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Abu Dhabi, UAEWednesday 19 September 2018

A full-scale trade war between the US and China looms into view

The issue of China’s political and economic influence is rising up the agenda, writes Alan Philps

A Chinese flag in front of the Friendship bridge over the Yalu River connecting North Korea and China. Chinese commerce ministry says the US measures against China’s investments are against World Trade Organization rules. Reuters
A Chinese flag in front of the Friendship bridge over the Yalu River connecting North Korea and China. Chinese commerce ministry says the US measures against China’s investments are against World Trade Organization rules. Reuters

In its new National Security Strategy, the Trump White House has sketched out a harsh new policy towards China, declaring it one of America’s “strategic competitors” and an “economic aggressor”.

These tough words are at sharply at variance with the last such strategy document, from the Obama White House in 2015, which praised the administration’s “unprecedented cooperation” with China.

So this is a signal that the world can expect battles with China over trade, perhaps even a full-scale trade war in 2018. While the rest of the western world may not accept Washington’s sometimes provocative language, many countries have been reassessing this year how they are going to deal with China’s rise. The issue of China’s political and economic influence is rising up the agenda from Oceania to Europe.

The Trump document states baldly that US policy for years has been based on the assumption as China became wealthier it would become politically more liberal.

The new consensus in the West accepts that the opposite seems to be happening: China is using its wealth and influence to try to make the West more like itself.

A new book, The Battle for China’s Wallet, notes that economic statecraft is not a new tool, but the way China wields it is unusually focused and effective, particularly when it judges countries by issues of key concern to it, such as Tibet, human rights, sovereignty and democracy.

The Trump administration’s new strategic framework can be seen as a response to Xi Jinping’s speech at the Communist Party Congress in October in which he celebrated a new era of Chinese power. He said that “socialism with Chinese characteristics” was a model not just for the Middle Kingdom but for the whole world, a new departure for a Chinese leader.

Throughout 2017 opinion has been hardening in several western countries against Chinese influence. Germany has tightened the rules on foreign takeovers to prevent Chinese corporations buying up cutting-edge firms in such sectors as robotics. In Brussels it has been noted that Greece, after receiving huge infrastructure investment from Beijing, blocked European Union criticism of human rights in China.

Australia is racked by doubts about its future alignment – with its old but increasingly erratic ally America, or with cash-rich China, the new regional power with deep pockets.

These concerns were encapsulated in the downfall of a leading Australian Labor Party politician, Sam Dastyari, who was forced to stand down as a senator following revelations that he publicly supported Chinese claims in the South China Sea after receiving donations from a Chinese billionaire.

In New Zealand the political world was shocked to discover that China-born MP Yang Jian had hidden for years hidden his links with institutions connected to Chinese intelligence. The MP said he as a victim of a “smear a campaign” just because he was Chinese.

Not surprisingly, Chinese media have responded angrily to what they see as a concerted campaign. If the United States can exert influence through institutions which were established while China was absent from the global stage, why should the country with the world’s biggest population and largest economy (by some measures) hide behind a curtain?

It is argued by some that the purpose of Chinese influence is not to dominate the world but something closer to the heart of the ruling communist party: to prevent the millions of Chinese who live, work or study abroad from being infected by dangerous ideas, such as independence for Tibet. This can only be done by exerting influence to keep dangerous topics from being aired abroad.

The Trump security doctrine is clear that the US now sees the world through the prism of America First, or economic advantage. On a practical level, the document calls for visas to be restricted for workers from “hostile foreign competitors” in high-tech industries. Foreign investments in US high-tech firms will be more closely reviewed to prevent theft of secrets.

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But how far will this go? The Trump White House is chaotic at best with unresolved disputes among different factions. Mr Trump combined the launch of the National Security Strategy with a stump-like speech where the judicious assessments of the strategy document were condensed into a simple nostrum on the lines of: “Under Obama, America was robbed.”

The blaming of the previous incumbent of the White House seems to be more important to him than the balancing of national interests. At the same time, Mr Trump seems to feel more at ease with authoritarian leaders such as Mr Xi and Vladimir Putin than his treaty allies.

The US is relying on Beijing to help to contain the North Korean leader Kim Jong-un’s nuclear and missile programme. Is it possible to cooperate on nuclear issues while fending off economic and espionage “aggression” at the same time? Apparently, Washington believes it is.

What is certain is that at least some of Mr Tump’s campaign promises on trade with China will take shape next year. Robert Lighthizer, the combative US trade representative, is working on investigations which could see punitive tariffs imposed on imports of Chinese steel and aluminium to preserve US jobs.

Mr Lighthizer believes that the US market is so important for exporters that they will accept some American diktats in order to continue trading. There will definitely be some trade battles with China next year. China is fully aware of what Washington is planning and no doubt has some responses in mind. Could this degenerate in to a full-blown trade war with the cost of Chinese-made toys in the US shooting up in Christmas 2018?

Not necessarily. But Mr Trump has made clear that 2018 will the year when he takes the gloves off with China over trade, even if the net effect is to make Americans feel a little poorer. The rest of the world will be watching to see if Washington has found a new way to deal with China’s rise or is just making a huge mistake.

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