Let the US and China trade punches, then let the dust settle

  • Christine Loh says the US is provoking China in several areas, from the trade war and the Huawei case to Taiwan and Tibet. And Beijing is fighting back, but it may well make a trade deal with Washington to stimulate the Chinese economy
PUBLISHED : Wednesday, 09 January, 2019, 2:04am
UPDATED : Wednesday, 09 January, 2019, 3:24am

A pattern has emerged from the ongoing, extended boxing match between the United States and China. Things are getting trickier and the stakes much higher.

The US has issued a multipronged challenge to China. China doesn’t want to fight but the US has thrown several punches, reaffirming its intention to contain China’s fast-paced development. Some hits can be absorbed or deflected, but some are stinging. China has to be careful not to overreact or underestimate the ramifications.

The US landed the first punch in July, imposing tariffs on Chinese imports, and China set retaliatory tariffs. But November data showed China’s trade surplus with the US increasing. In any event, China is willing to buy more from the US, as it has large energy and agricultural needs that the US can meet. The US is keen to sell cars. China has suspended additional tariffs on American cars and auto parts for three months.

The US accuses China of various unacceptable practices, such as forced technology transfer and intellectual property theft. There are reforms China is ready to expedite. It is drafting a foreign investment law that bans forced technology transfer, strengthens intellectual property protection and gives foreign businesses greater market access.

China and the US agree it is desirable to open up markets and international trade. China argues, not unreasonably, that it needs time to implement reforms. In the past four decades, China has had to establish markets, systems, institutions and regulations and it is still in the process of modernisation.

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More difficult for China are the ideological punches the US throws, in attacking the Chinese political system. US Secretary of State Mike Pompeo has spoken of building a “new liberal order”. The US rallies support by alleging China is “trying to steal the future of Japan, the US and Europe, by going after our technology”.

A few weeks ago, the US landed another double blow through the law.

At the US’ request, Canada detained Meng Wanzhou, the chief financial officer of Huawei Technologies, a Chinese maker of telecom equipment and a leader in developing 5G mobile technology, while she was changing flights. She is alleged to have put banks at risk of violating US sanctions on Iran. If extradited to the US, she faces charges of conspiracy to defraud financial institutions. In China, two Canadians have since been detained on suspicion of endangering China’s national security. The US-China boxing match has spilled over and is affecting Canadians now.

The US has also indicted two Chinese nationals on cyberespionage charges. Announcing the indictments, FBI Director Chris Wray said: “China’s goal, simply put, is to replace the US as the world’s leading superpower, and they’re using illegal methods to get there.” The British government voiced its support. While there is room for China to form pacts with developed countries to rein in cybertheft, cyberintrusion is clearly a delicate area and others will side with the US even if they don’t wish to challenge China.

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A fourth risky approach is poking China in its most sensitive pressure points, Taiwan and Tibet. The US passed highly provocative new laws that allow visits between US and Taiwanese officials at all levels, in a departure from long-standing restrictions on such meetings; has reconfirmed the US commitment to sell arms to Taiwan; and imposed visa bans on Chinese officials who deny Americans access to Tibet.

China asked the US not to go down that path, but to no avail. President Xi Jinping, in his first speech to the People’s Liberation Army in the new year, asked all units to “correctly understand major national security and development trends” and kick-started a year of enhanced military training.

Meanwhile, trade negotiations are continuing.

US President Donald Trump met Xi on the sidelines of the G20 summit in early December. They agreed to a 90-day truce for the two sides to continue negotiations. They spoke at the end of the year by phone, after which Trump tweeted: “Big progress being made!” A Chinese Foreign Ministry spokesman said the two had told their respective teams to work towards removing all tariffs. Talks are currently being held in Beijing.

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On Friday, Trump said China’s economic weakness “puts us in a very strong position”. A deal may well be possible, not because China is battered but because plans are in place to stimulate the economy in 2019.

Don’t forget: China has just flexed its tech muscles, by successfully landing a spacecraft on the far side of the moon, while a government shutdown has persisted in the US because of Trump’s dispute with Congress over funding for a border wall.

The pattern of competition between the US and China is complex. There will be cooperation and contestation. A “them” and “us”, “winning” and “losing” mindset is too simplistic. But most of all, statecraft on both sides requires an appreciation of the dangers and risks of escalation, as big-power relations settle into a new normal.

Christine Loh, a former undersecretary for the environment, is an adjunct professor at Hong Kong University of Science and Technology