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Opinion | US-China Trade War: Reading The Tea Leaves In India

The US has concluded that letting China gain from an imbalanced trade relationship was a mistake. It doesn’t want to repeat the mistake with another country

Oct 26, 2018 / 01:17 PM IST
US_China_Trade_Trade war_Tariff

US_China_Trade_Trade war_Tariff

Kunal Singh

The trade war between the United States and China is heating up. Washington has imposed tariffs on $250 billion worth of Chinese imports, and China has hit back with its own tariffs. The tensions go beyond this.

US President Donald Trump is particularly targeting China's high tech ambitions. The Trump administration has already tightened controls on nuclear technology exports to China, and is looking to institute measures to curb Chinese acquisition of American tech firms. A new law will allow the US to spend $60 billion to compete with China’s Belt and Road Initiative (BRI). Moreover, Trump has pulled the US out of the Universal Postal Union, a multilateral organisation that sets the rules for international mail exchanges, arguing that favourable shipment rates gave Chinese companies an unfair advantage over their American counterparts.

Overall, these measures seem to be well coordinated. The idea is to force Beijing to agree to a deal which offers better terms to the US. But there are some who think that Trump will not stop even after achieving such a deal. His aim is bigger: “decoupling” of the American and Chinese economies. To evaluate this claim, one needs to examine why such a coupling took place in the first instance, and why did it take so long for the US to contemplate decoupling when the relative losses to China were visible for so long?

Trade is as much strategic as it is economic. The US courted China in 1970s taking advantage of the Sino-Soviet split at the peak of the Cold War. Subsequently, the US helped assimilate China in the liberal international order that the former had built up strenuously in the aftermath of the World War II. China joined the International Monetary Fund, the World Bank, and finally the World Trade Organization.

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The most pressing reason for the US-China embrace had vanished by the end of the Cold War. But the US continued to give China a long rope. One reason was that the American business community had developed a stake in China’s rapidly growing economy. Another was that the US was a tad too complacent after its victory in the Cold War — after all, it was supposed to be the “end of history” moment. Finally, there was a belief that a growing middle class in China will inevitably lead to the country’s democratisation.

By the time George W Bush was in office, it was becoming clear that the US is losing more than it is gaining from the status quo. The topmost concern was that China’s economic gains were being ploughed to build a military threat to the US hegemony. However, decoupling was still not an option given the weight of business lobby in Washington. The Bush administration devised a solution. The genius of Bush’s solution, wrote Ashley J Tellis of the Carnegie Endowment for International Peace, “resided in the fact that it would be grounded not in seeking to keep China down but rather in attempting to raise others up.” The “others” included India and the Indo-US nuclear deal was a result of the same thinking.

However, China’s continued rise and the relative decline of American power, especially in the aftermath of 2008 financial crisis, meant that the US policy was up for a review. Barack Obama’s Trans-Pacific Partnership (TPP) was a brave attempt at balancing American commitment to liberal international order while excluding China from enjoying its fruits.

The American withdrawal from the TPP under Trump marked an undoing of the genius solution that Bush had arrived at. While the US would still value military partnerships with China’s regional rivals, such as India and Japan, it would not merely support their economic rise to check China’s ambitions. The US would, from here on, itself actively work to reverse the forces that propelled China so far.

Understanding this change is important for New Delhi too. One, Washington’s propensity to ignore India’s own economic gains from trade with the US has probably seen its peak. It is no surprise that while the defence and strategic component of the ties has flourished even under the Trump administration, the friction over bilateral trade and visa issues have spiralled.

Two, the resentment against the liberal international order was rising in the US for various reasons. The order did not guarantee American hegemony as many expected. It even failed to democratise China. The uneven distribution of economic globalisation gave impetus to protectionist tendencies across the developed world. India was served well by this liberal international order ever since it opened up its economy in early 1990s. Now New Delhi needs to adapt to newer realities.

Three, the US has concluded that letting China gain from an imbalanced trade relationship was a mistake. It doesn’t want to repeat the mistake with another country.

India, however, needs to remind the US that, unlike China, not every country which gains from trade with the US desires global hegemony. The best example is the US-Japan economic tension in the 1980s. That those problems were amicably resolved had a great deal to do with close security alliance between the US and Japan. A stronger India, both in economic and military terms, remains in American interests. The reason is simple: India, like the Japan of 1980s, is largely a status-quoist power.

(Kunal Singh is a New Delhi-based strategic affairs analyst. Views are personal)

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Moneycontrol Contributor
first published: Oct 26, 2018 01:17 pm

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