For President Donald Trump, aggressively attacking China could prove an effective way to deflect criticism in the United States over his handling of the Covid-19 outbreak. To match the toughening rhetoric, the Trump administration is reportedly weighing various options aimed at punishing Beijing’s alleged cover-up of the coronavirus outbreak in Wuhan. However, “punishing” China will not only prove easier said than done, but could also put the world at risk of financial chaos or even war. There are a few options that the Trump administration can use to go after China: trade, finance and technology. However, each will also involve enormous cost to the US. Trump has threatened to reimpose tariffs on Chinese goods, but as the US-China trade feud has shown, higher tariff rates are not a bonanza for the US economy. The US-China trade spat last year quickly unsettled global financial markets, undermined US business investment and injected a huge amount of uncertainty into the business environment. Last week, top officials from China and the US resumed talks , with China having reiterated its commitment to buying US$76.7 billion more goods from the US this year, despite the Covid-19 outbreak. This suggests that Trump’s earlier threat of restarting the trade war has no teeth. With only six months left before the November presidential elections, the last thing Trump wants to see is the phase one trade deal unravel, hurting farmers in the Midwest and the energy industry. The second option is finance. There are reports that top White House officials have discussed the idea of cancelling America’s debt to China, although White House economic adviser Larry Kudlow has quickly ruled this out. Kudlow understands that a sovereign default by the US government would have grave consequences on the credit standing of US government debt and would threaten the reserve currency status of the US dollar. China holds US$1.1 trillion in US Treasury securities. For Beijing, this would be a small price to pay if a US debt default could bring down the dollar kingdom. Furthermore, should the US government opt to negate its debt obligations to China, it would amount to an outright wealth confiscation of a sovereign nation – usually an act of war. Should such circumstances arise, the damage to the world order would be devastating. If the US can use debt negation to settle its financial disputes, so can other countries. The ensuing chaos in global finance would destroy the basic legal framework that has guided international trade and finance since the end of the second world war. Can the US and China find common ground in an era of techno-nationalism? The third option is to restrict technology transfers to China. This could hurt China’s technology sector, slowing its growth. Nevertheless, the long-term impact on China’s development would hardly be fatal. The US has been tightening technology transfers to China since 2016, and US companies have long been banned from selling any product that could be remotely used for military purposes. This is the key reason China’s imports from the US are mostly planes and soybeans – because of America’s export restrictions. In April 2018, Trump banned American companies from selling microchips to ZTE, a Chinese telecoms equipment maker. The decision almost drove ZTE out of business, but also caused an uproar among American chip makers, for whom China is the largest customer. Disallowing American companies from selling into the Chinese market deprives them of a major market. It was strong resistance within the American business sector that eventually forced the White House to rescind its ZTE decision. Importantly, ZTE’s near-death experience also served as a wake-up call for the Chinese government and business community. Since then, China’s government and businesses have poured huge amounts of capital into the semiconductor industry to develop indigenous microchips for Chinese companies. Although the technological gap between Chinese chip makers and their Western counterparts remains significant, the market share of Chinese indigenous microchips has risen to 40 per cent from less than 20 per cent three years ago. A tech embargo for China is impossible if other countries do not join the US initiative and, if the Trump administration decides to ban chip sales to China again, other suppliers in Europe, Japan and South Korea would end up with a bigger market share. Importantly, Beijing is determined to achieve semiconductor independence by 2025 . Last but not least, the US could sharply increase arms sales to Taiwan and even openly encourage Taiwan to seek independence as a way to hit China. To antagonise Beijing, the US could also increase the size and intensity of its freedom of navigation operations in the South China Sea to demonstrate its force and offer its symbolic support to other claimants. Taiwan is a highly sensitive issue for Beijing, and any American actions that could encourage Taiwan’s move towards a sovereign nation would quickly enrage the Chinese government. Should Taiwan seek independence under US encouragement, it would leave President Xi Jinping with no option but to use military force for reunification. No Chinese leader could survive politically if Taiwan became a sovereign state. Should a war erupt in the Taiwan Strait, would the US intervene to defend Taiwan militarily? Since 1972, when former president Richard Nixon first visited China, the US policy towards the Taiwan issue has been to maintain “ strategic ambiguity ”, which has been effective in discouraging undue provocation from both Taiwan and mainland China. Should the Trump administration change this policy, the risk of armed confrontation across the strait would escalate. All this suggests that Trump’s threat of punishment rings hollow and this is especially so when dealing with a growing power. Economic sanctions or threats of punishment will not bring China any closer to cooperation with the West. Instead, they will only harden China’s growing nationalism and nurture grass-root resentment to American power. This will only make the post-Covid-19 world more volatile and dangerous than ever. Chen Zhao is chief global strategist at Alpine Macro in Montreal, Canada Help us understand what you are interested in so that we can improve SCMP and provide a better experience for you. 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