This first of a two-part article focuses on the geopolitical contest between US and China. Both countries have already been hurt by mutual sanctions.

 

In the last several months the geopolitical contest between the United States and China has taken centre stage. President Donald Trump’s decision to confront Beijing globally was prompted by the bitter realisation that it is none too soon as the Asian dragon has scored several victories against the Americans in recent years. Predictably, the rather obstreperous attitude and insulting language adopted by the US administration have steeled the thin-skinned Chinese to respond blow by blow. However, true to style, President Xi Jinping and his advisers have chosen to stick to their Goh-inspired strategy. On the one hand they so far have managed to prolong the negotiations on trade beyond the initial deadlines set by the White House for new tariffs to come into force and on the other they have accelerated moves to expand their economic network all over the world, taking advantage of the relative weakness of both the European Union and the United States through a whirlwind round of trade and investment initiatives.

Both China and the US have already been hurt by the mutual sanctions and restrictions, Beijing probably more than Washington so far, mainly because the US Federal Reserve, reversing its plans, has gone back to quantitative easing, issuing huge amounts of fiat money to prevent a recession at home that could quickly become a depression. Yet this is tantamount to kicking the can down the road and a big slump in the American economy is predictable this year or next as the foreign trade deficit keeps rising while the loss in tax revenues and runaway increases in defence spending promise difficult days to come. A temporary surge in employment, much of it of the “gig” (short-term) kind, due to the increased availability of cash is unlikely to resist the subsequent loss in public revenues and the rise in living costs due to the restrictions on cheap imports and illegal immigrant labour. As a result of Beijing’s targeted measures and of its long term policy, major US companies have lost business in China and are also in retreat in Europe and in many emerging markets. Instead of investing in hiring, modernisation and expansion most American corporate giants have used the fiscal windfalls to buy back their own stocks thereby inflating their paper value.

The commonly asked question is who will blink first? China has a large debt burden but much less than the US; it has a domestic market potentially four times bigger and has enough gold to peg its currency to the precious metal if it needs must. The state also has much more control over the domestic economy, which is far less dependent on importing consumer goods, and it can demand and exact much more from its citizens than the US, where the government, in its executive and legislative branches, is practically an emanation or at least a servant of Wall Street and the major corporations and their often divergent interests.

If on the trade front with Beijing there is so far a stalemate on which Trump tries to put a good face by claiming periodically that “negotiations with China are going very well” in the technology chapter, the Asian colossus is making turbocharged advances astride its Belt and Road Initiative, often one or two moves ahead of the lumbering American juggernaut. Huawei is firmly poised at the crest of the critical 5G telecommunications spectrum and Chinese companies seem to occupy similar commanding heights in various other fields such as quantum computing and artificial intelligence. The US, finding that it could not defeat Huawei fairly in business terms has resorted to judicial procedures and political measures to try putting the genie back in the bottle. Sanctions and threats have long been the chief instrument of American diplomacy.

The State Department has embarked on a worldwide campaign to convince and pressure countries to close their door to the Chinese telecom titan, but the tactic has not been very successful outside the predictable “five eye” nations, traditionally dependent on Washington in military and national security matters. Even Britain, too handicapped by the Brexit process to be choosy has refused to blackball Huawei and the Chinese State is suing the US Government for malpractice and violation of international law with regard to the conduct of business, while Canada is turning into a collateral casualty of the bilateral confrontation. On its part Huawei has pointedly argued that its system does not have a backdoor enabling US intelligence agencies to spy on users, as is the case for the devices made by American companies.

A stalwart of free trade as long as it was its major beneficiary, the United States is now a passionate upholder of protectionism and trade war which can quickly turn into the familiar gunboat diplomacy. The old isolationistic temptation reinforces the Trump administration’s refusal to be constrained by any multi or supranational authority and agreement and prods it to wage a war on all global organisations which it does not control, whether it is the UN, the ICC, the EU, the SCO, BRICS, UNASUR and even NATO, in which some members such as Turkey have turned recalcitrant.

The state of play in a few local theatres of strategic competition illustrates the complexity of the global situation. In the Korean peninsula the last summit between President Trump and Chairman Kim Jong Un was stillborn, as the North Korean leader abruptly refused to negotiate, alleging that his American counterpart could not provide any assurances as he was not in control of his own government and would not even lift some of the US sanctions against the concessions demanded from North Korea.

This embarrassing assertion repeatedly made earlier in Pyongyang may have found confirmation in the little reported incident that had taken place at North Korea’s embassy in Spain on 22 February, five days before the Hanoi summit. A team of ten armed operatives from various countries broke into the embassy, tied up the staff, put bags on their heads and proceeded to go through the computers before leaving with some of the documentation. The Spanish government investigation quickly revealed that the intruders were affiliated to the CIA. The former North Korean envoy to Spain happened to have been the leader of his country’s team appointed to negotiate with Washington. Kim could legitimately complain that the US side was not abiding by international rules and could not be trusted.

This unexpected conclusion, which left the US President red-faced and empty handed, was presumably watched with glee from Beijing and Moscow, but it only confirmed that on certain priority matters Trump is not allowed to have his way. The Pentagon’s budget and the Israel-Palestine conundrum are two such issues and another is the unfinished Korean conflict, which the American deep state does not wish to settle by a peace treaty. Too many financial and political interests in the region and in the US homeland are served by the status quo, which includes the presence of 38,000 American servicemen on the peninsula, supported by tens of thousands of contractors and by an entire military industry back in America for which billions of dollars in annual incomes are at stake. Trump was forced to appoint John Bolton and Mike Pompeo in key positions in which they support Vice-President Mike Pence, equally opposed to The Donald’s ideas and initiatives that may hurt dominant vested interests.

To be continued.

Next week: US hegemony and the Chinese new silk roads.

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