Donald Trump’s anti-China policy is doomed to fail, as his coronavirus strategy did

Rather than a cohesive strategy, America is taking aim at China’s economy based on a mix of short-term thinking, parochial calculations, and fear of Chinese competition
Most of its attacks are missing the mark, and some are likely to boomerang on US interests instead

Chen Zhao

Published: 1:00am, 15 Aug 2020

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The Trump administration’s anti-China policy has reached a crescendo. After trying to cripple Huawei, it is cracking down on TikTok, WeChat – and who knows which other Chinese app or technology company.

Secretary of State Mike Pompeo has declared Beijing the enemy of the free world and called on the United States’ allies to collectively contain China’s “designs on hegemony”. Like it or not, the Trump administration has launched a cold war against China.

The dramatic turn of Trump’s China policy is breathtaking: in January, Trump spoke of his “love” for Xi Jinping; by March, China was the source of the “Chinese virus” ravaging America. Political calculation is clearly behind the change – scapegoating and attacking China may help Trump score political points in an election year, but Trump’s short-termism has also allowed anti-China ideologues in Washington to turn America’s China policy into a tool for venting their cumulative anger and grievance. This is dangerous for the world.

First, although China hawks in Washington often liken China to the former Soviet Union, the comparison is very misleading. The Soviet Union was in a full-blown confrontation with the Western world, both militarily and ideologically, and the fierce arms race with the US severely strained the Soviet economy.

In the end, the Soviet Union lost the Cold War not because it was beaten into submission by the US. Rather, it was the Soviet economy, moribund and rotten to the core, that collapsed and caused the entire system to implode.

04:12

Are Xi Jinping’s China and Donald Trump’s US destined for armed conflict?

Yes, China is an authoritarian regime, but it is not interested in spreading Marxism around the world. Rather, China is far more interested in exporting capital, expanding its market share and securing resource supplies.

The Communist Party of China ought to be renamed the Production Party of China. The party has reformed China’s Soviet-style economy by promoting free-market capitalism and private ownership, and has squarely focused on boosting economic growth since the late 1970s.

Trump’s attacks on Chinese tech aim to preserve US economic dominance

For the last four decades, the Chinese economy has been vibrant and thriving, with the private sector leading the way in generating jobs and economic growth. The standard of living for the Chinese has been improving at an unprecedented speed, with GDP per capita rising from around US$200 in 1980 to US$10,000 today.

The majority of the Chinese are genuinely happy. All this suggests that China faces totally different economic and political circumstances from the Soviet Union, and that the US is unlikely to crush the Chinese economy by using the same old Cold War tactics and strategy.

In fact, the Chinese government has never been this popular with its people – all thanks to the Trump administration’s hardline China policy. This policy has been read by ordinary Chinese as proof of the US’ denial of China’s right to be economically successful. Naturally, Trump’s policy has spurred public resentment against the US in China.

Second, Trump’s economic war against China could easily backfire. The Chinese economy has already become large enough to withstand America’s economic sanctions.

To put the size of the Chinese market in perspective, China’s retail sales have exceeded those of the US since 2015, and China is virtually the largest market for various consumer goods: from cars and TVs to cellphones and luxury goods. This is not to mention that China is the largest importer of industrial and agricultural commodities of all kinds.

Foreign businesses, including American ones, are unlikely to abandon this vast market simply because the country is run by the Communist Party and has an authoritarian regime.

In Trump, China has an adversary who’s not afraid to push back

Moreover, for many American companies, access to the Chinese market is vital for revenue and profit growth. As such, an economic war with China will probably hurt the US’ business interests as much as China’s.

Qualcomm, a major US chip maker, is reportedly lobbying the Trump administration to lift trade restrictions on Huawei for fear that the American company will lose potentially US$8 billion in Huawei orders to foreign competitors. The share price of Intel, a key supplier to Huawei, has fallen by about 20 per cent since late July.

Going forward, the Trump administration will face increasing pressure from the business community to back away from the brink, simply because Trump’s policy will hurt American businesses in the longer run.

Finally, Beijing’s counterpunch to Trump’s isolationist economic policy is to make the Chinese economy even more open. In 2015, foreign investment in 93 Chinese industries were subject to regulatory restrictions. Today, the number has dropped to 33, and is expected to fall further.

It is ironic that the Chinese government is opening up its economy to more foreign investment and competition, while the US government is shutting its borders, putting up tariff barriers and blocking foreign investment and competition – all in the name of national security.

It is worth noting that all the Chinese companies on the White House’s hit list are privately-owned businesses, which are the backbone of a free market system and were encouraged and welcomed by all previous administrations in Washington.

What’s behind US paranoia about Chinese phones, drones and pills?

Clearly, the Trump administration’s calculus has changed: it is not that America’s national security is threatened by these Chinese companies; rather, the fear of Chinese competition is the true reason behind Trump’s economic war.

Unfortunately, protectionist policies have rarely created economic growth and financial prosperity. On the contrary, protectionism is often the root cause of recession and backwardness. In fact, Trump’s protectionist policies have not led to any revival in US manufacturing. Manufacturing as a share of GDP and manufacturing jobs as a share of national employment have fallen under the Trump presidency.

The bottom line is that the Trump administration’s China policy is shaped by political impulses, short-termism and parochial calculations, and is far from being a well-thought-out and cohesive strategy. This is reminiscent of the Trump administration’s failing Covid-19 strategy, or lack thereof, which has led to a disastrous outcome.

Trump’s China policy, like its Covid-19 strategy, may be more likely to end up hurting American interests instead of protecting them.

Chen Zhao is founding partner and chief strategist of Alpine Macro

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