Under the shadows of trade war

Published On: June 25, 2019 01:30 AM NPT By: Dr Mahesh K Maskey

Since Trump-Xi telephone talks happened on the heel of India slapping tariff against US goods, it is not unlikely to be the tipping factor in the pressure game, forcing Trump to mend ties with Xi

US President Donald Trump is well known for his threat of tariffs. It hangs like Sword of Damocles even on the heads of his closest allies, not to talk of his adversaries. However, the latest in the series carried a personal overtone. It came as a pressure on Chinese President Xi Jinping to attend upcoming G20 summit: If Xi does not do so then he would impose additional tariffs on Chinese goods worth $300 billion. Before China could break its silence on whether Xi is going to meet him, US secretary of State Mike Pompeo signaled that Trump would take up the issue with Xi on violation of human rights regarding Hong Kong extradition bill if he gets opportunity to meet him in G20 summit. Then next day came Trump’s tweet that he and Xi had a nice conversation over the telephone, that they are going to have an ‘extended’ meeting on the sidelines of G20 summit, and that discontinued trade talks would resume between the two parties before their meet. With this tweet, after a week of heightened tension, the global anxiety faded with a sigh of relief, and all the indicators of stock markets such as Dow Jones, S&P and Nasdaq composite jumped impressively to an all-time high.

Threat of war

It appeared that Trump’s tactics worked and Xi caved in under pressure. But come to think of it, it was unlikely that Xi would either boycott G20 (why should he?) or deny meeting Trump (what would he gain by avoiding meeting him?). When US-China trade dispute spewed fire, there was a lot of talk about ‘Thucydides Trap.’ Harvard professor Graham Allison’s book Destined for War: Can America and China Escape Thucydides Trap? brought this catchphrase to the fore. Named after great Athenian historian Thucydides this phrase meant when a ruling power feels threatened from the rise of a newcomer the most likely outcome is war. “The growth of Athenian power and the fear which this sparked in Sparta made war inevitable,” said Thucydides more than two millennia ago. Twelve out of 16 such historical developments in the past 500 years ended in violent conflict. Could US-China trade war tumble into an actual war? Invoking and warning about this possibility The New York Times had published a full-page ad on Thucydides trap on April 6, 2017, the day Trump and Xi had met in Florida. 

In response to such speculations, Xi Jinping had said “China lacks the gene to fall into Thucydides trap.” Upcoming G20 summit in Japan was a test case for it. Confluence of incidences centered around US-Iran conflict and US-China trade war are driving world toward the possibility of violent conflict. China could have chosen to confront US and precipitate a conflict that would hit both sides of their economies as well as bilateral relations. Such escalation could trigger global economic recession and even a low intensity conflict between the two giants if not war. That would be falling into Thucydides trap. The fact that China had swallowed the threats and kept its cool shows it is capable to take wise steps under provocative situations. 

Chinese news media, however, has a different version of the story. It says Xi agreed to have telephone conversation at the request of Trump. “Trump taking the initiative to reaching out to Xi shows that Trump is now under tremendous pressure especially as the presidential election campaign has begun and the US economy has become too vulnerable” wrote Global Times. This claim sounds logical and has not been refuted by Trump administration.  Trump’s trade war has also opened front on many major economies: From Canada and Mexico to Europe and India, isolating itself from countries who wanted to do business with it. More than 500 US companies have submitted appeal to Trump administration for deescalating trade war with China and other countries since it is hurting US economy. International Monetary Fund (IMF) has also made public the criticism of Trump’s economic policy saying that it puts global economy at risk, since all major economies are facing tariffs in their export to the US.

The gravity of the situation is laid bare by the words of the Chair of US Senate Finance committee Chuck Grassley, a republican, who is pushing forward with a legislation to cut down the power of Trump to impose tariffs.  He holds that the US President is prone to misuse this power because “the elected representatives of the people over the last 80 years (are) making a dictator out of the presidency […] making a kingship out of the presidency of the United States.” In a surprise move in this backdrop, India has hit back US with tariffs just a few days ago that is expected to bring 220 million dollar revenue. Since Trump-Xi telephone talks happened on the heel of India slapping tariff against US goods, it is not unlikely to be the tipping factor in the pressure game, forcing Trump to mend ties with Xi.

Iran dynamics 

These trade disputes related political events were happening amidst Iran’s refusal to sit in negotiation table with the US in spite of Secretary of State Mike Pompeo’s call for unconditional talk.  President Trump has changed his tone against Iran, his hardliner national security advisor John Bolton’s position had been weakened. Those who were in favor of talk with Iran were gaining upper hand. But the situation again deteriorated by reinforcement of US armed forces near Iran’s territories and became worse because of attacks on oil tankers in the Gulf of Omen, including a Japanese tanker. The later happened when Japanese Prime Minister was visiting Iran carrying message of reconciliation from Trump. The US accused Iran for these attacks but Iran had denied these charges. A statement from the owner of Japanese tanker contradicting the US position has made these accusations rather unsubstantiated. Recent shoot down of a US surveillance drone, undoubtedly by Iran, has further escalated conflict between Iran and the US. It has been reported that a decision of military intervention from the US has been withdrawn by Trump in the last minute only. 

Amidst this dangerously explosive situation, Iran has given an ultimatum to the signatories of Iran Accord to find solution before G20 meet or it would walk out of the Accord toward uranium enrichment and possible development of nuclear weapon.  Five out of six countries who signed Iran nuclear deal are the veto power holding countries of UN Security Council. Now that the US is out from this accord, it has created a split between the US and its European allies. The remaining countries are trying hard to find solutions to Iranian crisis. France, Germany and Britain are developing an alternative non-dollar trade system for Iran to bypass US sanction on trade.  The new mechanism is called the Instrument in Support of Trade Exchanges (INSTEX). Also in Shanghai Cooperative Organizations (SCO) summit organized a week ago, Russia, China and India could have been exploring an alternative multilateral trade to US dollar governed trade. It could hardly be a coincidence that India has dared to slap trade tariff on US immediately after its return from SCO, fully aware of the fact that this issue would be raised in the sidelines of G20 summit. All these developments make G20 meeting a contesting ground for consensus in the shadows of major trade disputes in which US may find itself more isolated than before.

Patient China  

So far as China is concerned it could be said with some confidence that patience is not the only diplomatic virtue of China. Inspired by the works of great strategist Sun Tzu who lived nearly 2500 years ago, succession of Chinese leaders believed that the supreme art of war is to subdue the opponent without fighting them.  President Xi’s visit to Jiangxi for declaration of another Long March, his birth day celebration with Russian President Putin, the SCO joint statement highlighting support for Iran accord and multilateral trade, recent state visit of Chinese President to North Korea in 14 years, all can be seen as walking in the footsteps of Sun Tzu. They are sending unmistakable messages to the US that if the current trade war gets out of hand, it could be an endless one.

President Trump, on the other hand, also cautions US against endless wars. “Endless wars,” he said, “especially those which are fought out of judgment mistakes that were made many years ago [.....] will eventually come to a glorious end.” It is hard to presume that a president who is keen to end endless wars would be enthusiastic about starting a new one, in spite of all his pressure tactics and sanctions. 

It does not take much of insight to believe that realpolitik, if not wisdom, will prevail in upcoming G20 summit, not only to avoid Thucydides trap, but also to change course from the rapidly losing steam of tariff politics.


The author is former Ambassador of Nepal to China

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