Writing a analysis piece for Bloomberg Businessweek (April 2, 2018 issue, pages 17-18), Michael Schuman argues that America's trade war with China could be and should be the beginning of a new world order. Schulman's brilliant analysis reflects an unparallelled grasp of reality in this observer's experience.
Schulman writes:
“Let's not sugar coat it any more. The US and China are in a trade war. . . . . The Chinese embassy in Washington, in a formal statement, pledged the country would ‘fight to the end’.
Perhaps this trade war will be resolved through negotiations . . . . The crisis might dissipate into a big nothing, with Xi tossing a few concessionary crumbs at an impatient and inconsistent Trump, who may prefer quick, tweetable wins to the hard work of changing Chinese trade practices that really threaten US businesses.
But a darker possibility cannot be ruled out: This trade war by be a critical turning point in history, the moment when irreconcilable ideological and economic differences between the world’s two most important countries burst into the open. In that case, the world my never be the same.
Some experts argue that such a conflict was inevitable . . . . as has happened [in similar circumstances] throughout history. . . . . Trump and Xi have both staked their political futures on making their nations ‘great again’, resulting a clash of nationalisms with potentially dire consequences for everybody. However the current trade spat works itself out, its fundamental causes aren't going away.
Trump is breaking with decades of US foreign policy designed to avoid just such a conflict. . . . . The whole idea was to cooperate with Beijing’s quest for economic development, to transform it from potential adversary to ally, and possibly, from dictatorship to democracy.
To Trump, that strategy was a historic mistake that allowed the country to grow wealthy and powerful at the expense of the Western world.
. . . . For much of the past 40 years, the country seemed to be moving in the ‘right’ direction. -- toward a more market-oriented economy and a more open society.
That case has become harder to make. Part of the reason is purely political. Many politicians in the US are fixating more on the perceived downside of China’s rise . . . . . and less on the benefits of lower prices to consumers and expanding business opportunities to US corporations.
A much bigger factor is Xi. Newspaper headlines may blame Trump for setting off the current trade war. But that’s not entirely fair. Xi is just as culpable, perhaps even more so. . . . . . China was never really following the path the West anticipated. It borrowed the tools and trappings of capitalism while dispensing with liberal political, economic and social principles that have traditionally accompanied it.
Certainly, Xi asserts the usual promises to continue ‘opening up’ and to champion globalization. But in real life, he’s dropped even the pretense that China is heading in the ‘right’ direction. His regime is regressing into a one-man dictatorship. . . . . He’s creating rival institutions to those of the West . . . . While blathering on about pro-market reform, Beijing is intensifying Communist Party influence over business and heavily subsidizing many high-tech companies to give them an advantage over Western competitors.
. . . . No longer content to join the US-led economic order, China is striving to change it to suit its own interests. All Trump is doing is calling out what’s become obvious: China is not a partner, but a competitor, and has to finally be treated as such.
. . . . [China’s] leaders that the country’s economic future depends on their ability to upgrade its industries and foster technological innovation, and they’re unlikely to significantly alter their industrial program under any circumstances. Trump may be able to pry open a market here or remove a regulatory hurdle there. . . . . But he’s not likely to persuade Xi to give up on his Chinese Dream.
Nor will his successors. Trump will eventually leave the White House . . . . . But the fundamental challenge from China isn’t likely to vanish. The danger that the world could again degenerate into competing blocks -- one democratic and free market and the other authoritarian and statist -- will remain a terrifying prospect. Washington invited China into its new world order. Now China could destroy it.”
Commentary: As unpleasant as that vision seems, it strikes this observer as completely accurate. It fully accords with what this observer experienced in person with how China does business with Western companies. In doing business with the West, China’s focus was unfailingly focused on:
(i) sucking up all the technology possible, even if the Chinese experts who received it were incapable of understanding what they received,
(ii) not allowing one Yuan more out of the Country than was absolutely necessary, and
(iii) adopting a patient, ultra-long term view, decades or centuries if needed, to build global technological and economic advantage.
China’s relentless focus and endless patience cannot be overstated.
Schulman’s analysis, including his warnings about Trump’s serious personal weaknesses, and America’s unstable form of government, ought to be required reading.
B&B orig: 4/6/18
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