US-China Relations in the Era of Trump (Loren Goldner)

Loren Goldner, Insurgent Notes, Seoul, 08/07/2017

Source: Break their haughty power

Loren Goldner in this site

(The following purports to be, not so much an article, but more an outline of major themes or theses presented at the June 24-25 2017 International Worker Activists conference in Seoul)

Donald Trump and China’s President Xi Jinping

1. U.S. policymakers often discuss,as an analogy to the current situation of US-China relations, the “Thucydides trap”, where a newly-ascending power, ancient Athens, challenged the then-current hegemon, Sparta, leading to their long mutually destructive war. Other examples are the rise of Germany in the late 19th century at the expense of Britain, then the dominant world power, leading to 1914.

I do not feel that there is much danger of a direct war between the U.S. and China, in the short or medium term. I do think we may see “proxy wars”, as was the case between the USSR and America during the Cold War (Korea, Vietnam, Afghanistan).

China and the U.S. both serve each other’s purposes for whipping up nationalist sentiment when necessary. Despite China’s year-in, year-out increase in military spending, it is still overshadowed by the U.S. military.

(I leave out of this discussion the deep structural crisis of international capitalism which frames all these considerations, too complex to be included in a short article).

2. There is no question that U.S. capitalism and its policymakers fear the rise of China, whatever the soothing statements of the more “dovish” policy people, and their “win-win” rhetoric, such as former Secretary of the Treasury Henry Paulson. On the other hand there are more explicit quasi-warmongers such as Graham Allison. The “realist” Henry Kissinger stands somewhere in the middle of this debate, at least in his public statements and his recent superficial book on China.

Needless to say, the rise of Donald Trump throws a wild card into this situation, even though once in power he has backed off (for now) from aggressive China bashing and claims to have had a successful meeting with Xi Jinpeng on the latter’s recent visit to the U.S. (Most commentators believe than China got the better deal from those talks.)

3. The fact remains that China’s foreign policy and foreign economic policy has overshadowed the declining U.S. in Africa and Southeast Asia, where once U.S. hegemony was mainly unquestioned, except by now-diminished or extinct nationalist and revolutionary movements. Latin America as well had a raw materials export boom with China until 2009 (materials which China then shipped as finished products to the U.S.), after which that boom receded, but still making it clear that there is a new power in the world with which developing countries (as well as developed countries) can counterbalance the U.S., as they often did with Soviet help during the Cold War. Most recently, Panama (a country of a certain geopolitical importance) broke relations with Taiwan, and will soon recognize China; China proposed to build a new canal in neighboring Nicaragua (which has since run into problems). More importantly, China’s proposed New Silk Road (which also has had its problems) aims to create a speedy railroad link with Europe, and a further railroad link with Southeast Asia and South Asia (it is building a port on the Indian Ocean in Pakistan)

The Silk Road will open up trade with and investment in the Central Asian countries and their rich natural resources. Trump’s withdrawal from the TPP (Trans-Pacific Pact) has left an opening for China to step in, under the mantle of “free trade” (a bit strange, given China’s strong control over foreign investment in its own economy). China also hopes to renew its historical trading relationship with East Africa (Kenya, Uganda) as well. Its first military base in the Middle East is under construction in Djibouti, in the sensitive geopolitical zone of the Red Sea.

(It should also be kept in mind that such Asian economic powers as South Korea, Japan and Taiwan now conduct more trade with China than with the U.S.,though they remain dependent on U.S. military support against China).

4. Then there is the direct relationship between the U.S. and China. There are the well-known foreign policy flashpoints, starting with North Korea. Some of the foreign participants in the older “six-power talks” (the U.S., China, Japan and Russia, in addition to the two Koreas) have their reasons for tacitly opposing a reunified Korea. China opposes a reunified Korea under U.S. hegemony, and is enraged by the deployment of the latest U.S. radar tracking and missile system in the south. Japan opposes a reunified Korea as an ever greater competitor in East Asia. The U.S. and China, on the other hand, both fear the implosion of North Korea, which would create a huge refugee problem in both China and South Korea.

Then there is the South China Sea. The U.S. contests the South China Sea, and the new artificial islands built by the Chinese there, in the name of protecting “freedom of the seas” but in reality as another arena where it is challenged by rising Chinese power.. especially given the nearby chokepoint of the Straits of Malacca. (One wonders—not too much- what the U.S. attitude would be if Chinese ships appeared in the Caribbean.) The Chinese development in the South China Sea is of course making many of the nearby powers nervous, Vietnam and the Philippines first of all. Since the Vietnamese recently allowed the U.S. Navy to use the same bases the U.S. built during the Vietnam War, they are under special pressure, especially given their millennial hostility to China. Cambodia and Myanmar are for now safely within the Chinese orbit.

5. Most important, however, are the direct economic ties between China and the U.S. China currently holds $3 trillion foreign currency reserves in the People’s Bank of China (PBOC), down from the $4 trillion built up prior to the 2008-2009 financial collapse in the U.S. which may have been a major turning point in this rivalry. This sum is in fact a two-edged sword; if China for some reason dumped it onto international financial markets, it could easily provoke a collapse of the dollar but also a sharp revaluation upward of the renminbi, which would be a blow for China (as well as the U.S.) Much of those $3 trillion are invested in low-interest U.S. Treasury Bills, enabling the U.S. to continue its budget deficits. China of course has for years been making noises about finding alternatives to the U.S. capital markets, and did score a victory several months ago when most European countries, including perennial U.S. ally the U.K., rushed to affiliate with the new Chinese international development bank, openly conceived as an alternative to the declining World Bank.

It must above all be kept in mind that a lot of foreign investment in China does not benefit Chinese capital much, but rather leaves China in an intermediary position.

