help China present itself as the defender of the rules-based international order and multilateral institutions such as the WTO
Of course, Trump too might ignore protests against his trade war if he is convinced that taking on China will please his core voters and win him re-election in 2020. But congressional Republicans will probably feel differently, especially if their states or districts are among those being singled out by Chinese import tariffs.
In terms of international diplomacy, Trump’s trade war will help China present itself as the defender of the rules-based international order and multilateral institutions such as the World Trade Organization. To be sure, not all countries would follow China’s lead. The WTO does not recognize China as a market economy, because of the Chinese government’s significant involvement in industry and alleged theft of intellectual property.
But China will have a chance to play the victim, while arguing that the US now poses the single largest threat to the global trading system that it helped create. And if a US-initiated trade war drags on, China’s case will become only stronger as more countries suffer the disruptive effects of tariffs.
Of course, China may choose not to fight Trump’s trade war at all. With symbolic concessions – such as an agreement to import US-produced liquefied natural gas or promises to offer new guarantees for intellectual-property rights – it could persuade Trump to stand down. But if Xi suspects that a show of strength will bolster China’s international standing while undercutting that of the US, he may decide to act accordingly.
The North Korea issue is more complicated. But here, too, China will have an advantage. Even barring real progress in the talks, China already looks like a good global citizen. Over the past year, it has been pressuring the North Korean leader, Kim Jong-un, to negotiate. By participating in coordinated economic sanctions against the Kim regime, and by reportedly capping vital exports of oil and other essentials to the North, China has played its part in bringing Kim to the table.
On paper, the fundamental question is whether North Korea will be willing to abandon its nuclear-weapons program, the fruit of more than 30 years of work. And as China well knows, North Korea would never give up its nuclear weapons without major changes in the military balance on and around the Korean Peninsula.
Kim will likely offer to denuclearize solely on the condition that the US withdraw its forces from South Korea, and perhaps from Japan, too. Barring that, he would not feel secure enough to do without the nuclear deterrence on which he has staked his regime’s survival. For his part, Trump could not possibly accede to such a condition. At best, he could agree on a process through which such extraordinary moves might be discussed at a later date.
Either way, China comes out on top. In the event of stalemate, it will have gotten Kim to the table and put America in the position of being a refusenik. And if the US does agree to any military concessions, China’s strategic position will be strengthened.
The only real question for Xi, then, is whether he wants to assert China’s top-dog status now, or some time in the future.
Copyright: Project Syndicate, 2018.