A Global Rupture On Values = Endless Trade War
The Chinese-American Trade War, launched in March 2018, has no end in sight. That’s because of a broad, deep clash in values universally important in international trade. Gird yourself for a(nother) forever war.
Since the inception of On Point in January 2017, 13 of the 59 columns dealt with Chinese-American economic relations. They asked six big questions: whether a Trade War would be just, why China’s growth and Belt and Road Initiative are controversial, how India and Taiwan should navigate those relations, how the Trade War might be resolved, what lessons China’s 20-year World Trade Organization Membership hold for India and the world, and why the currency war matters. Three columns asked whether America and China are in a new Cold War, thanks to conflict between open society and Chinese Communist Party values.
Twice using the metaphor of an “inflection point” (where a curvature changes sign, from positive to negative or vice versa), President Biden declared at the start we are “at,” and at the end “moving towards,” this point. Days before, the President spearheaded the formation of AUKUS to provide Australia with nuclear submarines to patrol the Indo-Pacific (regardless of China’s Nine-Dash Line) – the first exportation of this sensitive technology in 60 years. Days later, he hosted the Quad. He, Prime Minister Narendra Modi, and Prime Ministers Scott Morrison of Australia and Yoshihide Suga of Japan, appreciate the potential synergies between their foursome and the AUKUS threesome (plus the benefits to India).
The President (and his speechwriter) were right the first time: we are at the inflection point.
So, too, is this 14th On Point China-related coverage: it changes from the past trajectory explorations of whether, why, how, and what, to a new one slope, a declarative thesis:
Stuck at the Point, traders face endless impediments, imposed by democracies and/or the CCP, to flows of goods, services, and direct and portfolio investment, and intellectual property rights protection.
Still dubious? Recall a fourth September event: applications from China and Taiwan to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership split at least four of the parties: Japan and Mexico (dubious about China, happy with Taiwan) from Malaysia and Singapore (towing Beijing’s line). India can’t ignore this FTA, and maybe with its $7.5 billion Taiwan chips-for-tariff-cuts deal, isn’t entirely diffident.
It’s tempting to declare, as Biden did, “The future belongs to those who give their people the ability to breathe free, not those who seek to suffocate their people with iron-hand authoritarianism. The authoritarians of the world, they seek to proclaim the end of the age of democracy, but they’re wrong.” But did he understate the universality of our collective stuck-ness? The Inflection Point is about more than competition between democratic and authoritarian governance to control tomorrow’s trajectory.
The endless Trade War is about values shared by both the idealistic and hard-headed across borders: expression, transparency, and comity.
So, the confrontation transcends the hackneyed one of civilizations, and rises to merchant and financier class interests: regardless of their home-country regime, what do importers, exporters, and investors hold dear to support healthy, prosperous commercial interchange?
To understand why we’re mired at the ‘Inflection Point = Forever Trade War Point’, consider this geeky query: What’s in common among (1) Lithuanian smartphones, (2) Taiwanese sugar apples, and (3) Withhold Release Orders?
They’re evidence of that which fuels perpetual conflict: differences in three common core values.
1. What Government Regulation Of ‘Expression’ Is Appropriate?
In his U.N. address, President Biden spoke of “the need to choose whether new technologies would be used as ‘a force to empower people or deepen repression.’” Lithuania, a European Union and North Atlantic Treaty Organization member, knows the Chinese Communist Party’s choice.
On Sept. 22, the Lithuanian Ministry of Defense urged citizens to throw away “as fast as reasonably possible” Chinese-made smartphones, and eschew purchases of new ones.
Encrypted phone data was transferred to a server in Singapore. Huawei’s P40 5G phone had cyber-security breach risks via third-party e-stores where certain applications were malicious or infected with viruses.
The American President also said, “[w]e all must defend the rights of LGBTQI individuals so they can live and love openly without fear….” That’s not easy under CCP rule, as “effeminate men” know.
Earlier in September, “regulators explicitly targeted androgynous pop idols and anyone who … doesn’t conform to Chinese gender norms, using a derogatory slur to warn media companies off men who express a more feminine style.” For the first time in official government communication, China’s National Radio and Television Administration called them “niangpao,” an insulting, bullying term against gay men (loosely, translated as “sissy men”), and told TV companies to “strictly control the selection of program actors and guests” and boycott gay male love stories.
Uyghurs in Xinjiang – to whom Biden referred in his speech – are painfully aware of the CCP’s choice. America, Canada, and The Netherlands, plus multiple non-governmental organisations, have chronicled their status. Genocide, they conclude.
But putting a priceless value on human dignity, as does the President, is what the CCP says devalues social cohesion. Enter unrest, maybe terrorism. Expression, be it political, sexual, or religious, must be monitored to ensure stability, which is a precondition for prosperity.
