How Donald Trump misjudged China’s commitment to economic stability and incremental reform as a weakness
- China has not deployed all its trade war weapons, not because it doesn’t have them, but because it sees stability as preferable both at home and abroad. Likewise, it would prefer gradual reform
But the cause of China’s changes to the draft – the reason behind its reluctance to meet US demands – lies in a fundamental miscalculation by the Trump administration.
Simply put, the US has been overplaying its hand. The agreement that China rewrote would have obliged the Chinese side to legislate some of the changes sought by the US, and it was negotiated amid an aggressive US campaign against the Chinese telecommunications giant Huawei.
China is too deeply embedded in global supply chains simply to go away. Alienating the world’s leading manufacturer and industrial producer – with its consumer market of 1.4 billion people – will severely disrupt global value chains and cast a shadow over the entire world economy.
The Trump administration’s miscalculations may have resulted partly from acting in haste, in the hope of notching a “win” ahead of next year’s presidential election. But the US also seems convinced that it is up against a China with a particularly weak hand, owing to the risk of a hard landing for its economy. That is not the case.
While China imports relatively little from the US, it may have more weapons than its opponent to deploy in this trade war.
Even if deepening tensions with the US over trade and technology force it to take some short-term retaliatory actions, China is likely to maintain this restraint for the foreseeable future.
The reason is simple: this moderate approach serves China’s own long-term interests, both directly (by supporting continued economic growth and development, preserving social stability and protecting state integrity) and indirectly (by avoiding further costly disruptions to global markets).
The trade war has highlighted the risks inherent in maintaining an open economy. But, rather than slam the door shut on the rest of the world, China is attempting to protect the global economy’s stability.
China’s leaders do not believe that the trend of capitalist-led globalisation – in which China has been both a leading beneficiary and, increasingly, a major contributor – will be reversed any time soon.
Because the US remains, in China’s view, the world’s pre-eminent defender of the free markets towards which China is moving, its deviations from free-market orthodoxy and abuses of state power could shake America’s own economic foundations and threaten its institutions.
But such technological progress on China’s part will, in any case, require the country to implement structural reforms. In particular, it will have to protect intellectual property rights and establish more efficient capital markets to encourage basic scientific research, technological innovation and entrepreneurship.
This is not to say that China will close the door on trade negotiations. On the contrary, the US-China trade relationship does have its structural imbalances, which China is willing to address.
But rather than allow the Trump administration to push it to increase imports unilaterally – an approach that is both naive and reckless – China is insisting on resolving the problem in stages. The world should support this method, with the US, in particular, relaxing restrictions on exports to China and welcoming Chinese investment in the US.
A lack of mutual political trust has not prevented the US and China from engaging in mutually beneficial commercial collaboration over the past 40 years, nor has it hampered the recent surge in cultural, educational and other exchanges.