The trade war which US President Donald Trump has launched against China is the start of a long-term conflict between the two countries. The US establishment – Democrats and Republicans alike – has identified China as the main threat to its global economic and military dominance.
So, whether or not Trump wins a second term in 2020, the conflict will continue. It will have far-reaching consequences for everyone in the Asia-Pacific region, including Hong Kong.
For decades, there have been two major points of dispute between the two countries. One is the trade deficit, which began in 1985 and reached US$376 billion in 2017, a record for a single year. The second is theft of copyright and intellectual property, which has cost US firms billions of dollars in sales and copyright fees.
But Washington was prepared to tolerate these in exchange for access to the booming Chinese market and because many of the goods it imported from China came from US-owned factories there. Benefits accrued to American consumers and shareholders of these firms.
The game-changer came in May 2015, when the State Council issued the “Made in China 2025” plan. It aims to turn the country into a powerful manufacturing country by 2025, a middle-level world manufacturing power by 2035 and the top manufacturing power in the world by 2049.
The plan’s 10 priority sectors include new advanced information technology, automated machine tools and robotics, aerospace and aeronautical equipment, new-energy vehicles and equipment, new materials, and biopharma and advanced medical products. The plan has a goal of raising domestic content of core components and materials to 40 percent by 2020 and 70 percent by 2025.
This is a direct challenge to the US position as the world’s strongest economy. In March 2018, the US think tank, the Council on Foreign Relations (CFR), said the plan was “a real existential threat to US technological leadership”. Based in New York, the CFR is independent and non-partisan.
“China’s intention through Made in China 2025 is not so much to join the ranks of high-tech economies like Germany, the United States, South Korea and Japan, as much as to replace them altogether,” the CFR said.
“It calls for achieving ‘self-sufficiency’ through technology substitution, while becoming a ‘manufacturing superpower’ that dominates the global market in critical high-tech industries.”
In aviation, for example, China aims to end the global duopoly of Boeing and Airbus. Under the plan, domestic commercial aircraft will supply more than 10 percent of the domestic market by 2025 and, in the long term, 40 percent of the world market.
During the 46 years of the Cold War after 1945, the Soviet Union posed an existential threat to the US in the military sense – but never in the economy. It only equaled the US technologically in a few sectors – armaments, space and nuclear weapons. The longer the Cold War went on, the further Soviet Union and its allies fell behind in technology.
The 2025 plan was inspired by the German Industry 4.0, which outlines how automation and data exchange will transform manufacturing. It was outlined at the Hannover Fair in April 2013.
“The difference between the German and Chinese plans is that the German one was drawn up by private companies and is open to everyone,” said Robert Leung, a Hong Kong business consultant. “But the Chinese one is designed for Chinese firms, especially state ones. It largely excludes foreign companies. That is why the US sees it as a threat.”
China is challenging the US not only in the economic field but also in the military sector. Its defense spending is the second highest in the world, after the US, and reached US$175 billion this year, an increase of 8.1 percent over 2017. Since Xi Jinping took power in 2012, the annual increase has risen by an average of 9.9 percent a year.
China says that it has sovereignty over nearly all of the South China Sea and has built man-made islands there to show its authority. It has built military installations on these islands. This is a direct threat to the US and its allies in the region.
In testimony to the US Senate in mid-October, FBI director Christopher Wray said: “China in many ways represents the broadest, most complicated, most long-term threat we face. Russia is in many ways fighting to stay relevant after the fall of the Soviet Union. They’re fighting today’s fight. China is fighting tomorrow’s fight.”
In April this year, Trump even considered a proposal to ban Chinese students from US universities because of the “security” risk. In the 2016-2017 academic year, there were 350,000 Chinese students in the US, the largest number from a foreign country, ahead of India with 186,000. They spend billions of dollars in college fees and living expenses. After intense debate, Trump rejected the proposal.
So the dispute is not only about the level of tariffs on goods going from China to the US and the other way. It has become a wide conflict that will persist beyond the Trump era.
– Contact us at [email protected]