Trade War: Origins and Tentative Future

Donald Trump’s election overturned many assumptions about US foreign policy, leading to great uncertainty among the international community as to whether the US would continue to stand by the institutions that support the rule of law across the world. As Trump’s inauguration approached, and his rhetoric grew increasingly combative, Xi Jinping announced at the January 2017 Davos World Economic Forum that China would step into the void and become the new champion for globalization. While some criticism was levied at China because these remarks appeared hypocritical given domestic policies favoring protectionism, the response from non-China specialists was nevertheless generally positive. After all, ever since China’s opening up and reform period, it has been the hope of the Western community that the increase in economic liberalization would someday lead to progressive political liberalization.

However, China watchers were aware that Xi Jinping’s comments were merely a ruse, and could be considered an extension of Deng Xiaoping’s “hide your capabilities, bide your time” strategy. Even as Xi Jinping shook hands in Davos, the CCP continued to expand its influence militarily, economically, and culturally. Indeed, China’s assertiveness and nationalism have only grown since Xi took power in 2013. Examples of this include announcing the “reunification” of Taiwan as an official goal for the Party, the “Made in China 2025” campaign to reduce reliance on imported strategic components and materials, and, of course, eliminating the constitutional requirements for presidential term limits.

Xi Jinping’s shift away from biding time to brazenly leading the Party into a confrontation with the US is no surprise. While it appears suicidal, it is critical to understand that he does not act with China’s best interests in mind: the CCP’s main goal is to maintain power over the country, not to preserve the well-being of its population. Xi acts with the intention of ensuring both that the Party remain in control of China, and that his political faction remain in control of the Party.

Toward the end of Mao Zedong’s tenure and after his death, the CCP gradually shifted away from communism, toward a quasi-capitalist totalitarianism that relies on strong clientelist ties between government and industry. Officially, the ideology of communism was never disavowed, but it was referred to as “communism with Chinese characteristics.” This new government style came with the promise that it would lead to economic wealth. While people were skeptical at first, China’s rapid economic advancement largely placated the masses. The government now proudly sets ambitious GPD growth rate targets, which they claim to meet every year. Meanwhile, Xi Jinping has aggressively pursued anti-poverty campaigns, earning praise from Party mouthpieces. Essentially, continued economic prosperity is a promise that even though the socialist origins of the Party have been abandoned, the government still cares for its people. In the absence of any other information, Chinese citizens believe this to be true, making economic growth the primary source of legitimacy for the CCP.

At this point, the average Chinese citizen expects economic growth to be permanent. Even among the most educated people in China, and those with access to accurate information, the belief exists that growth will continue unhindered, essentially forever, without recession or market crash. While such notions would be laughable in the West, Chinese education does not teach that economies are cyclical. They teach that the CCP brings prosperity through its rule.

This is a problem, because reality is often disappointing: huge injection of capital allowed China to stave off the worst of the 2008 recession, but the effects of the stimulus created huge inefficiencies in the economy. These inefficiencies led to a market crash in the summer of 2015, when the Shanghai stock exchange’s value plummeted by 30%, prompting the Party to halt trading and take extensive measures to inhibit further loss of value. Corporate and household debt levels in China have since skyrocketed, a shadow banking system has developed, numerous financial scandals have emerged that the government cracks down on to prevent people finding out about, and more. Parallels abound between the Chinese economy and the US economy in 2007, as with the Japanese economy before their “lost decade.” The Belt and Road Initiative is effectively a grand attempt to keep Chinese SOEs and megacorporations alive by exporting the inefficiencies of the Chinese command economy and shifting debt from Chinese entities to foreign governments. But even the BRI is failing, with many of its deals turning sour as the realities of corruption and infeasibility have become apparent to China’s co-partners.

It is into this highly-charged environment that the Trade War arrived. While on the US side, anti-China rhetoric seemed to appear out of nowhere, and was ascribed to be just another of Trump’s attempts to marginalize allies and trading partners in an attempt to renegotiate established policies, for China the prospect of having an external scapegoat to take the blame for the impending economic instability was a godsend. So much so, in fact, that it could be argued that the Trade War did not originate with Trump, but from China instead. Even before the escalation of tariffs began in July of 2018, China had already: publicized its Made in China 2025 program in 2015, and in 2017 passed both a new Cybersecurity Law that eroded the rights of foreign companies operating in China to an extreme degree, and a new National Intelligence law requiring its citizens to become spies for the state upon request. These policies and laws appear to have anticipated an upcoming major conflict. It is also possible they were intended to precipitate such a conflict, which is exactly what happened.

Whether China intended to start the Trade War or not is somewhat inconsequential in the face of their behavior in negotiations with Robert Lighthizer and other US representatives. They have resorted to the classic tactics intended to stall and provoke that have been used for decades by Chinese officials in negotiations with neighboring countries, the Soviet Union, and the US. Observers who are puzzled by the Chinese use of such tactics even when the country has little to gain and much to lose from extending the Trade War do not realize that China is not thinking in purely economic terms: a conflict with the US grants the CCP the political benefit of being able to point to the US and blame it for failing to continue to provide the economic growth from which it derives its mandate to rule.

This is cause for grave concern. In the entire reform and opening up period, China has never directly challenged the US—not even after the US accidentally bombed the Chinese embassy in Belgrade in 1999. Even as late as 2016, after the Permanent Court of Arbitration ruled against China in the ruling on the South China Sea, those calling for war against the US were silenced on Chinese social media by the state’s censorship apparatus. Now, just three years later, anti-American movies from the Korean War era are being featured on the official state movie channel, with slogans such as “Wanna fight? Let’s do it. Wanna bully us? Dream on!” Meanwhile, the People’s Daily—the largest newspaper in China, and usually more moderate than other Party mouthpieces—used a new slang term specifically created to accuse the US of “bullying” China, and compared the US to a group of apes hollering at a peaceful China. As if that were not enough, the finale to Game of Thrones—whose massive popularity is evidenced by the final season garnering over half a billion views—was not aired, according to HBO because “Tencent was restricted from airing it by the Chinese government because of ongoing trade disputes with the United States.” To top it all off, all radio and television stations in the country are now required to blast the national anthem at 7 a.m., every day.

Even at the highest level of education, Chinese citizens are fooled into believing the Trade War is an act of US aggression against China. They are unaware of the depth of rhetorical manipulation that has occurred within their country for decades, or its escalation in recent years. The country is being primed to believe that the US is their enemy. It is not likely that the CCP will reverse course: an economic dispute is not the ultimate goal of the Party. Regrettably, the notion that China and the US are in a Trade War because of Donald Trump’s erratic politics is not accurate. Mike Pence’s speech at the Hudson Institute in 2018 warning of a new Cold War is a better picture of the future that awaits.

Author Nicholas Andonie