The only thing the USA and China have in common is their desire to be top dog in the 21st century.
2016 marked the beginning of a new phase in the relationship between the USA and China, dominated by their open confrontation over gaining pole position in the 21st century. Donald Trump has designated China as the main adversary of the USA and has launched an all-out trade, monetary and technological war against it. Behind the swing to protectionism and all the PR hype, there lies a strategy. On the one side, bilateral agreements and exemptions are gradually stabilizing relations with US allies: Mexico, Canada, Japan, South Korea and the European Union. On the other side, the imposition of higher customs duties on 200 billion dollars’ worth of Chinese exports aims to achieve four objectives in the fight to block China’s rise to power. Firstly, on the industrial front, to reorganize production and supply chains outside China, especially with regard to defense-linked operations. Secondly, on the technological side, to target the sectors prioritized in the “Made in China 2025” plan. Thirdly, on the financial front, to block Chinese interests from taking control of strategic businesses, as in the refusal to allow Broadcom to bid for Qualcomm. Lastly, on the geopolitical front, to put the squeeze on the trade surpluses and foreign exchange reserves that finance the spread of the Chinese model through the “new silk roads”.
China, meanwhile, is moving forward without any attempt at concealment. In October, at the 19th Party Congress, Xi Jinping became president for life and the country, in a new era of Chinese socialism, was given the fixed objective of obtaining world leadership by 2049. In order to do so, China is deploying a global strategy: re-establishing the Communist Party’s monopoly of power and reasserting its ideology in terms of Xi’s way of thinking; redirecting growth, now led by domestic demand, toward Chinese companies and employment in China; upscaling its technology to take the lead in the sector by investing massively in space, 5G, cyberspace and artificial intelligence; constructing a blue-water navy and annexing the China Sea so as to create a strategic glacis and push the USA back to the eastern coast of the Pacific; spreading the authoritarian Chinese model by means of the “new silk roads”, which involves taking control of essential companies and infrastructures – even of whole countries – so as to reconfigure globalization with Beijing at its center.
Trump’s conclusions about China are correct. When China was admitted to the WTO, a gamble was taken on its becoming more democratic and converting to a market economy, but this gamble has not come off. The US trade offensive has been ineffective. It has caused a significant slow-down in China’s growth – around 6% –, contributed to the 20% fall on the Shanghai stock exchange, underpinned the outflow of capital and and limited the resources available for projects backed by the “new silk roads”.
However, Trump’s strategy looks highly risky both for the USA and for the rest of the world. There is a real possibility of reprisals on the part of China: increased customs duties on products from the Midwest and rural areas where Republicans hold sway; competitive devaluation of the renminbi (the Chinese yuan) which has lost 6% of its value since the beginning of the year; retaliation against foreign companies operating in China; divestment of Treasury Bonds, of which Beijing is the second largest holder after the Fed. Protectionism, together with a Keynesian recovery plan in an economy where there is full employment, is causing the US economy to overheat – causing a rise in both inflation and interest rates – and is brutal punishment for the financial markets in the context of lower growth (3.7%) and falling global trade (4%). For Americans, and for the world as a whole, Trump’s policy will mean less growth, more inflation and another financial crisis that no one knows how to deal with. Division within our democracies, the delegitimization of their values and the dismantling of the 1945 world order and the Bretton Woods institutions, are opening a gap that China is taking advantage of, by occupying the void left behind by Western diplomacy and Western companies.
The only thing the USA and China have in common is their desire to be top dog in the 21st century. The central issue involved in their confrontation is political freedom in an era of universal history and a digital revolution. The USA can only win if it reconciles itself with the liberal thread that runs through its history, with its values and with its institutions. That is to say, if it staves off the drift to populism embodied by Donald Trump.
(Column published in Le Figaro, 15th October 2018)