But businesses worry about parlaying goods and services that embed creative expression – ideas, some of which are subject to IPRs they wish to enforce, others of which reflect new norms charming to some and naughty to others.
Businesses market to populations who themselves are diverse, ethnically, racially, religiously, and sexually.
2. What Degree Of ‘Transparency’ Is Owed By A Government?
In what could catalyse the first-ever WTO case of Taiwan versus China, on Sept. 19, Taiwan threatened a lawsuit when China suspended sugar apple and wax apple imports from the island, alleging they contained the “planococcus minor” pest. Contrary to the WTO Agreement on Sanitary and Phytosanitary Measures, Taiwan said China behaved unilaterally without scientific evidence.
Australia knows about non-transparency in Chinese decision-making that leads to the weaponisation of trade. It called on China for an open, independent investigation into the Covid-19 origins. China whacked Australian barley with punitive tariffs, triggering a WTO lawsuit by Australia. China retaliated, hitting Australian wine with over 200% antidumping duties. More: Australia counter-retaliated by suing China in June 2021.
President Biden mentioned the value of “transparency” in the context of sustainable development, touting America’s ‘Build Back Better’ against China’s Belt & Road Initiative, but he also proclaimed, “America is Back” to “prov[e] that no matter how challenging or how complex the problems we’re going to face, government by and for the people is still the best way to deliver for all of our people.”
Not true in the CCP’s paradigm. Such government is too slow because it’s too messy. Better to move swiftly with stealth to deliver for the people the Party is supposed to serve.
But businesses need to know the rules of the road – transparency – for the sake of their operations (what deals are permitted?), and the safety of their consumers (how and with whom can they deal?).
3. Is ‘Comity’ Inviolable?
This international legal principle means one sovereign nation voluntarily enforces the laws of another sovereign nation, because of mutual deference and respect. President Biden spoke of “work[ing] with partners and allies” and “engag[ing] deeply with the rest of the world.” Likewise, “mutual understanding and respect” is a favorite aphorism in Chinese international relations rhetoric.
Alas, comity is not inviolable. America and China have enacted extraterritorial trade-related measures to thwart each other’s laws and policies:
The inevitable result is what lawyers call a “conflict of laws” dilemma: to comply with American law is to violate Chinese law, and vice versa, hence a fine or imprisonment is risked either way. With more offensive followed by defensive rules probable, especially given the combative ‘Fact Sheet’ on America’s interference in Hong Kong released on Sept. 25 by China’s Ministry of Foreign Affairs, this conflict won’t go away.
But businesses rely on goodwill among nations to respect each other’s rules. Absent comity, they’re caught in the crossfire of extraterritorial standoffs between sovereigns.
Tomorrow Is Like Today
Fastened to the inflection point of a Forever Trade War means this following formula works:
The formula yields at least three results merchants and financiers in India and around the globe cannot ignore, notwithstanding the United States Trade Representative’s ostensible “new approach” to China, announced on Oct. 4:
1. Four waves of Section 301 tariffs on Chinese imports, and China’s tit-for-tat retaliation on American imports, affecting over 70% of bilateral trade, will stay in place. America sees tariffs as instruments to compel structural economic reforms in China, though frustrated, it may launch another Section 301 case against China focusing on the injurious effects of Chinese subsidies. Oh well, plus ça change, plus c’est la même chose (The more things change, the more they stay the same)? China sees retaliation as a defence of its subsidies, state-owned enterprises, and industrial policy.
2. China will not meet its January 2020 Phase One Agreement purchase targets by the year-end 2021 target. China’s domestic economic pressures necessitate stimulatory macroeconomic measures. The U.S. won’t be able to do anything (other than renegotiating both targets, even with the USTR’s get-tough language). Its ballooned trade deficit with China won’t deflate.
3. Conflict of laws will proliferate: the U.S. will assert extraterritorial jurisdiction over the behavior of American and non-American entities, demanding they respect a worker-centric link between trade and human rights. China will rebut with long-arm law enforcement that tells those entities to eschew any such link, as it meddles in Chinese internal affairs. Some entities will avoid the conflict by de-coupling from China. Hey India, there’s an(other) opportunity!
Further, the formula implies that at the Inflection Point, there’s no ‘common ground’. After all, it’s a Point, not a plane.
A Cold War-era style détente, peaceful co-existence with measured economic engagement can be hoped for. But don’t forecast that trajectory.
Raj Bhala is the inaugural Brenneisen Distinguished Professor, The University of Kansas, School of Law, Senior Advisor to Dentons U.S. LLP, and Member of the U.S. Department of State Speaker Program. The views expressed here are his and do not necessarily represent the views of the State of Kansas or University, Dentons or any of its clients, or the U.S. government, and do not constitute legal advice.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.