Trump’s China dilemma

S P SETH

Judging by the initial days of Donald Trump’s presidency, it looks like the new administration might end up turning the international system upside down. First, of course, is the China factor, where President Trump and his nominee for secretary state, Rex Tillerson, have clearly warned Beijing that its provocative and unilateral sovereignty claims and building of military facilities on new and old islands in the South China Sea will be resisted and pushed back. Tillerson told Senate Foreign Relations Committee that China’s island building in the waters contested by six countries was illegal. Therefore, he said, “We’re going to have to send China a clear signal that, first, the island building stops. And second, your access to those islands is not going to be allowed.”

Tillerson added that, China’s South China Sea activity was “extremely worrisome”, posing a threat to the “entire global economy” from Beijing’s control of the waterways to dictate international trade and maritime passage. And it has come to this because: “The failure of a response has allowed them just to keep pushing the envelope on this.” And: “The way we’ve got to deal with this is we’ve got to show back-up in the region with our traditional allies in Southeast Asia.”

In other words, the US would need to galvanize the region under US leadership to confront China. So far, this hasn’t happened for two reasons despite Obama’s announcement in 2011 of US’s ‘pivot’ to Asia. First: while the US has opposed China’s activities in the South China Sea and occasionally sent a ship or two to assert their right of freedom of navigation through Beijing-claimed waters, it has been sporadic without any clear policy backup; which has given China the impression that the US lacks resolve to follow up. Which in turn has led the regional countries to waver, not sure of US’ willingness and stamina to say engaged in the region. Therefore, China’s neighbors, even those with contested sovereignty claims like, for instance the Philippines, are seeking to make their own peace with China.

There is widespread confusion in the Asia-Pacific region, as elsewhere in the world about, what looked like at times, the random utterances of Trump and his team. For instance, even though Trump has retched up the rhetoric against China, Australia’s foreign minister, Julie Bishop, appears worried about lack of engagement with regional countries. In a speech at the US-Australia Dialogue on Cooperation in the Indo-Pacific, she said it was “essential” for the US to give “serious consideration and at the highest levels” to closer involvement with the Association of South East Asian Nations (ASEAN), which still had the power to positively shape/contain China’s rise. But it doesn’t seem likely because there is not much stomach to confront China in the region, which is not only a strong military power but also a major trading partner and investment source for these countries. Indeed, Trump’s withdrawal from the Trans-Pacific Partnership, which was supposed to be the second plank of the US ‘pivot’ to Asia (military engagement being the first), doesn’t encourage regional countries to line up behind the US.

China’s response to Tillerson’s remarks at the Senate Foreign Relations Committee was relatively subdued and measured, while maintaining its sovereign position in the South China Sea. A foreign ministry spokesman, Lu Kang, said at a regular press briefing that China “has the full right” to conduct activities in the waters but, in any case, “the South China Sea situation has cooled down and we hope non-regional countries can respect the consensus that it is in the fundamental interest of the world.” But some of the state-controlled media warned that any US military interference to stop access would require Washington to “wage war.”

Earlier, China had reacted strongly to Taiwanese president Tsai Ing-wen’s telephone call to president-elect Donald Trump offering congratulations on his victory, which China regarded as a violation of the basic premise of US-China relations based on one-China principle. Interestingly Trump’s basic position was that the US was duded in this deal, as it got nothing in return for giving away Taiwan (sort of). He seemed keen to activate the Taiwan issue to create leverage in resetting the US-China relations.

As president-elect at the time, Trump said, “I don’t know why we have to be bound by a one-China policy unless we make a deal with China having to do with other things, including trade” And on trade and other issues, he added,  “We’re being hurt badly by China with devaluation [currency manipulation]; with taxing us heavy at the borders when we don’t tax them; with building a massive fortress in the middle of the South China Sea, which they shouldn’t be doing; and frankly, with not helping us at all with North Korea.” Even though Trump has now recognized the one-China principle, but the only predictability about the new US president is his unpredictability.

At another level, the loss of manufacturing jobs in the US, said to be due to artificially suppressed labor costs (cheap labor) and currency manipulation, has allowed China to flood the US market with its goods. And he wants to bring those jobs back to the US. This has been an important plank in his election pitch and a significant factor in his victory. The US has the largest trade deficit with China estimated, in 2015, at $367 billion, the highest with any country. As of November 2016, US owed China a bit over $1 trillion. And Trump believes that it has been largely underhand because of China’s undervalued currency, which gives it an unfair advantage. And to rectify this imbalance, Trump is threatening to impose import duties on foreign goods, as he has threatened to do with Mexico. Indeed he has forewarned Germany that the planned BMW plant in Mexico to advantage its exports into the US might also face similar treatment.

But China is supposedly the biggest culprit. The resulting trade war, it is feared, might eventually lead to the kind of depression in the thirties, which also accentuates an already volatile political and security situation developing in the South China Sea. It is true that a sharp decline of Chinese exports into the US has the potential of creating large-scale unemployment and resultant social instability in that country, as well as political problems for the communist regime; because the implicit social contract between the regime and people is based on political allegiance in return for incremental economic improvement. But on the other hand, China too can hit back by diverting its imports, as in the case of US aircraft, to European manufacturers, which will hit selective sectors of the economy. Besides, it has the potential of rising inflation in the US. And at the same time it is not easy to revive/resurrect jobs of the past.

The important point to make is that like armed conflict once unleashed, the trade wars too are difficult to contain and the two tend to converge at some point. But Trump has his own logic to show the world that the United States means business and its business is to show the world that the US will hit back and hit back hard.

Note: This article first appeared in the Daily Times.

Contact: sushilpseth@yahoo.com.au