Ongoing tensions between the US and China forecast an uncertain future

Ongoing tensions between the US and China forecast an uncertain future
Source: Hyungwon Kang

For years, even before his presidency, Donald Trump has been an outspoken advocate for taking a hard line against China. Whether in addressing the ongoing trade imbalance, China’s behavior on the world’s stage, to his comments about China on the campaign trail, Trump entered the presidency promising a reevaluation of relations between the two countries.

So far, Trump’s approach has involved implementing tariffs on Chinese imports and revoking Hong Kong’s special trading privileges after the introduction of a new security bill that grants the Chinese government sweeping controls over the special administrative region (SAR).

Of the tensions between the United States and China, the trade war has proved to be the most economically damaging. While rebalancing trade with China has been a priority for the Trump administration, few anticipated that doing so would be resolved by imposing tariffs.

The first tariffs the Trump administration levied on China passed in January 2018 and others have been added in the time since.

What it means for China’s economy

The slowing down of China’s economy, coupled with US accusations of currency manipulation and exclusion policies against businesses like Huawei Technologies Co., could significantly hamstring China’s emerging technology sector. The Asian powerhouse is already set for “low positive growth," according to Bo Zhuang, the chief economist for financial investment firm TS Lombard.

With China’s continued gross domestic product (GDP) growth being tied to infrastructure, any pressure applied to international trade can spill over into a broader recession.

According to SCMP, the more economic pressure China continues to experience, the bigger the risks to its growth in 2020. By association, this will have significant knock-on effects for any country it frequently does business with.

On its own, China’s economy has been feeling the strain of these tariffs.

Reports show that clothing and footwear companies have pulled production from China, moving to countries like Vietnam and Indonesia to avoid punitive tariffs. Throughout 2019, Chinese factory cities like Dongguan have seen industrial output drop by 12%.

Infrastructural development, an area that has been vital to China’s GDP and has provided a buffer against tariffs, has not been spared these tensions either.

Even while infrastructure projects continue, spending has slowed to a growth rate of 2.8% in 2019, compared to 17% just two years prior.

What it means for the US

Trump has repeatedly argued for taking the fight to China in order to bring back jobs to the US. But the results, nearly four years on, have left much to be desired.

Instead, the protracted impact of tariffs has arguably left the average American worse off. The introduction of 25% tariffs on Chinese goods has also had knock-on effects for corporate profits. The longer these tariffs are in place, the more corporate profits are hampered, ultimately hurting the US’ GDP and people’s jobs in the process.

Americans are likely to find that more of their money is being spent for less and that the Trump administration’s hardball tactics have not translated to more jobs, all of which could spell disaster for Trump at the polls.

Between 2018 and 2019, one year following the imposition of tariffs, industrial cities have seen the opposite of Trump’s campaign promises to return jobs to America. Instead, industrial states like Pennsylvania, Wisconsin, Ohio, and Michigan have reported job losses of anywhere from 3,000-11,000.

In contrast to China, the US can continue on this road for longer than China can, according to Forbes’ Gary Shilling. The status of the US Dollar as the world’s primary reserve currency and access to alternative markets means that America may be able to play a waiting game, but considering the US is already undergoing its own recession, it’s one it can’t afford to play for long.

What really underpins America’s economic stability during these disputes is the kind of economic system it has ensconced itself in since 1945.

For China, which has only relatively recently begun to undergo its own economic expansion through projects like One Belt, One Road, these tensions could bring this all to a halt.

The ending of the honeymoon and the Belt and Road projects

China’s most expansive economic and political project to be announced under President Xi Jinping is the One Belt, One Road initiative. While China’s economic collaboration with developing countries has been lauded by many, Ralph Weber, of the University of Basel, told TMS that he believes that it sets a precedent for a global rule book being written in Beijing:

“The PRC’s emphasis on global cooperation is to be understood against the background of its attempt to impose new rules and values on the global order. Depending on circumstances, different means are employed,” said Weber.

One of these is infamously known as the “debt-trap” diplomacy of providing loans for infrastructure, thereby weakening the bargaining position of countries Beijing does business with. But with pressure being applied to China’s already straining infrastructural development, US-China tensions could result in one of two things.

One is that China could find itself falling into recession, forcing it to pull back from these international trade projects. As this trade war continues, companies would be financially pressured to pull away from previously profitable East Asian supply chains to look elsewhere, slowing down China’s economy.

Second, the West’s cold shoulder could empower China to become more proactive in extending its influence to emerging markets like Latin America and Africa, something that we already see happening in the latter. Countries across Africa, Latin America, and Southeast Asia have already signed memorandums of agreement to China’s One Belt, One Road Initiative, providing them with access to financial loans and support for infrastructural development. This Western decoupling could empower China to double its efforts.

Of course, all of these matters fail to take into consideration the fact that, while Xi’s leadership allows him to take a long-term view, US elections have the potential to strain tensions further.

The United States has the potential to reevaluate its approach toward China. However, with the electoral cycle now in full swing, we may see these tensions escalate, as Trump attempts to battle against Biden’s accusations of weakness toward Xi.

Election time could prove a powder-keg for Sino-American relations

The US presidential elections have long loomed large on the world stage, but this year the rest of the world is taking an even greater interest. Whether Donald Trump or Joe Biden emerge victorious in November, the relationship between the US and China will likely alter greatly depending on which man is put in charge.

Considering that Biden had previously argued that Trump’s methods toward China were “tough talk, weak action,” neither candidate appears to provide a quick fix for what is currently happening. Looking at both the actions of Trump’s administration and Biden’s ads, comments and policies point toward a harder stance against China, there appear to be few roads leading to de-escalation.

With current polling fluctuating between a hard/narrow Biden victory, Walter Jennings – the current CEO of the consultancy firm Asia Insight Circle – adds that the time between now and Election Day is the most dangerous.

“The collapse of US-China relations is a cause for real concern, especially as the US prepares for a presidential election. China will be front and center for Trump’s re-election bid. He’ll portray himself as the toughest president on China."

During his talk with TMS, Jennings further added that any strong response fielded by the US administration could be met with more than words by China.

“[Trump] may believe a wartime president attracts more votes. What might start as a simple dispute around [the] Spratly Islands or the Straits of Taiwan could domino into a broader conflict. I don’t expect China to retaliate verbally. China plans for the long term, and one US president’s reign is short-lived, even if elected for two terms."

There has been an assortment of issues that has helped to contribute to an icy relationship between the US and China. Whether that’s the South China Sea, Hong Kong, the Uighur camps or the ongoing trade war, these issues can all serve to further strain a relationship that has already proven volatile.

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