Tariffs ‘Kick Off 50-Year Trade War’ with China
Way beyond the first midnight shot in what could possibly turn into a vicious trade war, the US-China tariff tussle must be seen in the context of the game-changing geopolitical and economic Big Picture.
The blame game, as well as all sorts of speculative scenarios on how the tariff tussle may evolve, are peripheral issues. The ultimate target of what started today is not allegedly dysfunctional “free trade”; the target is Made in China 2025, or China configured as a high-tech powerhouse on a par, or even surpassing, the US and the EU.
It’s always crucial to stress that it was Germany that actually supplied the blueprint for Made in China 2025 via its Industry 4.0 strategy.
Made in China 2025 targets 10 techno-strategic fields: information technology, including 5G networks and cybersecurity; robotics; aerospace; ocean engineering; high-speed railways; new-energy vehicles; power equipment; agricultural machinery; new materials; and biomedicine.
For Made in China 2025 to bear fruit, Beijing has already invested in five national manufacturing innovation centers and 48 provincial centers, aiming at 40 national centers by 2025. And by 2030, via a parallel strategy, China should also be established as a leader in artificial intelligence (AI).
President Xi Jinping’s Chinese Dream mantra, also billed as “the great rejuvenation of the Chinese nation”, is strictly linked not only to Made in China 2025, internally, but also, externally, to the Belt and Road Initiative (BRI), the organizing concept of Chinese foreign policy for the foreseeable future. And both Made in China 2025 and BRI are absolutely non-negotiable.
In sharp contrast, there’s no evidence a Made in USA 2025 is in the cards. The White House would rather frame the whole process as a battle against China’s “economic aggression”. The National Security Strategy frames China as the top challenger to US power. The Pentagon’s National Defense Strategy sees China as “a strategic competitor using predatory economics”.
So how did we get here?
Innovate or perish
A quick background is in order.
David Harvey, in The New Imperialism, borrows from P. Gowan’s The Global Gamble: Washington’s Bid for Global Dominance, to stress how they both see “the radical restructuring of international capitalism after 1973 as a series of gambles on the part of the United States to try to maintain it’s hegemonic position in world economic affairs against Europe, Japan and later East and Southeast Asia”.
Before the end of the millennium, Harvey was already emphasizing how Wall Street and the US Treasury was deployed as “a formidable instrument of economic statecraft to drive forward both the globalization process and the associated neoliberal domestic transformations.”
China for its part masterfully played this capitalist reorientation game – investing no holds barred in what can be described as “neoliberalism with Chinese characteristics”, and profiting to the hilt from US economic power projection via open markets and WTO membership.
Now China, at breakneck speed, is finally ready to invest in its own economic power projection. As Harvey had already noted over a decade ago, the next step for East Asia capitalism would be “away from dependency on the US market” towards “cultivation of an internal market.”
Harvey described the massive Chinese modernization program as “an internal version of a spatiotemporal fix that is equivalent to what the USA did internally in the 1950s and 1960s through suburbanization and the development of the so-called Sun Belt”. Sequentially, China would be “gradually siphoning off the surplus capital of Japan, Taiwan and South Korea and thereby diminishing the flows into the United States”. That’s already happening.
President Trump is not exactly a strategic geopolitician. The reason for these tariffs may be to force the supply chains of US corporations to become less dependent on China. But the way the global economy has been set up does not support the undoing of these supply chains – with production de-delocalized back to the US, as Trump would have it. Location, location, location also rules turbo-capitalist logic; corporations will always privilege cheaper labor and production costs, wherever they are.
Now compare it with China investing in high-tech delocalization integrated with US centers of excellence. When it comes to the top of the line innovation battle between China and the US, the strategy of the Zhongguancun Development Group (ZDG) is a fascinating case.
ZDG has established a series of innovation centers abroad. The key ZGC Innovation Center happens to be in Santa Clara, California, quite close to Stanford and the Google and Apple campuses. Then there’s a new center in Boston a stone’s throw from both Harvard and MIT.
These centers offer the complete package – from state of the art labs to, crucially, capital, via an investment fund. The matrix comes from Beijing’s government, via the city’s techno-district. And it goes without saying that ZDG fully aligns with BRI in its emphasis on expansion to “learn overseas experience of [an] innovation ecosystem”.
That, in a microcosm, is what Made in China 2025 is all about.
Half a century of trade war?
So what happens next?
Amid a tsunami of hysteria, sober analysis provided by Li Xiao, the dean of Jilin University’s school of economics, is more than welcome.
Li goes for the jugular, stressing how “China’s rise is essentially a status rise within the dollar system.” From Beijing’s point of view, change is imperative, but it will be gradual. “The goal of the yuan’s internationalization is not to replace the dollar. The dollar system is irreplaceable in the short term. Our goal for the yuan is to reduce the risk and cost under such a system.”
Li, realistically, also admits, “the conflict between two major powers could go on for at least 50 years or even longer. Everything happening today is just a curtain raiser of history.”
Implicit in the curtain raiser is that the Chinese leadership seem to interpret this first midnight salvo as the revving up of what’s described in the US National Security Strategy. The conclusion, for Beijing, is inescapable; the US is now threatening the Chinese dream.
As the Chinese dream, the “rejuvenation of the Chinese nation”, Made in China 2025, BRI, multipolarity, and China as a driver of Eurasia integration are all non-negotiables, no wonder the stage is set for major, inevitable turbulence.