Source: Lim Ghee Yang

Trading Places: The Sino-American Struggle For Hegemony

As China and the United States grapple for hegemony and duke it out on the world stage by means of economic might and soft power, who will eventually emerge as the winner? What then, is the way forward?

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Trading Places: The Sino-American Struggle For Hegemony

“The United States does not have the qualification to say that it wants to speak to China from a position of strength.”

Chinese Director of the Office of the Central Commission for Foreign Affairs Yang Jiechi
Director of the Office of the Central Commission for Foreign Affairs Yang Jiechi (left), engaging with United States Secretary of State Anthony Blinken (right). | Photo credit: CNN

During the opening remarks of the first official talks between China and the Biden Administration, officials from both countries engaged in an unprecedented fiery war of words. Nothing of the sort had ever happened, even with the Trump Administration, whose aggressive stance on China eventually led to the trade war.

For the same reasons behind initiating the trade war, Biden doesn’t seem to be backing off from the strategy Trump employed: One, to slow down the acceleration towards Chinese hegemony. Two, to decouple the American and Chinese economies.

However, to dominate, China does not need America’s help — or permission.

The Trade War In A Nutshell

Rough Timeline of US-China Trade War. | Photo credit: Lim Ghee Yang

“We can’t continue to allow China to rape our country”

Donald Trump, during the race for the Republican nomination for presidency in 2016.

Referencing the United States’ (US)  trade deficit with China, which was US$346 billion ( S$464 billion) in 2016 alone, this quote encapsulates the rhetoric behind the trade war the US started — emotionally charged and lacking nuance.

Trump asserting anti-China rhetoric at a rally in Fort Wayne, Indiana, during the run-up to the 2016 election. | Photo credit: NBC News

Donald Trump Loves Winning

The Trump Administration’s response to the trade deficit feels like both an economic and geopolitical miscalculation.

Following basic laws of economics, tariffs on imports would reduce the demand for Chinese products, lowering the trade deficit. However, as we have recently learnt, this view is not only overly simplistic but unrealistic.

America Never Loses

Workers in a factory in Wuxi, Jiangsu, making protective garments. | Photo credit: STR/AFP/Getty Images

Economically, the results of the trade war for the US are meh at best. Sure, they raised S$107 billion in tax revenue, but the 10-year projections for Gross Domestic Product (GDP), wages, and jobs are not great; at a negative 0.23 per cent, negative 0.15 per cent, and a 180,000 loss respectively. A study by Moody’s Analytics found that in 2019, the trade war cost the US almost 300,000 jobs and 0.3 per cent of real GDP. Additionally, research from the New York Federal Reserve found that US companies lost at least S$2.28 trillion in valuation. In fact, a 2020 study using 2018 data found that the tariffs have actually been passed on to American consumers and companies. 

Okay, I lied, the results aren’t meh. They’re horrible for Americans. They lost the trade war.

Moreover, from a geopolitical angle, such rhetoric and posturing did not make sense either. With the Americans focused on domestic struggles and dealing with the ghosts of protectionists’ past, “America First” was an alienating strategy for key allies and trade partners. 

So, who did the world turn to for economic stability and leadership? 

China.

Before the pandemic, international corporations had already been looking beyond China to maintain operations. At the dawn of the COVID-19 pandemic, the onslaught of municipal-level incompetency from Chinese officials exacerbated such concerns. If we couldn’t trust China because of how they handled the outbreak, how could we trust them with our supply chains? China provided a swift and simple answer. Within months, most of the infections were brought under control and their economic machine roared back to life while the rest of the world plunged into a deep depression. In 2020, China surpassed the US for foreign direct investment. As investments dropped by 42 per cent worldwide, China’s grew by 4 per cent.

Compared to the previous administration, the Biden Administration is definitely not going to adopt as aggressive a rhetoric because, evidently, doing that not only alienated the US’ allies but also gave birth to a trade war that they lost. 

However, they don’t look too enthused about becoming best buddies with China either. To reiterate, Biden’s Administration seemingly also aims to decouple the US-China economies and slow down the acceleration towards China’s hegemony. Still, I think this is a mistake for a couple of reasons. Firstly, what is currently being done is simply too little, too late. Second, China already has support from most regional powers. And above all, money talks.

Too Little, Too Late

Let’s say hypothetically, America completely decouples from China so as to reduce reliance. This will come at an enormous cost not only to America but to the rest of the world. China holds 5 per cent of the total revenue of American firms.  

That’s S$550 billion. 

If America wanted to get out of this bind their leadership had gotten them into, action should have been taken earlier. Now, they only have their own complacency to blame.

Various heads of state and their trade ministers during a virtual meeting to sign the Regional Comprehensive Economic Partnership into existence. | Photo credit: ASEAN

Love Thy Neighbour

Perpetually at odds with their neighbours, China somehow seems to have found a way to cosy up to their old adversaries, emerging with mutually beneficial outcomes all around. It is without a doubt that they are the ones spearheading the Asian Century. Recent developments include the leviathan Regional Comprehensive Economic Partnership (RCEP) and their bureaucratically flawed, but culturally and economically effective Belt and Road Initiative (BRI).

On Nov 15, 2020, the RCEP was set in stone. It is a free-trade agreement between some of the world’s largest economies and the Association of Southeast Asian Nations (ASEAN).

How is this significant? This ASEAN-centric project, as compared to other trade blocs, has the largest percentage share in global GDP — more than the North American Free Trade Agreement (NAFTA) and the EU-28. China is believed to gain the most out of this agreement, since they can establish an increased presence in the region and a larger sphere of economic influence.

The seeds of the BRI were sown in 2013 shortly after Xi Jinping had risen to the top of the Communist Party of China. The core idea is to invest in and create a superstructure that would connect Europe to Central Asia and beyond. This initiative was a response to the fear of containment from the global economy and an increasingly “liberal” world order. The project is still in its early stages and is set to be completed by 2049. So far, results have been promising. 2,951 projects valued at $3.87 trillion are already underway across the wider Silk Road region, involving 2,630 companies and 60 countries. 

Interpreted internally as a tool for soft power and an alternative to American values, China expert Tanner Greer had said he believed the BRI to be a failure. Why? Because of the sheer complexity and haphazardness of the projects. If you were to ask me, although it has drawbacks bureaucratically, the economic and cultural clout China stands to gain from the BRI vastly outweigh its drawbacks.

The Way Forward

By virtue of a complacent America and economic might, China has demonstrated that the new “rules-based order”, whatever that is, is not to be dictated only by American interests anymore.

The Biden Administration on the other hand, have shown that they want to rebuild relations with old allies. Starting with building a consensus for a 15 per cent minimum global tax rate (which is far from fair, but that’s another issue for another time), Biden has shown that he will not alienate US’ allies like his predecessor. This administration has also brought into talks the need for a cohesive and collaborative strategy that can spiritually compete with the BRI. This is sorely needed as China slowly creeps into Central Europe through the creation and controlling of supply chains in Central Asia and Africa, posing a threat to the EU’s interests. Things are looking up for a strong allyship between the US and Asia as well. Secretary Blinken had met with Modi to discuss security issues earlier in July 2021. Vice President Harris has also scheduled a visit to Vietnam and Singapore this August to strengthen ties with “two critical Indo-Pacific partners”. 

To hope for a simple amicable coexistence between two powers is wishful thinking. However, should America conduct an ego check, successfully link up with allies, and not start yet another war, perhaps they will not feel as left out as they currently are from China’s bloc party.

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