This new, last shot in the magazine in the trade war will have no effect at all in terms of China’s net trade with the United States. The two countries are basically joined at the hip. The world’s biggest manufacturer and the world’s biggest consumer market have to trade, on whatever basis.
The ever-worsening relationship has no upsides, and losing the only remaining good working relationship, trade, does nothing useful, either. A return to outright hostility is now much closer.
The US vs the world doesn’t work
That’s not the only result for the US, though, and it’s doing real damage. The downright bizarre approach to global trade imposed by this administration has way too many negatives, and almost no positives. America’s entire history is based largely on trade.
The huge industrial and economic boom in the 20th century came from trade. America’s massive surge of incoming wealth came from trade. The very much smaller 19th century domestic economy couldn’t fund that level of growth; money had to come in from outside. The Land of Opportunity delivered.
The world has changed a lot since then. The rise of China, the first real challenger to America’s economic gravity which is truly outside the American economic model, has created a new and somewhat unstable dynamic.
That was never the case with the Soviet Union, which failed utterly to compete with the US on the macroeconomic level. China’s economy is highly diversified, and under a level of extremely strict control.
Obsolete geopolitical strategies: The classic theory of US geopolitical strategy is showing its age. Economic dominance is no longer a certainty. Capital is no longer a surefire antidote for everything. Gigantic amounts of capital are in play outside the US on a much larger scale. Nor does the political environment necessarily reflect trade and economic realities at all, on any level, anymore.
Trade is trade: America’s allies and America itself trade with China. There’s simply no getting away from that fact. The trade war has America penalizing itself for doing normal business. That can pull a lot of hard cash out of the American economy, for no good reason.
Foreign relations? You think? On other fronts, the situation is dire indeed. The ongoing cyberwar, for example, is eating billions per year and achieving nothing. The relationship with the EU is now at an all-time low. So far from being seen as an ally, some moron seems to think the EU is an “economic enemy/competitor/awful person. That’s about as dumb as anyone needs to get, and the added complexity won’t do much for the US bottom line, either.
Russia: Russia has easily got away with taking over the Crimea, meddling in an American election, and basically retaking a lot of the ground it lost after the collapse of the Soviet Union. This was done with Russia having almost no diplomatic or trade cards to play, too, an indictment of flat-footed American global policy at its least impressive. How much more of a failure could America’s Russian policies be?
In this environment, a trade war with China makes no sense at all. Who benefits? Nobody. Americans pay the tariffs. China loses nothing. Who’s winning, would you say?
China vs the world? Not quite, but…
China’s rise has been stunning, and in some ways, truly fabulous. The trade war seems to be bouncing off China to a considerable degree. If the Chinese have done anything right on their side, it’s to say very little and restrict their responses to matching US trade measures. They’re not openly fighting the world, except over Taiwan.
China’s main perceived defects are coming from other areas, and it’s not helping their trade or diplomatic positions.
There are a few issues which won’t go away for China:
Cyberwars: The consensus among experts is that a lot of the billions of cyberattacks around the world are coming from China. These cyberattacks include espionage, “entrepreneurial” hacking, and of course the ever-popular criminal online practices.
The Surveillance Society: China’s Social Credit initiative has already become the classic talking point for opponents of citizen surveillance around the world. The image is of a totalitarian, behaviour-based society in which politically-based internal stagnation, like 1984 and Brave New World is the outcome.
China’s black and white approach to global relations; China, like the US in some respects, expects other nations to be unequivocally on their side in various issues, whatever the realities. China’s endless criticisms of other nations for any type of digression from its policies are incredibly annoying, not to say downright insulting. For example – To this day, any country which hosts the Dalai Lama gets a barrage from Beijing. The fact that Buddhists around the world might want to see him has no bearing. He’s seen as an “enemy”, and that’s it.
The Uighur situation: China’s severe response to Uighur autonomy has made it no friends. The response is predictable, extremely heavy-handed, and a virtual beacon for critics of China. The stories are endless, the result is a pretty hideous image for China.
Hong Kong riots: The Hong Kong protests were based on the issue of extradition of Hong Kong citizens to China. The situation has now deteriorated to the point that China is able to manipulate the issues to show the protests in the most negative light possible. (Ironically, the Triads, China’s other curse, are supporting Beijing. They also supported the Nationalist KMT in its oppressive heyday. No doubt who’s winning there.)
Crime: China’s hard line on issues like corruption is well known and frequently enforced. The rather large moving target of globally-based criminal activities, however, is another matter. From shadow finance to parasitic business practices and money which mysteriously moves around the world, the target is being completely missed with a level of dedication which would be surprising if you knew nothing about Chinese history. The “unofficial” Chinese economy is doing nicely, thanks for asking, and that’s another factor in Chinese trade nobody mentions.
Can the trade war turn fatal? Possibly.
The current tit-for-tat trade war is a completely unnecessary, largely useless, war. It’s trench warfare for trade, basically. Like trench warfare, it can go on for years with no result but losses on both sides. The pity of it is that this trade war is not the only grenade with the pin out in the global mix.
The other, much larger form of explosive in global trade is finance. The same high intellects which gave us the sub-primes and the global meltdown in 2008-2009 are still at work. Weird finances are now the norm. Enforcement of laws, if there is any, and there usually isn’t, is mediocre at best and no deterrent at worst.
Imagine this scenario:
1. Any serious hit on the finance sector, particularly banks and other market interfaces. (Global trade does have a huge role in the finance sector, underpinning assets and ensuring cashflow.)
2. Massive global demand for capital to manage debt positions. (Standard and usually largely ineffectual response to capital debt.)
3. Failure to get massive capital; huge rise in LIBOR rate (rate at which banks lend to other banks) and other credit provider rates.
. Cascade of debt defaults. (There are trillions of dollars in current and long-term debt in the world at the moment. Where would you go to get that sort of money in a crisis?)
5. Defaults cause financial crashes. (That’s what major defaults do.)
. Irrecoverable crashes cost major investors huge amounts of money. (The paper money becomes real money when debts hit.)
7. Bond market goes haywire as local situations kick in affecting bond prices and rates. (Bonds hold a truly unimaginable amount of capital. If that capital becomes worthless, it’s game over.)
8. Trade inevitably crashes, hundreds of millions of people out of work, lose their personal assets, etc.
Welcome back to the Stone Age
If you think that all looks a bit too obvious, remember that history’s grimmest moments have always been in plain sight. If global trade was generating enough cash and behaving normally, the game of Mousetrap we call global business could dither along happily, smug as ever. If the trade war hits the fan, a lot of very stupid mice are going to get their necks broken. That’ll be the legacy of the US-China trade war, and nobody can say they didn’t see it coming.
The prehistoric nature of the trade wars could lead to a return to the economic Stone Age, and the literal Stone Age, if a major crisis hits. None of it is necessary, none of it makes any sense, and nobody can benefit from it. What follows may well be history of the worst kind.
Meanwhile, how good are you at hunting rodents? Take a refresher course, you might need it.
