China-U.S. confrontation

Trade and tensions between the U.S. and China

Print edition : August 14, 2020

In this photo provided by US Navy, the USS Ronald Reagan and USS Nimitz Carrier Strike Groups steam in formation in the South China Sea on July 6, 2020. China has accused the US of flexing its military muscles in the South China Sea by conducting joint exercises with two U.S. aircraft carrier groups in the strategic waterway. Photo: AP

U.S. Secretary of State Michael Pompeo speaking at the Richard Nixon Presidential Library & Museum in Yorba Linda, California, on July 23, 2020. Pompeo cast China’s leaders as tyrants bent on global hegemony. Photo: Bloomberg

Defence Secretary Mark Esper. As far as President Donald Trump and Esper are concerned, China and to a lesser extent Russia are to be contained by the U.S. with armed force. Photo: MANDEL NGAN/AFP

The Donald Trump administration uses every mechanism to cut China out of the global supply chain, but nothing seems to be working as a resolute China is unwilling to back down and dismantle its technological gains.

Not a day goes by without a strong statement against China from the Donald Trump administration. United States Secretary of State Mike Pompeo has been particularly blustery. On June 19, he addressed the Copenhagen Democracy Summit, a platform set up by the Alliance of Democracies (created in 2017 by Ander Fogh Rasmussen, former head of the North Atlantic Treaty Organisation, or NATO). China, Pompeo said, had become a “rogue actor” and Europeans must join the U.S. in a grand alliance against it. “I’ve seen tyranny first-hand’, Pompeo said. ‘And I’ve dealt with all manner of unfree regimes in my previous role as Director of the CIA [Central Intelligence Agency] and now in my current role as Secretary of State of the United States of America. The choice isn’t between the United States and China, but it is between freedom and tyranny.”

Such is the old Cold War language, the cliches of freedom and authoritarianism, that the State Department had deployed against the Union of Soviet Socialist Republics. Underneath the use of the word “freedom” sits uncomfortable facts, such as that the U.S. has the largest prison population in the world and that it has been the primary instigator of bloody wars across the planet. Such facts are brushed aside. Pompeo can even bring up the CIA to establish the essential “freedom” of the West against China. No eyebrows were raised at the Copenhagen summit.

At an earlier time, China would have ignored these statements. But not now. Wang Wenbin, spokesperson for China’s Foreign Ministry, called Pompeo’s statements about China and COVID-19 “groundless”; he accused Pompeo of lying to the public. Xu Bu, China’s ambassador to Chile, has been outspoken in his criticism of Pompeo and the anti-China rhetoric that the U.S. has tried to spawn across Latin America. In the Chilean newspaper La Tercera, Xu Bu called Pompeo a “liar”. That both Wang Wenbin and Xu Bu have accused Pompeo of lying suggests a new attitude from Beijing; these are strong words in the world of diplomacy. Chinese diplomats have been making the case from Chile to Iran that their country has been actively engaged to the mutual advantage of both China and the individual countries; this, they say, is the opposite of the U.S. position, which facilitates agreements to the advantage of multinational corporations and not to the various countries of the world.

Matters have escalated rapidly. In late July, the U.S. told the Chinese Foreign Ministry that its consulate in Houston must be closed in a few days. No specific allegations were made against this consulate, but the general tenor is that this is part of a U.S. government attack on Chinese espionage against U.S. businesses. The Chinese Foreign Ministry said that this was a “political provocation unilaterally launched by the U.S. side, which seriously violates international law, basic norms governing international relations, and the bilateral consular agreement between China and the United States”.

These diplomatic spats came after Pompeo made a tough statement saying that the U.S. would contest China in the entire territory of the South China Sea. This has already been U.S. policy for decades, but the mere statement of it in such a brusque manner and the deployment of the two U.S. aircraft carriers—the USS Nimitz and the USS Ronald Reagan —into the region significantly raised the stakes. China responded by sending forces onto two islands in the Paracel Archipelago to conduct live-fire drills. The Chinese government has said that it is responding to U.S. intervention, which “is the real pusher of militarisation in the South China Sea”.

