5 WHY A US-CHINA TRADE WAR? – NOT TRAP BUT CAPTURE
China-US relations have been subject to the changes in the long-term cycle of the world-economy and the hegemonic cycle of the US. It has been four decades since US hegemony began to decline in the 1960s and 1970s. In the meanwhile, China has gradually moved from the periphery of the world economy to the core, and politically is ‘going closer to centre stage’ (Xi, 2017). US trade policies, whether President Obama’s support for the TransPacific Partnership Agreement (TPP), or President Trump’s protectionism, are policy responses to the US being unable and unwilling to bear the cost of free trade. President Obama sought to engage the new economic geography of Asian economic growth. President Trump has demanded a rebargaining and readjustment of the pattern of international trade. The resultant economic nationalism has intensified the contradictions and conflicts with China and many other trading partners. From a long wave perspective and going over the history of US-China relations, we can better examine the nature of the current China-US trade war and make judgments about its future trends.
Drawing inspirations from global economic and hegemonic cycles, we periodize the history of China-US relations into four twenty-year periods (see Table 1): China-US isolation (1949–1969); semi-alliance (1969–1989); acceptance and integration (1989–2009); competition and challenge (2009–2029). If the twenty-year cycle of China-US relations would continue, then China-US relations will enter into the fifth twenty-year period after 2029. That period would culminate in 2049, the very year witnessing the founding of the the People’s Republic of China (PRC) for a hundred years.
After World War Two, the US established hegemony. However, because of the ‘Cold War’ and the ideological opposition, the US ‘lost China’ and the two countries fell into a long-term isolation. This is the first phase of the development of China-US relations since the PRC was founded in 1949. The major adjustments in China-US relations were after President Nixon’s visit to China in 1971, the establishment of diplomatic relations between China and the US in 1979, and China’s reform and opening up. The reason why 1969 was used as a new starting point for the development of China-US relations was because Nixon came to power in 1969 and began to propose and substantially adjust US policy towards China. From the long-term perspective of the world economy, 1967/1971 was the beginning of the B Phase of the fourth Kondratieff wave, and it was the times of Western economic crises. This long wave continued until 1986/91. In the context of the needs of domestic economic development and the geopolitical perspective of the confrontation between the US and the Soviet Union, the US chose to establish diplomatic relations with China and establish a ‘quasi-alliance’ relationship. China also obtained Most-Favored-Nation (MFN) status through the ChinaUS trade agreement at this stage and started to apply for resuming its GATT membership. This is the second twenty-years (1969–1989) of China-US relations.
The third twenty-years began in 1989. After the Tiananmen Square Incident, the US adjusted its policy. The Clinton administration chose ‘decoupling’ between human rights and trade, and supported China’s accession to the WTO. China finally completed the WTO accession negotiations with the US in 1999 and secured Permanent Normal Trade Relations (PNTR) in 2000 thanks to intensive lobbying by the Clinton administration vis-à-vis the Congress. This stage is the Kondratieff V A phase (1986/91-2005/08), which is a growth stage of the world economy and is also the period in which the US renewed its efforts in multilateral trade and regional economic integration. During this phase, the keynote of the US policy toward China was ‘engagement’. With the joint efforts of both sides, China and the US began to build a ‘constructive strategic partnership for the twenty-first century’ (People’s Daily, 1998). Although President Bush Jr. proposed that China and the US were not ‘strategic partners’ but ‘strategic competitors’ during his first presidential campaign, China-US relations quickly turned around after the ‘9/11’ attacks. In the last two years of Bush’s tenure, under the impetus of then Treasury Secretary Henry Paulson, China and the US established the ‘China-US Strategic Economic Dialogue’ in 2006, becoming a strategic management platform for China-US economic and trade relations which therefore gained a stable and rapid development.
The fourth phase began after 2008, set off by the global financial crisis. The Obama administration proposed a ‘Asia Pivot’ Strategy (Clinton, 2011). The Strategic Economic Dialogue (SED) continued, but added a strategic track toform a ‘China-US Strategic and Economic Dialogue’ (S&ED). It was also during this period that the China-US conflict gradually warmed up. From the long-term perspective of economic cycles, this stage is likely to be the beginning of the B phase of the fifth wave, which will probably continue until 2025/30. The worldeconomy has shifted from the mid-high-speed growth of nearly 6% before the crisis to recession, depression and tortuous recovery. Trade war is a typical feature of past B phases. For example, in the 1930s, the policy of ‘beggar-thy-neighbour’ was in a B phase. Since the long-period of B phase is a process that lasts for twenty to thirty years, what is known as the China-US trade war is likely to be a protracted war. It will be characterized by fluctuations between tension and conciliation, which will bring great uncertainty to China, the US and the world-economy.
However, the Kondratieff VB (2005/08-2025/30) is probably not going to witness the complete decline of US hegemony, nor the collapse of the liberal international trade order. Although US hegemony has gone through three long cycles (currently in the phase B of the third cycle), its decline may be a bit slower than that of British hegemony. The decline of the liberal trade order may also be slower and a longer historical process. There are three main reasons for this: First, ‘Pax Britannica’ and the liberal trade order were eventually destroyed by World War One and it was only after the end of the war that Britain started to abandon the liberal trade order. The emergence of nuclear weapons after World War Two greatly reduced the possibility of war between major powers. Second, there are a large number of international institutions established under Pax Americana after World War Two. In the process of the decline of US hegemony, the liberal order can be maintained for a long time thanks to the ‘path dependence’ of the existing international system. The third reason is China’s support for free trade. This is in contrast to the ‘beggar-thy-neighbour’ actions represented by the US in the 1930s under the Smoot-Hawley Tariff Act. Arguably, under the dual role of the hegemonic cycle and the Kondratieff cycles of the world-economy, US hegemonic decline and the abandonment of the liberal international trade order is a historical trend, but this process will be a very slow and gradual process. These slow trends will define the fourth stage of China-US relations between 2009 and 2029. The US will not ‘flip the table’ and destroy established trade regimes at the moment and in the near future. Hence, China and the US will have the opportunity to be able to negotiate for maintaining the liberal trade order.
Though we can identify these broad historical trends using world-systems analysis the framework is not deterministic or prescriptive. However, as we have identified the underlying economic processes promoting the ‘trade war’ we can offer some possibilities about how it may lead to political changes within the US and China, and in their bi-lateral relations.
