Trade war with China brings the danger that we will all be drawn under

Contributed by Joe Montero

The US trade war against China is continuing to build, and china makes it clear that it is not going to buckle under the pressure.

A sign of China’s determination has just been given by President Xi Jinping, who has warned his people to “get ready for difficult times,” because standing up to the sanctions will inevitably cause economic disruption.

The latest trigger has been the banning of Internet provider Huawei from United States networks. It comes on top of sanctions on a range of Chinese imports, increased on 10 May to, from 10 percent to 25 percent, or $200 billion worth of Chinese imports.

China has hit back by imposing sanctions on $60 billion worth of American imports.

But it is the prospect of American pressure on its allies, including Australia, to join in the sanctions that is a cause for worry.

Xi referred to the increasing complexity of the international situation, describing China’s position as the new Long March, negotiating the course through difficult terrain, towards a better future.

China’s has one major advantage. There is plenty of scope for internal economic development into a new economy. Clean energy alternatives are being fast tracked, and new manufacturing industries are emerging. Among them, is the large-scale production of electric cars. China already accounts for 90 percent of the world’s electric buses on the road, no standing at 421,000 and about to increase enormously, as Chinese cities work towards short timelines to make the transition.

Although they won’t eliminate them completely, internal economic development and the capacity to self-finance will lessen the impact of sanctions.

A considerable portion of American corporations are dependent on the China connection, through investment, or through supply lines. They have much less scope for internal growth and the sanctions are hurting them.

The United States economy had long been dependent on the export of investment capital to keep it going, and to weather the storm being whipped up by Donald Trump, requires finding alternative foreign investment opportunities. It is not so easy to do this on the scale that China provides, or in a global economy that is not exactly stable.

This is a reality increasing the chances that the sanctions will be backed by an escalating series of threats, leading towards a risk of greater political and even military conflict.

The trade war has already had a negative impact on the global economy, and its continuation and escalation, threatens to pull it down, bringing the potential for a serious global depression. If this comes to pass, all countries will be affected.

China has another major weapon in its arsenal. It holds $1.12 trillion in US Treasury bonds. This translates into about a third on US currency and a huge part of American debt. Up to now, this has served to soak up weaknesses in the American economy, including a serious debt problem.

For China, the downside of holding on to the bonds is that idle capital that can’t be used, and there is a cost in this.

At the same time, releasing a currency tidal wave into the American and global economies would cause their meltdown, via the injection of a massive amount of excess American dollars, devaluing them and sending American interest rates spiraling upwards. It would also harm China, and will therefore not be taken lightly.

Nevertheless, this remains a potential weapon that is starting to be called China’s economic version of the nuclear option.

Although it is not about to be detonated, enough pressure could cause Beijing to see that it has no other option. This is the risk.

It is enough reason on its own for caution and the world demanding a pull back from trade war.

China’s interests lie in increasing diversification in global economic relationships, and the One Belt and One Road initiative is a major part of this, along with closer cooperation with Russia, Europe and other nations.

Launching a trade war against China has little to do with protecting American jobs, and everything to do with maintaining American hegemony over the global economy, plus transferring more of its own economic crisis abroad, by forcing open new avenues for investment. The Chinese economy is the main target for this.

The world does not need trade wars. What it needs is a transition to a global economy that is not dominated by a single power, towards one where a range of nations participate under rules that deny the ability to impose economic sanctions for economic advantage.

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