Wrapped up in this war of words are a range of issues that the U.S. raises punctually to intimidate China: allegations of industrial espionage, allegations of currency manipulation, allegations around the coronavirus pandemic, allegations of human rights abuses in Hong Kong and Xinjiang. Each issue is not taken seriously by itself, but the group of issues together are utilised to paint a portrait of China as either dangerous or unreliable, and—as the rhetoric gathers force—that the Chinese government must be changed. There is no doubt that behind the U.S. policy since 1949 has been a desire to overthrow the Communist government in Beijing; no doubt yet that the rapprochement in 1972 when President Richard Nixon went to China was merely a wedge in the Cold War and not a true reconciliation with the Chinese government; no doubt either that the current heightened tension is not merely about currency manipulation or Hong Kong, but about the desire to damage China’s rise in the world and change the political situation within China.

Flashpoint

On April 1, Admiral Philip Davidson—the head of the U.S. Indo-Pacific Command—told Congress that he would like $20 billion to create a robust military cordon that runs from California to Japan and down the Pacific Rim of Asia. His proposal, titled Regain the Advantage,pointed to the “renewed threat we face from Great Power Competition. … Without a valid and convincing conventional deterrent, China and Russia will be emboldened to take action in the region to supplant U.S. interests”. In January 2019, Acting Defence Secretary Patrick Shanahan told U.S. military officials that the problem was “China, China, China”. This has been the key focus of all Trump nominees for the Defence Department, whether it be Shanahan or the current chief Mark Esper. Esper cannot open his mouth without blaming China. He told the Italian paper La Stampa that China was using the coronavirus emergency to push its advantage through “malign” forces such as Huawei and by sending aid to Italy. As far as Trump and Esper are concerned, China and to a lesser extent Russia are to be contained by the U.S. with armed force.

Missile gap in China’s favour

Senator Tom Cotton (Republican from Arkansas) has pushed the view that China’s military modernisation programme has created a missile gap in its favour. In March 2018, Cotton asked Admiral Harry Harris, commander of the U.S. Pacific Command (now U.S. Ambassador to South Korea), about China’s missiles. “We are at a disadvantage with regard to China today in the sense that China has ground-based ballistic missiles that threaten our basing in the western Pacific and our ships,” Harris told Congress. To remedy this, Harris suggested that the U.S. exit from the Intermediate-Range Nuclear Forces Treaty (INF), which Trump did in early 2019 (Trump blamed Russian non-compliance, but it was clear that the real target was this fear of a Chinese missile advantage). In August 2019, the U.S. tested an intermediate-range missile, signalling that its intentions long preceded its withdrawal from the INF.

In March 2019, Cotton went to the Heritage Foundation to say that the U.S. should start production of medium-range ballistic missiles, which should be deployed at bases on the U.S. territory of Guam and on the territories of its allies; these missiles should directly threaten China. “Beijing has stockpiled thousands of missiles that can target our allies, our bases, our ships, and our citizens throughout the Pacific,” Cotton said in characteristic hyperbole. Exaggeration is central to people like Cotton. For them, fear-mongering is the way to produce policy, and facts are inconvenient.

In November 2018, before the U.S. left the INF, Admiral Davidson spoke at a think tank in Washington on “China’s Power”. In 2015, Davidson said his predecessor Harry Harris had joked that the islands off the coast of the People’s Republic of China were a “Great Wall of Sand”. Now, he said, these had become a “Great Wall of SAMs”, referring to surface-to-air missiles. Davidson, from the military side, and Cotton, from the civilian side, began to say repeatedly that China had a military advantage by the “missile gap”, a concept that required no careful investigation.

