IO – At last week’s Asia Pacific Economic Co-operation meeting in Port Moresby, hopes for a détente in the superpower rivalry between the U.S.A. and China turned suddenly grim. Rather than ending in celebration, spectators were shocked to learn Chinese officials attending the forum unceremoniously barged into the offices of Papua New Guinea’s foreign ministry to demand changes in the Apec draft communiqué. At the heart of the dispute were portions of the draft on free trade that the Chinese viewed as an effort by the Trump administration for creating a sort of united front to combat Beijing on unfair trading practices.
Once the dust settled, it was the first time in its twenty-nine year history that Apec failed to issue a joint communiqué. More importantly, the frosty ending in Port Moresby raised the specter that Beijing and Washington will fail to reach a much-hoped for truce in its tit-for-tat trade war—unless, of course, both sides can manage to reach an accord in the G20 world leaders summit in Argentina later this month.
Don’t hold your breath. Influential hawks within the Trump administration, such as national security advisor John Bolton, White House trade advisor Peter Navarro and U.S. trade representative Robert Lighthizer have little appetite for compromise. Lighthizer, in particular, who is said to have the ear of Trump and like Bolton considers China to be an existential threat, is a proven and die-hard economic nationalist who believes imposing tariffs is the most effective means of extracting concessions from Beijing.
The main point of contention is not trade per se, but rather technology transfers. Lighthizer contends China is stealing U.S. technologies, and he has a valid point: Through forced technology transfers between joint venture partners, industrial espionage, reverse engineering and patent violations, China is subverting global norms and damaging U.S. economic and security interests.
On the other hand, one should question whether or not Lighthizer’s hardball strategy is likely to work, and at what costs.
Until now, U.S. tariffs have been mostly applied to strategic sectors such as robotics, information and communications technology, machinery and aerospace. This has minimized the pain for American consumers who buy Chinese-made consumer gods such as footwear, textiles and apparel, laptops and cell phones. But if the trade war does escalate into an all-out brawl—which will occur if Trump makes good on his threat to raise tariffs early next year on all imports coming from China—U.S. consumers will find themselves paying a handsome consumer tax. Furthermore, any increases in tariffs will disproportionately affect foreign enterprises operating out of China since they are the source of almost fifty percent of total Chinese exports to the world and sixty percent of exports from China to the United States. And, contrary to Trump’s argument that protectionism will induce American multinationals to leave China and bring home more investment capital and therefore create more jobs, this part of the president’s scheme for ‘Make America Great Again’ will fail miserably—rather, it will compel American multinationals to start looking for increased direct investments in other low-labor cost destinations such as Vietnam, Malaysia and Indonesia.
Rather than taking a sledgehammer to the problem of stemming unfair and, in some cases, illegal technology transfers, a more effective policy would be to apply targeted sanctions against Chinese firms and state-affiliated organizations that are known to engage in industrial espionage and patent violations. The Trump administration could also work with its trading partners more closely to bring pressure on the World Trade Organization to improve how its handles unfair practices, which, if it were successful, could bring China to comply with Washington’s demands over the issue of forced technology transfers.
Such an approach would not only prevent a disruptive and costly trade war for American consumers and multinationals. It would also give relief to economies within Asean that constitute an integral part of the supply chain for providing raw materials and intermediate goods to Chinese exporting companies—the very same countries, in fact, that Washington relies upon as allies to establish a sustained balance of power in the region.
Most important, a prolonged trade war between China and the U.S. would surely sour the overall superpower relationship. Beijing would more than likely view this assault by the Trump administration as yet more evidence to support their fears that Washington’s real intentions go beyond a mere settlement on trade issues but rather being part of a larger and, in their minds, sinister strategy to contain China’s rising power and influence in global affairs.
If in fact this scenario that plays out, with a protracted trade war making China yet more suspicious and cynical about Washington’s strategic intentions, tensions could easily rise in other areas. Certainly it could result in an escalation of naval stand-offs in the South China Sea. China could easily also play its North Korea card more heavily to undermine nuclear arms talks between Pyongyang and Washington. The bottom line: Unless the looming trade war is averted, Asia runs the risk of becoming a more dangerous place in the world.