US-China trade agreement: the great illusion of the West

US-China trade agreement: the great illusion of the West

China trade war – the great illusion of the West The “Phase 1” agreement between the United States and China is nothing more than a shaky ceasefire. The alienation and rivalry of the two major powers will continue – and lead to economic and financial fragmentation of the world. A guest post. Nouriel Roubini is a professor of economics at the Stern School of Business at New York University and chairman of Roubini Macro Associates. The planned “phase one” agreement between the United States and China has cheered the financial markets. In return for China’s tentative pledge to buy more US agricultural goods and modest concessions on intellectual property rights and monetary policy, the US is waiving further tariff increases and intending to cut some of the tariffs introduced on September 1. The good news for investors is that the deal averted a new round of tariffs that could have plunged the United States and the global economy into recession and could have crashed global equity markets. But there is actually little reason to be happy: the deal is just a temporary ceasefire amid a much larger strategic rivalry that includes trade, technology, investment, currency, and geopolitical issues. Sino-American alienation is likely to continue; in the technology sector, it is almost certain. The United States sees China’s pursuit of autonomy and supremacy in cutting-edge technologies – such as AI, 5G, robotics, automation, biotechnology, autonomous vehicles – as a threat to its economic and national security. After blacklisting Huawei (a top 5G company) and other Chinese technology companies, the U.S. will continue to try to curb the growth of China’s tech sector. The cross-border flow of data and information is also restricted, which raises concerns about a “splinternet” between the United States and China. Due to increased control by the United States, Chinese direct investment in America fell by 80 percent against 80. New bills now threaten to ban US public pension funds from investing in Chinese companies, restrict Chinese venture capital investment in the United States, and force some Chinese companies to pull out of the US stock markets. The outlook for industrialized countries remains bleak. 2019 was the weakest expansion since the financial crisis ten years ago, according to the World Bank. The United States has also become more suspicious of Chinese students and scientists in the country who may be able to steal American technology know-how or engage in direct espionage. For its part, China will increasingly try to bypass the US-controlled international financial system and protect itself from the power of the dollar. To this end, China could plan to introduce a sovereign digital currency or an alternative to the cross-border payment system of the western-controlled Society for Worldwide Interbank Financial Telecommunication (SWIFT). It could also try to internationalize the role of Alipay and WeChat Pay, the sophisticated digital payment platforms that have already replaced most cash transactions within China. All of this points to a major shift in Sino-American relations aimed at de-globalization and economic and financial fragmentation. China’s White House National Security Strategy 2017 and the United States National Defense Strategy 2018 see China as a “strategic competitor” to be contained. The security tensions between the two countries are brewing all over Asia, from Hong Kong and Taiwan to the East and South China Sea. The United States fears that Chinese President Xi Jinping, following his predecessor Deng Xiaoping’s advice to “hide and wait”, has pursued a strategy of aggressive expansionism. For their part, the Chinese fear that the United States will try to curb their rise and deny their legitimate security concerns in Asia. At the world’s largest economists’ meeting, industry leaders are arguing about the prospects for the global economy and the opportunities for central banks and governments to address a crisis. It remains to be seen how this rivalry develops. The fact is that it was an illusion of the West that China’s admission to the World Trade Organization and the rise of the country would lead to a more open society with a freer and fairer economy. Rather, under Xi, China has created an Orwellian surveillance state and a form of state capitalism that is inconsistent with the principles of free and fair trade. China is now using its growing wealth to flex its military muscles and expand its influence across Asia and around the world, so what sensible alternatives are there to an escalating Cold War? Some Western commentators, such as former Australian Prime Minister Kevin Rudd, advocate “controlled strategic competition”. Others are asking the US to show both commitment and deterrence to China. These are variations of one and the same idea: Sino-US relations should involve cooperation in some areas – particularly where global public goods such as climate and international trade are concerned – while others should accept constructive competition , The problem with this is US President Donald Trump, who doesn’t seem to understand that strategic competition with China requires cooperation with other countries. To be successful, the United States must work closely with its allies and partners. This is the only way to fit the model of the open society and the open economy into 21. Century. The West may not like China’s authoritarian state capitalism, but it must also put its own house in order. Western countries need to implement economic reforms to reduce inequality and prevent financial crises, as well as political reforms to curb the populist backlash against globalization and uphold the rule of law. Unfortunately, the US government lacks a strategic vision. The protectionist, unilateral and illiberal Trump apparently prefers to stand against the friends and allies of the United States. The Chinese are therefore likely to prefer Trump to be re-elected in November. He may be a nuisance in the short term, but with enough time in office, he will destroy the strategic alliances that are the foundation of American soft and hard power. In the end, Trump could “make China great again”. © Handelsblatt GmbH – All rights reserved. Acquire usage rights?
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