This trade friction has deep roots in the restructuring of domestic politics in China and the United States, as well as in changes in their perceptions of one another. While China–US interdependence and common interests continue to expand, technological and strategic competition between the two nations has come earlier than expected. Economic competition, combined with differences in ideology, development models and political systems, may push China and the United States into a new Cold War.
In terms of economics and trade, Trump is reversing two decades of US policy that emphasised online and high-tech sectors in favour of trying to revive US manufacturing to supposedly correct trade imbalances. In terms of foreign policy, Trump has challenged the long-held view of the liberal international order as one that must be led by the United States, applying protectionist trade pressure on allies and demanding that they increase defence spending and purchase more US weapons to reduce the US fiscal burden. Domestically, Trump’s presidency has brought about a fierce clash of values and greatly weakened the United States’ social and political consensus.
Over the past five years, China’s state apparatus under President Xi Jinping has re-established its authority, restructured its policy institutions and formulated a clearer medium- and long-term development strategy. Central authority has been strengthened and supervision over the exercise of public power has been bolstered.
But the complex interdependence between China and the United States formed during the era of economic globalisation will still limit any substantial deterioration in bilateral relations in the near future. Despite increasing frictions, China–US relations will continue to be characterised by shared interests and cooperation for four reasons.
First, US–China trade has reached nearly US$700 billion and bilateral monetary and financial relations are also very close. China’s continued purchase of US Treasury bonds supports the US economy and the status of the dollar. In turn, if China wants to have greater influence in international financial and currency markets, it will also be inseparable from the US dollar and the US market.
Second, after more than 40 years of development, exchanges between the two countries have formed a dense network of close interpersonal relationships that would constrain any attempt at ‘decoupling’ the two countries.
Third, the personal interactions between Xi and Trump as leaders have been good so far, and a relatively smooth communication channel has been formed.
Fourth, China’s national strategies are not intended to challenge US hegemony but instead seek to achieve national modernisation. China’s foreign policy is mainly based on international economic cooperation, and China supports existing international mechanisms and is promoting their reform. The country’s national security policy is mainly aimed at self-defence. While many believe that China’s development model and philosophy pose a challenge to the United States, this argument does not make much sense because China does not advocate exporting ideology and emphasises respect for the right of each country to choose its own development path.
The future of US–China relations faces two options. The first is that the two countries strengthen cooperation under the framework of global governance. China and the United States can reach a lot of consensus on the framework of global governance and jointly provide international public goods to safeguard common interests. In the past, the two countries generally handled their relations in a practical way. As a result, their shared interests and consensus have continued to expand.
Beijing and Washington made considerable progress in cooperation within the G20 framework. The United States has shown some flexibility in allowing China to play a greater role, while China respects the status of the United States in the international system.
The other option is the so-called decoupling of the economies of China and the United States, with each building its own system and eventually colliding with each other in a new Cold War. The cost of decoupling would be huge and it is not a realistic choice for either China or the United States.
To avoid decoupling, confrontation and a new Cold War, the most important thing is for China and the United States to conduct effective dialogue and communication, achieve strategic trust and reduce the current trust deficit. Many US commentators have misunderstood China’s domestic political changes since the 19th Party Congress in Beijing in October 2017. Chinese leaders need to do more explaining of China’s political system to US elites to reduce misunderstanding.
Both countries must commit to the basic policy of building a ‘new type of great power relations’. In 2012 Xi proposed the strategic idea that both countries would commit to redefining their relationship based on the principles of no conflict, no confrontation and mutual benefit. This is key to addressing US elites’ deep sense of anxiety about the possibility of the United States’ decline and China’s rise. Both sides should properly handle economic and trade frictions. The Chinese side should realise that US government and corporate complaints are an expression of the strong US interests in the Chinese market.
Economic and trade links are a ‘stabilising stone’ in bilateral relations. In economic and trade negotiations, China should adhere to its principles and respond to unreasonable US demands with strength. At the same time, China must deepen reforms and expand its opening up to consolidate the common interests that are the foundation of China–US relations.
Wang Yong is Professor at the School of International Studies and Director of the Center for International Political Economy at Peking University.
A longer version of this article was originally published here on GlobalAsia.
The American companies are not going to bring their manufacturing jobs back to America and with the tax breaks they receive, they openly stated that they will not use the money from the tax break to re-invest in their companies. You see Harley Davisson and Caterpillar moving their manufacturing operations out of the USA and Trump has not forced the American companies to bring their manufacturing jobs back to the USA nor he had any plans to revive America’s industrial manufacturing base.
According to Yale University Senior Fellow and former Morgan Stanley Asia chair Stephen Roach “China is unlikely to run out of ammunition in the trade conflict because “The US is hugely dependent on China as a source for low-cost goods to make ends meet for American consumers.”
He added “We’re hugely dependent on China to buy our Treasuries to fund our budget deficits, which as you know, are getting larger”.
If the trade war escalates and US$500 billion of low-cost consumer goods from China fail to arrive in the US, then the ports in Los Angeles, Miami and New York will be idled and thousands of longshoremen will be laid off.
The shelves in Walmart and other discount stores will be empty. The Good Friday sale will a faded memory of the past and struggling Americans may not even have a real Christmas.
When more money is chasing after less goods available in the market place, this is the classic definition of price inflation, which will kick in with a vengeance like in Argentina and Venezuela and this could topple the bond and stock markets.
