In your recent book Superpower Showdown: How the Battle between Trump and Xi Threatens a New Cold War, you show how prior to the 2016 election there was growing consensus across American society that China had become a threat to American interests. How did this change come about and ultimately lead to the trade war?
The attitude that Americans had toward China really stated to change during the Global Financial Crisis of 2008 (GFC). From the Chinese perspective, this period was really China’s coming of age moment to the world stage. Before that, the American economic model was viewed as something for China to emulate to learn from. At the time, senior Chinese leaders such as Wang Qishan even told Treasury Secretary Hank Paulson as such. But during the crisis the whole Western capitalist system neared collapse. China, on the other hand, was able to immediately change the direction of its economic policy to respond effectively. Instead of tightening credit, for example, the planners were able to quickly stimulate the economy. For China, the flexibility of its system allowed it to immediately switch gears. The result was that, during that year, as the Western economic system was in crisis, China’s economy performed fine.
The GFC also marked the highpoint of the bilateral relationship. We have a passage in the book that talks about how at the time President George Bush called Chinese leader Hu Jintao twice in one month. The first time Bush convinced him not to sell U.S. treasury bonds. The second time, he asked Hu Jintao to go to Washington and join hands at a G20 summit focused on tackling the crisis. Both times Hu Jintao agreed, so that marked a highpoint of bilateral cooperation. But that was also when the two countries really started to diverge sharply. In years before that, China was moving gradually toward a more market-oriented economy. Some people would say the progress was too slow, but that direction was there.
But China’s response to the GFC was a state-led program that mostly involved using state-owned enterprises and local governments spending lots of money to build airports, roads, and other infrastructure. From that point on, China was much more assertive in promoting its own state-led economic model and governing style. China’s response to the GFC also led to massive overproduction in commodities like steel, tires, cement, and others. Because of Chinese overproduction global prices of these commodities plunged. That hurt American manufactures, especially in the Midwest. So, the changing American attitude toward China was not just among politicians, it also occurred at the grassroots level. You could especially start to see workers’ views on China starting to change.
Fast forward to late 2012, four years after the GFC, you have Xi Jinping coming to power with a leadership style much more confident and assertive than his predecessor. Xi’s agenda was this “China Dream” of having a strong and unified China that adheres strictly to the one-party system. Under his rule China has become more assertive economically, technologically, and geopolitically. In 2015, this was showcased when China released its very ambitious “Made in China 2025” plan. It was not just another industrial policy and was taken as a signal by the American business community that China wanted to replace foreign technology with home-grown technology. It would mean more ambitious domestic targets in these industries that would inevitably require either more forced technology transfers or massive government subsidies to Chinese companies at their expense.
All of these factors on China’s part had a cumulative effect on the American attitude toward China. What Trump did was really to pick up on this change of attitude and campaigned on the promise to get tough on China, which really helped him win the election.
You describe a critical juncture in the trade war during the spring of 2019. China’s Politburo Standing Committee was split 3-3 on whether to accept a deal with the United States to end the trade war. Why did Xi ultimately move to reject the deal and press for stronger terms?
Xi really had been informed to the progress of the negotiation at every step of the way by Vice Premier Liu He. It was not an issue of Xi, all of the sudden, realizing that China was giving up too much. He saw how the deal was shaping up and, as evidenced by his December meeting with Trump in Buenos Ares, seemed very keen to have a deal with the U.S. What really changed was a few things.
First, even though Xi has made himself the undisputed leader of China, he still has to go through certain well-established procedures to get his way. One such procedure is whenever there is a major decision, it has to be made collectively by the Standing Committee, which is the final arbiter of power. Even though these days Xi likely calls the final shots, he still has to go through the motions of meeting with his colleagues. So, he had six other colleagues and three of the Standing Committee members actually voted no. The other three voted yes but they also shared concerns about the language of the agreement, feeling it was too one-sided in America’s favor. So it was actually very tepid support for the deal to say the least. Ultimately Xi was the deciding vote. Very rarely will a Chinese leader make a major decision when the Standing Committee is so divided because it would be easy to blame the leader for bad outcomes. He could have been seen as kowtowing to the Americans. After the anti-corruption campaign, he had made so many enemies in the system that were looking for any opportunity to take him down. He couldn’t take that kind of risk.
Second, if he really wanted to make a deal that was in the party’s interest, he would have cut it. But he did not like the deal that was shaping up, especially considering that the Chinese economy was recovering while the U.S. looked weak. He had also just come from a trip to Europe and had many EU leaders murmuring into his ear that they hoped he would not replace EU purchases with American ones. All of these things together made him decide to push Liu He harder. The question he was asking at the time was: what is really in this deal for us? Every page of the draft agreement seemed to start with a sentence that “China shall, China shall.” That really made him question whether it was worth it.
Your book documents in detail how the Trump administration was internally divided between globalists like Treasury Secretary Steve Mnuchin and nationalists like Peter Navarro, which sometimes boiled over into public bickering. To what extent did this internal division undermine the American negotiating position during the trade war?
