US-China trade war is really a clash of civilisations and ideologies

Despite the headlines, the growing conflict between Beijing and Washington is very little to do with tariffs, says Zhang Lin

PUBLISHED : Monday, 15 October, 2018, 12:31am
UPDATED : Tuesday, 16 October, 2018, 4:55am

The conflict between China and the United States is a competition between two different civilisations and value systems.

While the trade imbalance between the two countries continues to make headlines, it actually means little to either. For China, the role of net export contribution to economic growth has been negative in most years since 2008. For the US, a trade deficit is inevitable when it consumes 30 per cent of the world’s products but produces only 13 per cent. Both Washington and Beijing must know this: the dispute is about much more than trade.

Washington has been reflecting on its China policy, as US Vice-President Mike Pence said in his speech at the Hudson Institute on October 4 – the US opened the door to let China join the World Trade Organisation in 2001 and helped it to thrive through trade. However, China has refused to follow the path that Washington once hoped it would.

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Also in 2001, the September 11 terrorist attacks happened. The events shocked America and the world, and led to zthen US President George Bush’s administration changing its foreign policy priorities and policy stance on China. At the Asia-Pacific Economic Cooperation leaders’ summit in Shanghai that year, Beijing fully endorsed Washington’s anti-terrorism policy.

Had September 11 not happened, Bush would have had more time and resources to put pressure on China to “evolve” in the desired direction. But Beijing at that time was viewed by Washington as a friend, not a foe.

Then came the subprime mortgage crisis in 2008, which hurt not only the US economy but also undermined confidence in the whole liberal democracy/free-trade system, or the values known as Washington Consensus.

China, meanwhile, was showing the way, with a massive stimulus package. State intervention became a popular coping mechanism around the world, and the Chinese model – defined by a powerful state, a major presence for state-owned enterprises, and illiberal social and political tendencies, suddenly looked attractive – creating the so-called Beijing Consensus.

But the real picture in China was much less rosy. The government stimulus enriched state-owned enterprises and local governments at the cost of the private sector, distorting the country’s economic structure and sowing the seeds for trouble down the road.

China’s process of pro-market and liberal changes, started by former leader Deng Xiaoping in the late 1970s, stagnated and in some cases went backwards. Interest groups within China, which grew fat under the state-led model, resisted economic liberalisation and political reforms, and this also translated into a more assertive Chinese foreign policy.

Reviewing history, we can see that the US is OK with China’s economic rise but not so its model, which lacks private property protection or democratic election. The US is now seeing the danger of letting that model prevail and is staging a cold war to defend its core values.

The US relies on values to distinguish enemies from allies and forms alliances based on those values. This explains why US has reached trade deals with South Korea and the US-Mexico-Canada Agreement (USMCA), and is in talks with European Union and Japan.

It is quite clear that the US is trying to form a unified trade front with its liberal democratic allies to go against China. If anyone has any doubt, they can read Article 32.10 in the USMCA that allows Washington to nearly veto any free-trade deals of its partners with any “non-market” country.

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It is true that China is the world’s largest trader in goods and biggest trade partner for more than 120 countries, making it very hard for allies of the US to stop trading with China. But Washington’s determination to engage in “competition” with China could lead to a fundamental change.

For America’s allies and other countries, the US is still more important to them economically and politically than China. The US’ imports from the EU, Japan and Canada combined are more than twice its imports from China. Foreign investment in the US is four times that of China. If one day they have to chose one side or the other, many will choose Washington over Beijing.

For now, the rivalry between the world’s two largest economies is not a cold war, dividing the world into two camps. But there is a danger that that will happen.

A military clash in the South China Sea could spark such a division. If the US determined to contain and isolate China at any price, it may provoke a battle at sea.

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Beijing, meanwhile, must realise that a free market and liberal values are America’s core interests and it will go to war to defend them – as it did in Korea and Vietnam.

So, if Beijing believes it is not yet time to have an all-out clash with the US, it should be more restrained in challenging its values and remain cool-headed on the South China Sea issue, especially when facing provocations from US ships.

Zhang Lin is a Beijing-based independent political economy commentator