China Hurting But Will It Lash Out?

Having forced most of the world to at least come to the negotiation table to address trade practices that take advantage of the United States, Trump has paused his announced tariff increases for most countries, but not China. As NPR reports, "[m]ost countries will be left with 10% tariffs on their exports to the United States, while China — which had retaliated against Trump's moves — will now face tariffs of 125%." China has reached out to other countries to oppose U.S. efforts, but has largely been unsuccessful. It has also raised its tariffs on U.S. goods to 84%, but the trade imbalance is so extreme between the two countries that this will largely be a meaningless gesture.

    Although China puts on a show of wanting to engage in "free trade" with other countries, its actual trade policies hearken back to mercantilism, "a nationalist economic policy that is designed to maximize the exports and minimize the imports of an economy," and which held that "the main purpose of trade was to enrich one’s own nation by keeping exports at a maximum and imports to a minimum." As one article explains:

    Most of the mercantilist policies were the outgrowth of the relationship between the governments of the nation-states and their mercantile classes. In exchange for paying levies and taxes to support the armies of the nation-states, the mercantile classes induced governments to enact policies that would protect their business interests against foreign competition.
    
    These policies took many forms. Domestically, governments would provide capital to new industries, exempt new industries from guild rules and taxes, establish monopolies over local and colonial markets, and grant titles and pensions to successful producers. In trade policy the government assisted local industry by imposing tariffs, quotas, and prohibitions on imports of goods that competed with local manufacturers. Governments also prohibited the export of tools and capital equipment and the emigration of skilled labor that would allow foreign countries, and even the colonies of the home country, to compete in the production of manufactured goods. At the same time, diplomats encouraged foreign manufacturers to move to the diplomats’ own countries.

While China pretended to support concepts of free trade to gain access to Western markets, once it had access, it became increasingly protective of its own industry while shamelessly stealing technology and know how from those foreign businesses that sought to do business in China. The goal was to become the world's factory and reduce or eliminate manufacturing in foreign countries and, thereby, make them dependent on China for manufactured goods. 

    Which takes us to this New York Post article, "How China has amped up its factories and is threatening to crush US industry with a new ‘tsunami’ of cheap products" describing how China has followed a strategy over the past several years to pump money into its manufacturing sector in order to flood foreign markets and destroy foreign manufacturers. From the article:

    A $1.9 trillion “tsunami” is headed for American industry — and it’s coming from China.

    The Communist country of 1.3 billion people has shifted that much cash into amping up its factories in just four years in an effort to overwhelm manufacturers around the world with an influx of cheap goods.

    President Trump’s 125% tariff on all Chinese imports into the US — which he announced Wednesday as he paused steep duties on most other countries — is actually just the latest protective measure against China.

    The European Union, Brazil, Mexico and Thailand have either imposed new tariffs in the last few months or are considering such measures to protect their own industries from Chinese imports.

    “The tsunami is coming for everyone,” Katherine Tai, trade representative for former President Joe Biden, told the New York Times.

The following video from China Uncensored goes into greater detail on how China weaponized "free trade":

VIDEO: "Trump’s Tariffs Ruined China’s Master Plan"
China Uncensored (11 min.)

    So what is the end game of all of this? Vox Day believes that while China could win a military conflict with the U.S., it cannot win a trade war because "[i]n addition to the fact that the nation with the trade surplus is the one with the weaker hand in a trade war, there is the situation regarding China being the leading holder of US debt." 

    But that dichotomy between its military and economic options may be the crux of the matter. Arguably, the extensive trade between China and the U.S. actually makes a shooting war more likely than was the case between the U.S. and the Soviet Union. In The Future of War by George and Meredith Friedman, the authors explained why countries with extensive economic ties were more likely to go to war. 

    The argument that interdependence gives rise to peace is flawed in theory as well as in practice. Conflicts arise from friction, particularly friction involving the fundamental interests of different nations. The less interdependence there is, the fewer the areas of serious friction. The more interdependence there is, the greater the areas of friction, and, therefore, the greater the potential for conflict. Two widely separated nations that trade little with each other are unlikely to go to war--Brazil is unlikely to fight Madagascar precisely because they have so little to do with each other. France and Germany, on the other hand, which have engaged in extensive trade and transnational finance, have fought three wars with each other over about seventy years. Interdependence was the root of the conflicts, not the deterrent.

    There are, of course, cases of interdependence in which one country effectively absorbs the other or in which their interests match so precisely that the two countries simply merge. In other cases, interdependence remains peaceful because the economic, military, and political power of one country is overwhelming and inevitable. In relations between advanced industrialized countries and third-world countries, for example, this sort of asymmetrical relationship can frequently be seen.

    All such relationships have a quality of unease built into them, particularly when the level of interdependence is great. When one or both nations attempt, intentionally or unintentionally, to shift the balance of power, the result is often tremendous anxiety and, sometimes, real pain. Each side sees the other's actions as an attempt to gain advantage and becomes frightened. In the end, precisely because the level of interdependence is so great, the relationship can, and frequently does, spiral out of control. (Friedman, pp. 7-8) (emphasis on original).

The Friedmans then compare and contrast the Cold War with the situation prior to the outbreak of World War I, and suggest that it was the independence of the Soviet Union from the United States that allowed each to forgo extreme measures and gave them freedom to maneuver. However, prior to World War I, the European nations' interdependence, measured by international investment and trade, was greater than it is now (at least at the time the Friedmans wrote their book), and it was this high amount of interdependence that created the conditions for war.

    Right now, China is going to feel a lot of pain. And no matter the outcome--whether it negotiates a trade deal that is more fair to the U.S. or refuses, leaving the new tariffs in place--it means more pain to the average Chinese citizen. This could result in increased civil unrest and dissatisfaction, forcing China to do something to distract its citizens, such as a war.