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Aftershock

The great decoupling: US-China relations

11 August 2020

The diplomatic, political and economic conflict between the great powers of the modern world risks further perpetuating the scale of the crisis we are entering

It is a fact that US-China relations are now considered to be at a low point. After an 18 month-long trade war between the two economic powers, a preliminary agreement was reached in December 2019. Unfortunately, this temporary trade ceasefire was disrupted with the outbreak of the coronavirus pandemic that broke out in late 2019 in Wuhan, further increasing animosity between Washington and Beijing.

When US officials publically accused the Chinese authorities of trying to conceal the threat from the world and to cover up the scale of the pandemic in China, Beijing denied it and pointed to various analyses and studies of international experts and opinions from the WHO, which was roundly challenged  by a significant number of Republican party politicians and supportive media outlets. Some voices even began to demand the resignation of the World Health Organization’s Director-General Dr. Tedros Adhanom Ghebreyesus sometimes stooping to ethical, ideological, and even racicst arguments.

As if that were not enough, President Donald Trump and Secretary of State Mike Pompeo started spreading rumour that they have evidence that the virus originated from a laboratory in Wuhan, and not via transmission to humans from animals. In response, Chinese Foreign Ministry spokesman Zhao Lijian suggested on Twitter that American soldiers could have brought the virus to Wuhan.

The seriousness of the tensions between the US and China was demonstrated by the fact that Xi Jingping, President of the People’s Republic of China, responded by writing an article titled “Solidarity and Cooperation Are the Most Powerful Weapons for the International Community to Defeat COVID-19”.

In the article, President Xi described China’s efforts to fight the pandemic and the Chinese people’s faith in victory against it, and expressed gratitude to the international community for the sincere help and support that they had provided. He also called for a joint fight against the pandemic, as well as international cooperation for the prevention and control of the disease, stating that “China’s response to the outbreak is swift, decisive and effective. It has made enormous sacrifice in battling the virus. The Chinese strength, spirit and efficiency demonstrated by the Chinese people and China’s role as a responsible major country have been highly commended by the international community”.

We can safely say at this stage: the US election is all about China, and Donald Trump has begun to skilfully combine speeches on the pandemic with his election strategy.

In response to Trump’s confrontational rhetoric, Beijing has so far responded unequivocally, correctly pointing to the fact that the US administration is far worse at handling the coronavirus pandemic than China.

The fact that Trump’s decision to blame China for the COVID-19 pandemic will worsen trade relations around the world which will have far-reaching implications that should not be taken lightly.

According to Beijing, Trump is trying to scare off global corporations from doing business in and with China, as well as trying to change the course of global supply chains in order for the US to no longer rely on China.

As was expected, investors reacted nervously to Trump’s threats and to the risk of further trade conflicts. As a result, in July, the US Trade Representative Robert Lighthizer and Liu He, one of the Vice Premiers of China and member of the Politburo,  discussed a preliminary trade agreement between the countries , and expressed their support for its implementation.

As the South China Morning Post reported, this was the first major trade negotiations between the countries since January 2020, when the two countries signed “phase one” of the US-China deal to end a trade war in which the two countries have levied massive taxes on each other’s exports.

According to a press release from the office of the US trade representative, “both sides agreed that good progress is being made on creating the governmental infrastructures necessary to make the agreement a success,” and “they also agreed that in spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner.”

It is worth recalling that although China has agreed to increase the value of US imports to the country in the next two years by some USD 200 billion compared to 2017, the ongoing coronavirus pandemic has hit demand in the Chinese market to such an extent that it raises justified doubts about the prospect of fulfilling these commitments.

Additionally, it is important to note President Trump’s public feud with the Chinese telecommunications giant Huawei and their 5G technology, as well as increased US military activity in the South China Sea region.

Arguably, both of these attitudes are part of president Trump’s new Cold War aimed at containing China, whose strengths when it comes to economics and trade are being considered by the US president as a defeat for America and Americans.

The economic growth of China, which, according to an increasing number of analysts, threatens the security of the Western world (including the fact that NATO perceives China as “the new Russia”), translates into the growing popularity of confrontational voices on the right in the US (as well as in the UK), which advocate for an increase in US military presence in Asia.

To make things worse, the curtailment of democracy in Hong Kong has opened up old colonial wounds where China, after a period of what is often seen as a great humiliation suffered during and after the Opium Wars in the mid-19th century, has decided to vigorously defend its vital interests, even at the cost of conflict with the US.

It would be naive to expect a quick easing of political and diplomatic tensions between Washington and Beijing, while also taking into account, for example, the recent US order to close the Chinese consulate in Houston and retaliatory measures taken by China ordering the US to close its consulate in Chengdu, and one can only hope that this will not be accompanied by a lack of pragmatism in economic relations on both sides.

While the Chinese economy has benefited from dramatic declines in commodity prices and entrepreneurship and is returning to rising production, as well as the fact that exports from China unexpectedly increased in April, the decline in imports signals further difficulties relating to the global recession and the coronavirus pandemic, as Chinese Ministry of Commerce spokesmanGao Feng, admitted in a press conference. But Feng stressed that foreign companies operating in China would have the same access to government support programmes as domestic companies. He thus referred to a report  by the American Chamber of Commerce in China which listed the obstacles to the equal treatment of foreign companies in that country.

China’s exports rose by 3.5 percent in April as compared to the same month last year, which marked the first increase since December. Interestingly, analysts were expecting 15.7 percent drop in exports after a fall of 6.6 percent in March. Among other things, the growth has been driven by exports of medical equipment, traditional Chinese medicine, and textiles, including face masks.

In March and April, Chinese companies sales of medical equipment reached a total value of more than 10.2 billion yuan (USD 1.4 billion). Some economists attribute the increase in exports to the closure of factories in other countries, which resulted in an increase in demand for imported goods, while Chinese producers resumed operations after a relatively brief quarantine period.

Unfortunately, many Chinese factories are still facing lost orders due to the paralysing impact of the coronavirus on the economies of China’s trading partners. Under pressure from falling profits, some Chinese companies were forced to cut costs and lay off workers.

Imports to China fell by 14.2 percent year on year in April, which is the most since January 2016 and more than many analysts had predicted. Consequently, China’s positive foreign trade balance in  April amounted to USD 45.34 billion, compared with USD 19.93 billion in March.

Meanwhile, the US is in a completely different phase of the fight against COVID-19. In that country, the rate of infections continues to grow and in a short period of time unemployment has increased  by over 20 million. This has exposed the socio-economic fragility of the US, and also displays Donald Trump’s willingness  to assign the blame for the pandemic to China.

The problem is that the US president’s demagogic opportunism, which translates into a protectionism and nationalistic approach to the global economy, may find additional public support and may give rise to the dislike for ‘others’ and their products. The new protectionist barriers that are being created may end up hitting the European Union the most, which is already in recession.

The diplomatic, political and economic conflict between the great powers of the modern world will further perpetuate the scale of the crisis we are entering. If leaders do not follow prudence and common sense in their policy decisions, the consequences could be disastrous.

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