While it is a forgone conclusion that both the US and China will be affected by tariffs, China will be more so. In the US, the load of tariffs will impact US importers and indirectly impact consumers who now have to pay more for Chinese goods.
Economics impacts politics—and the other way round is equally true. Eleven rounds of the Sino-US trade talks led by China’s Vice-Premier Liu He (an economist) in Washington DC failed to reach a trade deal, with the US increasing tariffs on $200-billion worth of Chinese goods from 10% to 25%. Tariffs on the remaining $325-billion worth of goods at that rate are to follow. Despite US President Donald Trump’s warning, China has retaliated with a tariff hike of 5% to 25% on $60-billion worth of US goods. While China has framed the retaliatory measures in terms of respect and dignity, the American tariffs go well beyond the economic dimension. In fact, the American response appears as part of an evolving strategy that takes a long-term picture of China as an economic and strategic rival. Clearly, the trade dispute has multiple dimensions.
There is ample writing on the wall to suggest that the here and now matters much less to the American long-term strategic interests. The recent statement by the US Secretary of State, Mike Pompeo—that of China posing a challenge of “an authoritarian regime that’s integrated economically into the West in ways that the Soviet Union never was”—is an inkling of how the US views China: Somewhat of a formidable combination of the politics of the Iron Curtain with the economics of the Japanese miracle. This constitutes the backdrop to the Sino-US trade talks.
The US has cited China reneging on negotiations where the ‘enforcement mechanism’ remains a point of contention. The US has been trying to pin China down to legislation—regulations and laws embedded in the legislative process aimed at curbing forced technology transfer and intellectual property protection, rather than have the continued scenario where foreign companies are welcome into China but have to partner with local companies, which forces transfers.
On the other hand, China views that tariffs and Chinese imports from the US, not ‘enforcement mechanism’, are the key issues. China appeared to have agreed to an ‘enforcement mechanism’ but backtracked, the reason why the US says China reneged on negotiations. Instead, China supports a nuanced ‘regulatory mechanism’.
While legislation would be enforceable and transparent, a ‘regulatory mechanism’ would work differently, where the Communist Party (CCP)/state could work it to advantage on an ‘on and off’ basis. The Chinese themselves may not be necessarily opposed to ‘regulatory mechanism’ as they view the CCP as the reincarnated Confucian ‘paternal state’/emperorship of yore that upholds the ‘mandate of heaven’, and national interests rather than personalistic interests.
That said, the American tariffs go well beyond the economic dimension and should be understood in in the context of China’s rise and recent actions. China’s territorial claims in the East and South China Sea, land reclamation, military facilities and maritime militia in the South China Sea have caused concern. In a striking departure, British and French ships have joined the Freedom of Navigation Operations (FONOPS). Recently, India participated in naval exercises with the US, Japan and the Philippines in the South China Sea.
Other key differences between the US and China include Taiwan and North-east Asia (North Korea), areas where China challenges the primacy of the American ‘pivot’. On Taiwan, China feels a national anxiety underpinned by a feeling that time is running out for reunification. This has to be understood in the context of Taiwan’s demography. Taiwan has a population of 23.7 million and 40.7 is the current median age. Those aged 65 and above will make up 20% of the total population by 2026. In other words, the post-1949 generation (born and brought up in Taiwan) is increasing, and the older generation with memories of China and the emotional impulse of reunification is decreasing.
Instead of reunification, Taiwanese President Tsai Ing-wen, who faces re-election (January 2020), has called for support of Taiwan’s democracy, tellingly saying: “…I think the experience of Hong Kong teaches the Taiwanese a lot.”
As for North-east Asia, it continues to be unstable, with renewed tensions following North Korea’s resumption of short-range missile tests (May 4 and May 9, 2019), the first missile launches since the North Korea’s ICBM in 2017. In a parallel development, the US has seized North Korean cargo ship named Wise Honest (exporting North Korean coal) for violating sanctions. Wise Honest has been towed away to Pago Pago, American Samoa.
North-east Asia has gained centre stage once again, given that the diplomatic high following President Trump-Chairman Kim summit (Singapore, 2018) has touched a new low—following the dismembered talks at the President Trump-Chairman Kim summit (Hanoi, 2019).
The optics in North-east Asia is critical, given that it is the last bastion of the Cold War between China, North Korea and Russia on one hand, and the US, South Korea and Japan on the other.
Much of the enthusiasm surrounding the 4.27 Panmunjom Declaration (April 27, 2018), which marked the first Inter-Korean meet in a decade, has dissipated. The key Panmunjom Declaration for Peace Prosperity and Unification of the Korean Peninsula at Panmunjom (the first Inter-Korean meet) that affirmed the conversion of the armistice agreement into a peace agreement and a nuclear-free Korean peninsula is yet to materialise. The fourth Inter-Korean meet is yet to take place. On ground, UN operations have stalled DMZ Tours to Panmunjom at the DMZ (Demilitarised Zone).
The US has been frustrated that sanctions on North Korea have had limited impact on North Korea, given that for China and Russia, North Korea is a ‘core interest’. North Korea has been holding up, despite being in the midst of what the UN estimates a severe ‘hunger crisis’. Ten million North Koreans are at risk after a bad harvest, with the 2018-19 food crop production 4.9 million metric tonnes, the lowest since 2008-09. The food deficit is estimated to be 1.36 million metric tonnes.
The South China Sea and North-east Asia speak volumes about the niggling issues festering in the US backyard, whilst Sino-US talks are out in the front yard.
While it is a forgone conclusion that both the US and China will be affected by the tariffs, China will be more so. In the US, the load of the tariffs will impact US importers and indirectly impact consumers who now have to pay more for Chinese goods. The US may tilt towards a ‘better late than never’ approach.
For the Chinese, the tariff hike shows that President Trump is no ‘paper tiger’. Despite the hoopla surrounding Sino-US trade talks (or even the summit meeting with Chairman Kim in Hanoi), Trump has walked away, holding the line. This is a departure from the previous decades when China was given leeway, when it was weaker. Trump’s stance may have a favourable bearing on his re-election bid in 2020.
On China’s part, reactions to the tariffs have been low-key and, if anything, have been downplayed by the official media. China’s commerce ministry has said that ‘necessary counter measures’ would be taken. Vice-Premier Liu He has sought restraint on both sides and need to nip ‘unlimited escalation’ in the bud likening the talks to ‘running a marathon … that gets harder as you reach the final stages’.
Chinese media is showing restraint, too. The People’s Daily (Communist Party’s newspaper) carried an article saying the US had “misjudged China’s strength, capacity and will, further escalating trade friction between our two countries.” The China Daily ‘deeply regrets’ the tariff hike, running a collection of comments by global analysts on the implications of the tariffs. Even the Global Times, known for its acidic tongue, showed uncharacteristic restraint, saying that 2019 marked 40 years of Sino-US relations and that “at 40, one should no longer be confused.” China is not blowing its own trumpet about the retaliatory tariffs either.
Despite the lowbrow, low-key, muted criticism of America and, importantly, the absence of criticism about China’s own political leadership, there is little escaping political damnation. In China, where ‘face’ (mianzi or ‘keeping face’) is key, China seems to have ‘lost face’ in the global order. Has China erred in judgement and made a miscalculation—of departing from the dictum ‘biding its time’ before its time? That is the question that Zhongnanhai must ask itself.
The author is a Singapore-based Sinologist, and adjunct fellow at the Institute of Chinese Studies, Delhi. Views are personal