U.S. Japanese, U.S. and Taiwanese high tech firms (such as Apple or the Hon Hai Precision Industry Co. that owns FoxConn) do the research and development, the assembly work is done in China, and the marketing is done in the west. The Chinese firms generally receive only a small percentage of the total sale.

The recent US-China talks between Trump and Xi, as indicated, were generally interpreted as a “win” for China, since China mainly agreed to terms that it had already accepted months if not years before. Not a week goes by without a Chinese acquisition of some U.S. trophy investment, such as (in 2014) the New York Waldorf-Astoria Hotel, now being converted to luxury apartments. This is of course reminiscent of similar Japanese acquisitions prior to its financial collapse in 1990 and thereafter, and some commentators have pointed to parallels between Japan’s powerful emergence and then relative decline, and what might happen with China, something too complex to call at the moment.

When China opened in the 1980’s and 1990’s, U.S. banks and corporations saw it as a bonanza, and broadly speaking have been disappointed. For every success story, such as U.S. fast food companies, there have been multiple disappointments. These include failed joint ventures between U.S. and Chinese firms; intellectual property and technology theft, and the tight control of the Chinese banking system (in which U.S. banks today have only 2% of total assets). China, rather than loosening controls over flows of capital, has been tightening them, especially in light of capital outflows after the stock market downturn of 35% in 2015. True, the new link between the Hong Kong, Shenzhen and Shanghai stock markets have made it possible for the first time for foreign capital to directly invest in Chinese stocks (so far to little effect) but the western financial press never stops its drumbeat of calls for ending the controls of the renminbi, (above all its non-convertibility on capital account) and to downscale the “lumbering” state-owned enterprises (SOEs). None of these demands will go anywhere as long as the Chinese Communist Party (CCP)and its “national team” retain control of the “commanding heights” of the economy, which is of course exactly what U.S. strategy and demands aim to undo. Both in China and in the U.S., nothing is more highly politicized than investments by one in the other, going back to dramatic failures such as the attempt by the state-owned oil company CNOOC to acquire a U.S. small oil refinery (blocked by Congress for reasons of national security) in contrast to the Chinese acquisition of Smithfield Farms, a major pork producer (which was finally decided not to be a threat to national security). China has been repeatedly threatened with violations of the rules of the World Trade Organization (WTO), which it joined in 1999. A small Virginia wood furniture factory took its case against Chinese unfair trade practices all the way to the U.S. Congress, where it finally won an agreement from China to stop dumping wood furniture at below cost in the U.S. market.

(It should be pointed out that China has done little or nothing, in terms of dumping, technology and intellectual property theft that the U.S. itself did not do to Britain during its rise in the nineteenth century. But such details rarely are mentioned in the China-bashing articles in the U.S. press and in Congress.)

6. As with its new leadership position in the advocacy of “free trade”, on the question of climate change, China again has the potential to move into a vacuum left by the Trump administration’s withdrawal from world commitments, in this case the Paris climate agreement. While Trump talks of reviving the use of coal in the U.S., China has in fact been making innovations in green technology, and now controls the world market for solar paneling. While important, this shift remains relative. On the other hand, 75% of energy consumption in China is still powered by coal. China and the U.S. together are the world’s two biggest polluters. China faces major problems in terms of water pollution, desertification and sterilized land, and respiratory diseases caused by air pollution

7. We come at last to the most important question of all, the working class. It is well known that the number of “incidents” in China increase every year (not merely strikes but riots and confrontations of all kinds, usually involving land grabs by local authorities; there were 150,000 in 2015). The big strikes at FoxConn and at Japanese firms in 2010 put the world on notice of the potential of the Chinese working class. The U.S. government and the CIA have their own hopes for the Chinese working class, i.e. to make use of an upsurge as a wedge against the regime as they did in Poland in 1980-1981. The current debate about the Chinese working class pits “pessimists” such as the sociologist C.K. Lee (author of the influential book Against the Law) who do not see any significant class consciousness developing out of these uprisings , and the “optimists”, as in the book China On Strike (2016 revised edition) who do. The recent crackdown on labor-oriented NGOs and labor lawyers indicates that the regime, at least, sees the working-class unrest as potentially explosive.

For the moment, where the possibility of international solidarity between Chinese and American workers is concerned, the situation of the U.S. working class is quite different, given the four decades of attacks on its material conditions, the decline of strikes, the organized atomization of workers by capital (as for example at companies such as Amazon) and at least a significant minority of white workers who supported and still support Trump. The U.S. union SEIU (Service Employees International Union) claimed a major victory in organizing workers in Wal-Mart stores in China, but the actual contract the union signed committed the Wal-Mart workers to work together with management to improve productivity and the like.

Addendum June 2017

Not a week seems to go by without some further step in China’s integration into the world market. Recent weeks have seen China’s admission to the MSCI, an “All-Country World Index” of stocks of “emerging markets”, which had previously denied it admission for several years running. This will complement the now-open link between the Hong Kong, Shenzhen and Shanghai stock markets, allowing foreign investors to directly buy Chinese shares.

The Chinese Banking Regulatory Commission just recently cracked down on Chinese overseas investment fueled by high debt ratios, affecting such increasingly well-known Chinese firms as Dalian, Fosun, HNA and Anbang (the latter having acquired New York’s Waldorf-Astoria Hotel in 2014).

For his part, Donald Trump recently announced that the U.S. will ramp up sales of liquid natural gas (LNG) to China, as a step toward reducing America’s chronic balance-of-payments deficit with that country.

Finally, perennial rivals India and Pakistan just announced that they will join the China-oriented Shanghai Cooperation Organization.

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