This kind of division was so obvious that it really undermined quite significantly the American position. The Chinese knew about the division and were very good at taking advantage of the division for their own favor. Throughout the negotiations the Chinese had tried to cozy up to Treasury Secretary Steve Mnuchin because they knew he was the dove in the American camp. Mnuchin was worried about how the battle with China would affect stock markets, which was also how Trump measured his success as a leader. They also they knew Trade Representative Bob Lighthizer was a very tough and professional negotiator and that he was very concerned about the structural issues with China’s economy, which they were most reluctant to budge on. But they also focused on Trump’s desire to get more purchases from China and Mnuchin’s desire to get more financial access from China. Those things China could easily do and were things they talked about doing themselves.
The result can be seen quite easily in the Phase One Trade Agreement. China attempted to sidestep America’s major concerns by giving something to each of the parties within the US team. The deal included a lot of purchases, which was what Trump wanted. It included a little bit of market access for Mnuchin, especially for financial services. And it included the whole enforcement mechanism, which is what Lighthizer wanted. So, they crafted a deal that gave a little to everybody, but the majority was to try to satisfy Trump because they knew he wanted a big number to show he got a big deal. That basically shows how China tried to take advantage of the divisions in the administration to make sure they could deliver the minimum.
The final trade agreement signed in January of this year accomplished, at least on paper, many of the United States’ original goals. China committed to reduce the trade deficit, limit currency manipulation, and to end forced technology transfers. Why do you still believe the administration’s approach was a failure?
The agreement failed to accomplish what the Trump administration originally set out to do, which was to rebalance the economic relationship and to make China a fairer place to compete in for American companies. There were a few small achievements, for example in the financial services sector where US firms definitely are getting more license approvals in China in the securities, futures, and banking markets. However, the market remains very regulated. There are still many regulatory hoops and you have to really fall in line with the leadership’s goals to get real access.
In terms of tech transfer, for example, that was much talked about throughout the trade war. There is a specific section in the agreement that addresses forced tech transfer and China has made many promises about not pressuring American firms to share technology with Chinese partners; the language is all in there. At best it is a first step, because in terms of enforcement of that promise, so far, it’s been quite lacking. For example, of all the cases of IP theft brought forward by Micron, Dupont, and others, a first step could have been to resolve those specific cases. None of those cases have been resolved so far despite the agreement. Another example would be a survey conducted by the U.S. China Business Council in May, which shows that a higher percentage of their members are worried about forced tech transfer than from before the agreement. So that shows there was not really much progress if at all in that regard.
On the other hand, China is doubling down on its state-led economic model. These days it is really state capitalism on steroids. The state leadership is increasingly favoring the state sector over private firms and party committees are getting more assertive in controlling SOEs. The line between private and state is really getting blurrier, while China continues pouring resources into semiconductors and really trying to do everything in its power to win the tech race. So nearly all of the problems American had with China before the deal have only intensified after this process.
You attribute the failure of Trump’s China policy to his inability to cooperate with traditional American allies. What more could the United States have done to build an international coalition to push back against China?
It’s always easy for us to say and critique and nitpick what’s wrong. I know it’s hard to work with allies, otherwise previous administrations would have done it. What really works in China’s favor is its market, because no country wants to lose access the fastest-growing consumer market. Many multinationals cannot afford to lose access to that market. Beijing knew that and played countries against each other. How do you really utilize the common concerns with your allies about China while trying to minimize the risks of the hit to your own businesses? That’s the biggest question.
Right now, we see a very tentative united front being formed not really as a result of economic issues, but more out of China’s aggressive actions such as the Hong Kong National Security Law. That law backfired greatly on Beijing in terms of basically motivating Western democracies that share the same values to take a stand against Beijing. How strong this alliance is, how firm it is, the question is still out there. Will any of these countries be able to withstand the economic sanctions coming from Beijing due to tough policies on China?
You name one of your final chapters “Looking Ahead: Cold War II,” painting a grim picture for global geopolitics. Would you say this view of the future would be the same under a Biden administration?
When Bob and I were writing the book’s subtitle, we came up with “How the Battle Between Trump and Xi Threatens a New Cold War.” Right now, as we speak, we are already in a new cold war because these two countries are battling in almost every front: economically, technologically, on human rights, and on geopolitical issues. Tensions are very high on all these different ways.
I think the Chinese leadership has already made up its mind. Whoever is in the White House for the next four years, the US is no longer a reliable partner. That really is why they’ve chosen a strategy of doubling down on the China model to increase self-sufficiency in key technological industries. But on the other hand, under a Biden administration I think the tone will be better because his administration would not be as openly belligerent as Trump administration when it comes to China. For the Chinese leadership that is very important. Chinese people really care about face saving and not being made to look bad in front of the world. Even though it’s not substantial, that could go a long way in terms of resetting the relationship.
However, I don’t expect the Biden administration to be any softer on a lot of issues we just spoke about. The Democrats could be potentially harder on issues like human rights. On the other hand, they may go back to the multilateral model and try to work with China on issues of climate change, Iran, and others. One thing is for sure, we won’t be back to where we were four years ago, but let’s just hope whatever form the confrontation takes that it remains cold. Keep the war cold, let it stay a cold war and not become a hot shooting war.
PAS China, Public domain, via Wikimedia Commons