The U.S. has the largest military force in the world. In April, the Stockholm International Peace Research Institute found that the U.S. military budget rose by 5.3 per cent over the previous year to total $732 billion; the increase over one year was by itself the entire military budget of Germany. China, meanwhile, spent $261 billion on its military, lifting its budget by 5.1 per cent. The U.S. has 6,185 nuclear warheads, while China has 290. Only five countries have missiles that can strike anywhere on earth: the U.S., Russia, China, the United Kingdom, and France. Be in terms of intercontinental weapons orair power, China simply does not possess a military advantage over the U.S.

Every known inventory of weapons shows that the U.S. has a much greater capacity to wreak havoc in a military confrontation against any country, including China, but the U.S. understands that while it can blasta country, it can no longer subjugate all countries. Chillingly, the U.S’ allies are now moving their own forward policy: Japan has indicated that it will develop a “first-strike” position. India, however, has been aggressively joining U.S.-driven naval exercises in the Indian Ocean.

Admiral Davidson’s April report calls for “forward-based, rotational joint forces” as the “most credible way to demonstrate U.S. commitment and resolve to potential adversaries”. What the Indo-Pacific Command means is that rather than have a fixed base that is vulnerable to attack, the U.S. will fly its bombers into bases on the soil of its allies in the Indo-Pacific network (Australia, India, and Japan) as well as others in the region (South Korea, for instance); the bombers, he suggests, will be better protected there. China will still be threatened, but Chinese missiles will—so the theory goes—find it more difficult to threaten mobile U.S. assets. Davidson’s report has a stunning science fiction quality to it. There is a desire for the creation of “highly survivable, precision-strike networks” that run along the Pacific Rim, including missiles of various kinds and radars in Palau, Hawaii, and in space. He asks for vast amounts of money to develop a military that is already verypowerful. Furthermore, the U.S. is committed to the development of anti-space weapons, autonomous weapons, glide vehicles, hypersonic missiles, and offensive cyber weapons—all meant to destabilise missile defence techniques and to overpower any adversary. Such developments presage a new arms race that will be very expensive and further destabilise the world order.

Trump’s trade war has oscillated between blunt statements about cutting out China from the global supply chain and sanctioning Chinese Communist Party members to being concillatory to Chinese production and to China’s role as the supplier of goods and credit to the world. Reality is hard to stomach, and the trade war itself seems grounded in enormous doses of unreality. Tariffs on Chinese goods assume that these goods do not already have inputs from the U.S. in them (which they do have) and they assume that the goods are not being produced on behalf of U.S. multinationals (which they are); Trump’s trade war hurt Chinese exports, certainly, but they also damaged the global economy considerably. Latitude for a scorched earth policy against China’s trade is simply not available.

Australia, a loyal U.S. ally, for instance, was partly shielded from the coronavirus recession by its trade with China. Keith Pitt, Australia’s Minister for Resources, said in late July, “Resources have been a shining light of Australia’s economic story. The sector has managed to keep pretty much all its people employed and engaged, that is over 240,000 direct jobs. If you look at iron ore specifically, 62 per cent of China’s iron ore imports came from Australia in 2019-20.” Any escalation of trade wars between China and Australia will hurt the latter’s economyfatally. India decided to ban Chinese-made apps, which account for a large percentage of apps, but found it impossible to substitute them with apps made elsewhere, which is why clones of these apps have now returned to Indian phones. Any attempt to cut China out of the global supply chain in general—a stated U.S. policy—will simply not be possible in the short or medium term. Reliance on China for its industrial production—not only of the extraction of raw materials but of the production of high-tech commodities—is almost total for all countries in the world; it will be expensive, in the midst of the coronavirus recession, to pivot on such an enormous scale.

