Expecting Xi to compromise publicly will be unrealistic. However, it is also in China’s interest to end the “trade war” before it spills over to a new “cold war”.
So there are hopes the leadership in both the US and China will think creatively and artfully on how to reach a deal and save face at the same time.
What if this doesn’t work?
Trump’s trade war has been widely seen as a “crisis” for Chinese foreign policy. The Chinese translation of “crisis” is Wei Ji, literately meaning “danger and opportunity”. Most people are right about the “danger” of the trade war for China. One unintended consequence, however, is that Trump’s trade war might help China’s rise, strategically and even economically, if China can seize the “opportunity”.
Trump’s trade war will make Chinese leaders rethink China’s developmental strategies. China’s one-party system lacks a self-reflective mechanism in policy decision-making – as tragically highlighted in the 10-year Cultural Revolution. Trump might be one of the few to make Chinese leaders think twice. The US trade war will definitely hurt China’s exports and overall economy in the short run. However, it might also encourage Chinese leaders to fix policy problems.
For example, China’s export-oriented economic model has become vulnerable from the trade war. To ensure its economic security, China needs to consider how to alter its export-dependent economic growth model. Moreover, the ZTE crisis has taught a hard lesson to the Chinese about the serious consequences of depending on US technology in telecommunication industries. Chinese official media have started to reflect on the huge technological gap in various arenas between China and the United States after the ZTE crisis.
The rise of China’s state capitalism is one of the key tensions between China and the United States during Trump’s trade war. Relying on state capitalism is nothing new in Asia. The Japanese and South Korean governments used to do the same in the 1970s and ’80s to help their automobile industries. However, their experiences also showed that state capitalism could lead to a dead-end in economic growth because of its inherent problems, such as inefficient decision-making, lack of innovative incentives, and rampant corruption. Trump’s trade war will, at minimum, force Chinese leaders to rethink the weakest links in China’s economy as well as how to fix them before it is too late.
Trump’s trade war will also encourage Chinese leaders to adjust possible strategic overreaching in foreign policy. It is normal for any rising power to seek its new “place in the sun”. However, when and how to pursue its “place” is always a tough decision. Japan and Germany failed to rise in the early 20th century partly because they adopted the wrong strategies at the wrong time. Although China has insisted its rise will be different from those of previous powers and peaceful in nature, people are paying more attention to what China does than to what it says.
Since 2013, China has pursued its “Belt and Road Initiative”, an ambiguous infrastructure investment plan across Europe and Asia. China’s official narrative portrays the belt and road as an economic initiative, but other countries worry about its strategic implications. Can the initiative really facilitate China’s peaceful rise on the world stage? The mounting difficulties of its projects, recently in Malaysia and the Maldives, have revealed the harsh consequences of possible strategic overstretching for China through the belt and road. China’s budget constraints as a result of the trade war might force Chinese leaders to rethink whether the belt and road projects are heading beyond the original design.
Trump’s trade war will also offer China a strategic opportunity to consolidate its leadership in the Asia-Pacific. Trump has started tariff-oriented trade wars with all major partners, not only China. Although the US has won his battle in North America by renegotiating a trade agreement with Canada and Mexico, Trump’s volatile policies have seriously damaged the international reputation of the US in the long run.
The eroding soft power of the US caused by Trump’s polices will offer China an opportunity to fill the leadership void. China has reconciled its bilateral relations with Japan, as seen from Prime Minister Shinzo Abe’s recent visit to Beijing in late October. China is also planning to seal a code of conduct on the South China Sea with Southeast Asian countries. A successful Asian diplomacy will be conducive to China’s defiance against Trump’s pressure on trade or other fronts.
It is not easy for any political leader to change existing policies. Even though leaders might be aware of their policy problems, they might not want to correct them because of legitimate concerns over political power domestically. Therefore, the above “favours” that Trump is doing for China may or may not be well received in Beijing. On the contrary, Chinese leaders might “hit back” by insisting on or even strengthening their original policies or plans to showcase their authority and legitimacy domestically. Any policy changes might be interpreted as compromise, failure, and even treason to foreigners, in view of the psychological impact from China’s hundred-year-humiliation history in the 19th century. Therefore, rather than continue its economic structural reform and political opening-up, China might head in the other direction, which would be catastrophic for China and the rest of the world.
Trump extended the trade war into the ideological realm between capitalism and socialism/communism in a speech to the UN. Vice-President Mike Pence has ranked China’s interference in American politics ahead of Russia’s. Although the US and China will not directly engage militarily in a war because of the mutually assured destruction of nuclear weapons, some proxy wars and conflicts might be inevitable. Taiwan and the South China Sea may become the battlefields to test each other’s courage and resolve, unfortunately with blood.
Kai He is Professor of International Relations at the Griffith Asia Institute & Centre for Governance and Public Policy Griffith University in Australia