As a number of leading American economists and former political heavyweights have cautioned, the Trump administration's plan to hike up tariffs on Chinese imports on September 1st is untenable both in terms of economic theory and practice — and still less so to label China “a currency manipulator” in defiance of the US Treasury's own established criteria. This array of politically motivated moves is aimed at containing China's rise by squeezing its economic development. Such an approach however will prove to be futile. While trade tensions have curbed China's economic growth, evidence points to the country's capacity to rise above the disruption and forge ahead. In spite of the trade conflict, China recorded an economic growth rate of 6.6% in 2018 and continued to grow at 6.3% in the first half of 2019. This amounted to more than double the pace of the global average, validating China's status as the global growth engine.
There are several explanations for China's continued growth amid trade tensions.
First and foremost, China's economic development is not the result of trade with any one country. It has been derived through the toil of the Chinese people and the inherent power for growth fueled by decades of development and the unlocking of China's innovation potential. Such driving force will enable China to overcome the pressure from the US. Huawei's response to the threat from the US is a clear example, and by no means an isolated case.
Second, China has become an inseparable part of the global value chain and industrial chain. Trade war or not, China will stay committed to reform and opening up its economy. China is working to improve its business environment, with the enactment of the Foreign Investment Law and other measures to come. As the biggest trader in the world, China is the top trading partner for two-thirds of the world's countries. In the first half of 2019, two-way trade between China and the US dropped by 9%. In the same period, China's trade with the EU and ASEAN expanded by 11.2% and 10.5% respectively, elevating China's import and export volume to RMB 14.67 trillion, up 3.9% from 2018. In the first seven months of 2019, China saw an inflow of RMB 533.1 billion of foreign capital, up by 7.3% year-on-year. These figures show that China has fully integrated into the global economy over the last 40 years. No country can singlehandedly upend the global economic system, not even the US. The trade war provoked by the US will not sever the economic bonds between China and the world.
Third, the US has not succeeded in its attempt to form a “united front” against China. When it arbitrarily labeled China a “currency manipulator,” international organizations including the International Monetary Fund did not endorse the claim. Through its attempt to isolate China, the US ends up alienating the rest of the world. As the Chinese saying goes “a just cause finds much support, while an unjust one finds none.”
Mindset is the crucial factor in the American handling of US-China relations. The US was the main architect of the global order developed in the wake of World War II and became the sole superpower when the Cold War drew to an end. America is used to being world leader and American exceptionalism is embedded deep in the country's political culture. Any rising power will induce anxiety and unease in the US. China's rise has narrowed the power gap between the two countries and given rise to such sentiment.
Some US thought-leaders have recognized the issue of mindset. Former US Assistant Secretary of Defense Joseph Nye, now a Harvard professor, pointed out that “the United States has got to adjust its foreign policy attitudes to realize that we can't think just of power 'over' other countries, we have to think of power 'with' other countries.” Former US Assistant Secretary of Defense Charles Freeman believed that the US had been the most powerful country in the world for a century and needed to adapt to the relative decline of its power: “The roots of this rift are psychological and have more to do with shifts in the balances of prestige and power than with the specific points of mutual complaint.” Columbia University Professor Jeffrey Sachs believes that the root cause of the current trade friction is that the US is not ready for a multi-polar world and that most American leaders would not accept a rules-based world order with multiple power centers.
Successive American governments since the Cold War have publicly welcomed the rise of China. Yet as Professor Graham Allison has asserted, it would take a long time for the US to actually accept the rise of China and such acceptance would be very painful. As former acting Assistant Secretary of State Susan Thornton stated, given that China's population is four times that of the US, China is set to outgrow the US in overall economic aggregate.
Since the establishment of the People's Republic of China 70 years ago, and the establishment of China-US diplomatic ties 40 years ago, history has shown that both countries stand to gain from cooperation — and stand to lose from confrontation. There will be no winner in a trade war. The US cannot contain China, or even inflict much harm. A more reasonable approach would include adjusting the US mindset by coming to terms with China's rise and eventually recalibrating its global position in the context of economic globalization and political democratization while refraining from instigating a lose-lose scenario.