Hong Kong and Xinjiang

Neither the issue of Hong Kong nor the issue of Xinjiang is important for themselves. To imagine that Western governments, which had no problem with the destruction of Iraq and Libya and the archipelago of “dark sites” for torture (including the U.S. base at Guantanamo), now have a special concern for Muslims is to bedevil the imagination; accusations about human rights violations in Xinjiang are being made for political and commercial ends not on strictly human rights grounds. Certainly, the new laws over Hong Kong’s security, minor compared to the lack of any political freedoms in Saudi Arabia, can hardly be the actual issue that detains the British government; as it seeks to sanction China, it increases arms deals to Saudi Arabia. These issues—Hong Kong and Xinjiang—are part of a wider assault on China’s role in the world, to weaken China in the public imagination since China cannot be easily weakened economically.

5G Technology

It is one thing for China to be the workshop of the world, to deliver its workers for multinational corporations. It is another for China to become a key technological producer in the world. That is the reason why the U.S. government—pushed by Silicon Valley—has gone after the technology company Huawei. The next generation of high-speed wireless technology, 5G, is currently being dominated by Huawei, with Sweden’s Ericsson and Finland’s Nokia far behind. No U.S. firm is near these three in the production of 5G technology.

In April 2019, the U.S. government’s Defence Innovation Board released a report that noted: “The leader of 5G stands to gain hundreds of billions of dollars in revenue over the next decade, with widespread job creation across the wireless technology sector. 5G has the potential to revolutionise other industries as well, as technologies like autonomous vehicles will gain huge benefits from the faster, larger data transfer. 5G will also enhance the Internet of Things by increasing the amount and speed of data flowing between multiple devices and may even replace the fibre-optic backbone relied upon by so many households. The country that owns 5G will own many of these innovations and set the standards for the rest of the world. For the reasons that follow, that country is currently not likely to be the United States.” Since U.S. firms are unable to manufacture the equipment currently made by Huawei and others, only 11.6 per cent of the U.S. population is covered by 5G. There is no indication that AT&T and Verizon will be able to manufacture fast enough the kind of transmitters needed for the new technological system.

The erosion of U.S. firms in the telecommunications industry can be directly attributed to the deregulation of industry by the Telecommunications Act of 1996. Many firms fought to gain market share, with different mobile standards and carrier plans with different configurations that made it hard for consumers to switch companies. This fragmented market meant that no firm made the necessary investments towards the next generation. It has meant that U.S. firms are at a grave disadvantage when it comes to the next generation of technology.

The rapid advance of Huawei and European firms threatens both U.S. technology firms and the U.S. economy in general. Over the past few decades, the U.S. technology firms have become the main investors in the U.S. economy and are the engines of its growth. If these firms falter before companies such as Huawei, then the U.S. economy will begin to splutter on fumes. Trump’s war against Huawei is not as irrational as it seems. His administration—like others before it—has used as much political pressure as possible to constrain the growth of technology in China. Accusations of theft of intellectual property and of close ties between the firms and the Chinese military are meant to deter customers for Chinese products. These accusations have certainly dented Huawei’s brand, but they are unlikely to destroy Huawei’s ability to expand around the world.

The attack on Huawei, with the U.K. now agreeing with the U.S. that it will not use its products, is a centerpiece of the anxiety over China. Mexico’s candidate for the post of chief of the World Trade Organisation, Jesus Seade, said that he would like to use his job to ease the tension between the U.S. and China. He would like to create a robust “dispute resolution mechanism [which] could help settle U.S.-China trade tensions”. But this misses the point. The tension is not over a lack of mechanisms to settle the dispute, since China and the U.S. have repeatedly spoken together about the differences. The problem is that the U.S. acknowledges that China’s rapid technological growth is a generational threat to the main advantage that the U.S. has had for the past decades, namely its technological superiority. It is to prevent China’s technological ascent that the U.S. has used every mechanism—from diplomatic pressure to military pressure; but none of these seem to be working. China, for now, is resolute. It is unwilling to back down and dismantle its technological gains. No resolution is possible unless there is an acknowledgment of reality: that China is equal to if not more advanced in terms of its technological production than the West, and that is not something that needs to be reversed by warfare.

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