In a tactical move, US President Donald Trump is attacking Beijing from various directions
Americans play chess, which is principally a tactical game that almost exclusively uses the left (analytical) brain. The Chinese play Go, a vastly more complex and strategically intricate game that uses the left and right (intuitive) brains equally. IBM’s Deep Blue program beat the then chess world champion Garry Kasparov in 1997. It took 20 more years before a program (Google’s AlphaGo) could beat the Go world champion.
But right now, the chess player seems to have the advantage. US President Donald Trump has been bringing more and more issues to the table, attacking China from various directions. First came the tariffs on Chinese imports in July, with the threat of blanket tariffs from 1 March 2019 if the US-China trade talks starting in January do not work out. Then came the campaign on China’s decades-old habit of intellectual property (IP) theft and forced technology transfer from Western companies.
On 1 December, after meeting Trump at the G20 summit, President-for-life Xi Jinping promised to resolve the US’ “reasonable concerns" about IP practices. But the very same day, the heir-apparent of China’s telecom giant, Huawei, was arrested in Canada for extradition to the US. On 19 December, Trump signed a law that bans US visas for Chinese officials who do not permit Americans to visit Tibet. On 31 December, Trump signed another law, the Asia Reassurance Initiative Act, which goes after China’s quasi-imperial ambitions in the Indo-Pacific region. The Act cites “China’s illegal construction and militarisation of artificial features in the South China Sea and coercive economic practices" and mandates action for “countering China’s influence to undermine the international system".
The Act mentions human rights, obviously referring to the brutal oppression of the Uighur people in China’s Xinjiang province, and perhaps even Tibet. On another issue on which China is highly sensitive, it says the US will continue “to support the close economic, political, and security relationship between Taiwan and the United States;… The President should conduct regular transfers of defence articles to Taiwan that are tailored to meet the existing and likely future threats from the People’s Republic of China."
On 2 January, Xi Jinping said that “foreign interference (in China’s relations with Taiwan) is intolerable": there would be reunification with Taiwan, even if it meant China using force.
The US Act minces no words. It wants China to “change course and pursue a responsible results-oriented relationship with the United States and engagement on global issues; encourage China to play a constructive role in the Indo-Pacific region and globally; and continue to call out Chinese actions that undermine the rules-based international system."
The Act recognises India as “a major defence partner, which is unique to India" and “elevates defence trade and technology cooperation between the United States and India to a level commensurate with the closest allies and partners of the United States".
Trump made his fortune as a real estate developer and his business successes have always relied on striking hard bargains—in fact, he wrote a best-seller titled The Art Of The Deal. He is pushing China to see how hard a deal he can strike. Add that to his monstrous ego, and the Chinese may not have dealt with quite such an adversary before.
When Trump initially threatened tariffs, China reacted belligerently. But when he turned up the heat, China took a step back. As of now, it seems to be taking some actions that, on the face of it, address US—and global—concerns.
It has announced an array of punishments against Chinese companies for IP theft. It has also drawn up a draft legislation to protect the IP rights of foreign investors, and prohibit forced technology transfers by administrative means. China’s Supreme Court has set up a special appeals court to handle IP disputes.
China’s negotiating powers have been somewhat eroded by its own problems. Xi’s hugely ambitious Belt and Road Initiative has begun to unravel. Country after country has seen through China’s “debt-trap diplomacy" strategy and has either cancelled projects or is renegotiating.
Manufacturers were already moving production facilities overseas because of the rising costs of labour, land and taxes. The trend has accelerated after the US announced tariffs. Foreign direct investment increased a mere 1.1% year-on-year in January-November, while economic growth slowed to 6.5% in the third quarter, the slowest in a decade. The World Bank has predicted a further slowdown to 6.2% in 2019 and 2020.
The massive debt accumulated over a decade of economic stimulus since the 2008 global financial crisis is now haunting the economy. The country’s debt-to-GDP ratio stood at a whopping 253% at the end of June 2018 (and there may be a lot of hidden debt too). Infrastructure investment growth dropped to 7.3% in the first half of 2018, compared to 21.1% a year earlier.
Meanwhile, Trump continues to play hardball. Indeed, he is upping his game. China is on the defensive. The dealmaker loves this sort of situation. He will push further.
Right now, the chess player has the upper hand.
Sandipan Deb is a former editor of ‘Financial Express’, and founder-editor of ‘Open’ and ‘Swarajya’ magazines