Economic war on China is failing for good reasons

Contributed from Victoria and added to by Joe Montero

The United States economic war against China, among which, Australia is one of the few countries that has joined the bandwagon, makes for some colourful headlines. But as a strategy it is proving to be a failure, and no other outcome was ever likely.

This is a war based on the myth that China is the cause of American economic problems and bent global conquest.

American corporations and government economic policy have come together and moved manufacturing offshore. It was the United States that wound down public and private education funding over the years, to become reliant on Chinese students and researchers for generating knowledge. Then China is accused of stealing it.

We see a similar pattern in Australia.

For the United States, the biggest problem is the long-term-shift from making things to finance and services, and in global trade, to the export dollars to take advantage of differences between nations, buy shares in foreign companies, buy government and private bonds, and speculate in futures markets, had become the mainstay of an American economy dependent on profit from the global economy.

This began to run out of steam about 50 years ago, and efforts were made to impose a debt burden on other countries to pay the cost. More recently a series of lateral and unilateral misnamed free trade agreements were imposed on nations. These were designed to give the United States the advantage.

It didn’t work in the long run. As the faltering of the American economy got worse, the China threat began, and to it was added that it’s the communists who are behind everything. Even anti-Chinese racism was encouraged.

The reason is that the American empire finds itself in decline and is terrified by the prospect of being eclipsed.

Trade war is therefore part of the war to preserve American global economic dominance through undermining the Chinese economy and rallying around itself the small band of faithful deputies. Australia is one of them.

Tariffs on were slapped on more than $200 billion worth of Chinese goods in 2018. Chinese high- tech companies like Huawei were the nest target. The coming of the pandemic lifted this to a higher level. ZTE, ByteDance (the owners of TikTok), and WeChat have joined the list.

Success has been less than hoped for, and there have also been some legal setbacks.

China took the case before the world trade Organisation (WTO), which has determined that that the trade war violates the 1994 General Agreement on Tariffs and Trade (GATT), which established the WTO. The illegality of the trade war is backed by a decision made at the U.S. District Court for the Northern District of California.

Changing circumstances have brought a shift by Washington, away from a pro free trade position in international trade, towards protectionism. Free trade is only wanted when the United States is dominant and has the advantage. This is no longer the case.

According to the rules of the WTO, which along with most of the other rules were written by the United States, there is a 60-day appeal process against the WTO decision.

Washington has been busy undermining the WTO, which it declares to longer serve American interests. Part of this is to refuse accreditation of its new members of its appeals court. This means that the appeals process has been stymied and the original case will go nowhere. But this imposes a considerable political cost.

China is the standout economic success story of the modern era, and it is important to understand why.

In the first place, Chinese growth is not dependent on the export of capital. Driving its growth has been a transformation from an overwhelmingly agrarians to an industrial economy in a few decades, and the development of the internal market. This is still driving Chinese economic growth.

It means that although engagement in international trade is important, China is less dependent on it, and better placed to weather external shocks, including the present pandemic and the pressure of sanctions.

Backing this, is that China operates according to a longer-term economic plan and is better able to mobilise resources and people.

Economic growth, by the Chinese measure of industrial value added, was up by 5.6 percent this last August than a year ago. By the GDP measure, the increase was 3.2 percent over the same year.

Compare this to the United States where GDP declined by 7.7 percent in the second quarter of the year alone and 9 percent for the whole year. This is a shrinking economy.

The two economies are moving in opposite directions.

According to the latest global projections of the IMF, in 2020-2021, China will account for 51 percent of global growth in the coming year, while the United States for only 3 percent. Even this is regarded as a probable exaggeration.

There is more. Most of the rest of expected global economic growth will come from developing countries, especially in Asia. Collectively, western nations are expected to contribute less than 5 percent.

China has been the first major nation to brake the chain of the Covid-19 infection, and has come out of it running.

For others, especially the United States, the situation is unlikely to change in the short and medium time frames at least.

This is sobering and goes part of the way towards explaining the fear of China as a threat to western dominance. Trade war is not going to stop this and will cause greater damage to the United States led block, than it will to China. They are disengaging themselves from the engine that is holding up the global economy.

China has an economic incentive to decouple from the American economy, and to not rely too much on Europe and countries like Australia either. For them, it seems to make more sense to build a closer relationship with more likely and friendlier winners.

There is another side. Holding this back is that doing anything that would make the global economy even less stable is not in China’s interests either, and preserving stability means continuing trade engagement. It is unlikely that a break will come from the China side.

But if certain nations continue to play with fire, it might precipitate a result that is no one’s interests.

We know what they say about children who play with fire.

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