The more devastating effect on the US will be when China is deprived of US$500 billion worth of trade, paid for with green Federal Reserve Notes, which the FED can print in unlimited amounts, China will not be able to fund part of the US budget deficit of about US$1 trillion a year.
Interest rates will spike and the bond and stock markets could crash, ushering in another Great Depression.
If the scenario is so ominous why is President Trump so reckless to start a trade war with China?
In my view it is less about a trade war but more about a currency war after China had the audacity to launch the crude oil futures in Shanghai on 26 March 2018, settled in petroyuan and not in petrodollar. The crude oil vendors can then exchange the yuan for gold at the Shanghai Gold Exchange or in Hong Kong or in Dubai.
This means the yuan is now de facto backed gold and is challenging the legitimacy of the US dollar as the world reserve currency, which is backed nothing but a promise to pay with more green papers, when the US national debt is now over US$21.197 trillion and its unfunded debt was US$200 trillion in 2013, according to Prof Lawrence Kotlikoff of Boston University’s Economic Department.
On top of the above kerfuffle, about US$21 trillion are missing in the Pentagon and in other US government agencies, according to Prof Mark Skidmore of Michigan State University and no one seems to know where the money has gone.
So what happens when the US dollar is no longer the world’s reserve currency, like British pound, the French franc, the Dutch guilder, the Portuguese escudo and the Spanish peso before it?
According to Dr Paul Craig Roberts, a former Reagan Treasury official, the United States’ economy may go bust if the US dollar is no longer the world’s reserve currency.
https://sputniknews.com/analysis/201807071066143172-us-debt-dollar/
The USA dollar is not worth much anymore. When Ross Perot ran for president of the USA, he stated that the dollar was only worth 12 cents. China has brought a lot of US Savings Bonds and they can cause damage if they decide to cash them in.
If the American corporations were not allowed to send the job overseas and had lobbied the US government to lower the tariff barriers back in the 1980s, the USA would not be in the mess that it is in right now.
1 “The USA dollar is not worth much anymore.”
This is true because in July 1944 at Bretton Woods, in New Hampshire, 44 major nations agreed that the US dollar would replace the sterling pound as the next world reserve currency and be backed by gold at the rate of US$35 an oz.
The gold standard went well until 15 August 1971, when President Nixon closed the gold window after the US cheated and had surreptitiously printed more dollars than it had gold to back them, in order to fund the costly Vietnam War and there was a run on gold at Ft Knox by France, UK and other countries.
Today, the US dollar is backed by nothing and the price of gold is US$1,220.80 an oz showing that US dollar has devalued against gold by a whopping 3,388% since 1971.
2 “When Ross Perot ran for president of the USA, he stated that the dollar was only worth 12 cents.”
This is also true because when Ross Perot ran for president as an independent candidate against incumbent George Bush sr and Bill Clinton in 1992, the price of gold was $351.60 an oz on 21 Feb 1992.
But the gold at Ft Knox was and is officially valued at only US$42.222 an oz by the US Treasury (which is silly and President Trump can make Billions of dollars for the US Treasury gratis by simply revaluing Gold at Ft Knox, mark to market.)
So at US$351.60 an oz the US dollar was devalued and was only worth 42.222/351.6 =12 cents in Feb 1992.
3 “China has brought a lot of US Savings Bonds and they can cause damage if they decide to cash them in.”
China has accrued about US$1.18 trillion of US Treasury Bonds. When a US$500 billion trade war starts and push turns into shove, China can sell hundreds of billions of dollars of UST bonds and buy gold like what Russia is now doing. This can topple the apple cart, when the price of gold skyrockets and the US dollar goes way down south.
The estimated notional value of US$532 trillion of toxic Derivatives will start to unravel and it will usher in the next Great Depression in the United States, if not the world, as all the major banks in the US and Europe will go belly up, since they are insanely over-exposed to Derivatives, which Warren Buffett has ominously described as the “Financial Weapons of Mass Destruction.”
4 “If the American corporations were not allowed to send the job overseas and had lobbied the US government to lower the tariff barriers back in the 1980s, the USA would not be in the mess that it is in right now.”
This is true. According to Paul Craig Roberts, a former Reagan Treasury official, quote:
“In my book, I cited evidence that during the first decade of the 21st century “the US lost 54,621 factories, and manufacturing employment fell by 5 million employees. Over the decade, the number of larger factories (those employing 1,000 or more employees) declined by 40 percent. US factories employing 500-1,000 workers declined by 44 percent; those employing between 250-500 workers declined by 37 percent, and those employing between 100-250 workers shrunk by 30 percent. These losses are net of new start-ups. Not all the losses are due to offshoring. Some are the result of business failures” (p. 100).
In other words, to put it in the most simple and clear terms, millions of Americans lost their middle class jobs not because China played unfairly, but because American corporations betrayed the American people and exported their jobs. “Making America great again” means dealing with these corporations, not with China. When Trump learns this, assuming anyone will tell him, will he back off China and take on the American global corporations?” Unquote.
https://www.paulcraigroberts.org/2018/06/26/long-can-federal-reserve-stave-off-inevitable-paul-craig-roberts/
“The US is hugely dependent on China as a source for low-cost goods to make ends meet for American consumers.”
True and false. If you are a wealthy person, you can buy a lot of low-cost goods; however, American corporations price their Chinese made goods as if they were made in the USA. They never pass on the savings to the American customer and with wages having been flattened or declining in the last 38 years, most Americans can’t afford to buy the Chinese made goods.