United States President Donald Trump  believes the trade war with China is working. Photo: AFP / Saul Loeb
United States President Donald Trump believes the trade war with China is working. Photo: AFP / Saul Loeb

The US and China are not just engaging in trade war and military posturing but also in a technological race and ideological challenge, or more specifically, it is about the future of democracy. This article is the first in a three-part series examining the prospects of major economic and political reform around the world in 2019, and the complexities and impacts of this process.

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The decision by the US and China to resolve their trade war with a 90-day ceasefire at the close of the recent Group of Twenty Summit helped bring 2018 to a positive close. On its part, China has been working diligently to make the ceasefire work in its favor by addressing the various trade imbalances and shortcomings that had culminated under China’s past presidents.

President Xi Jinping knows well that the day will come, and has come, when China and its state-owned and state-linked companies will have to compete with its major trading partners peer-to-peer, and with reduced concessionary advantages. It is a collective legacy challenge that he must address decisively to keep the Chinese economy from unwarranted derailment.

As such, 2019 may well be a year of major reforms, not just for China and the US, but also for every other major economies and world bodies such as the World Trade Organization (WTO), International Monetary Fund (IMF) and United Nations Security Council. The world has changed drastically with the rise of China and the issue at hand goes beyond the current trade war. The day of undifferentiated free trade has passed as the world moves forward into fairer and more equitable trade.

The notion that the world is seeking to derail the Chinese economy does not make any economic sense as such a derailment would trigger a global recession that would hurt everyone. Economic logic dictates that China is an integral part of the world economy but it is definitely not ready to offer itself as a real alternative to the US.

As a superpower, just like the European Union, the UK or Japan, it has to abide by the prevailing rules-based trade engagement and not create any unwarranted upset that may rattle the world economy and security. So too must its state-owned enterprises, corporate titans and small and medium-sized enterprises.

More than a trade war

When China’s began advocating a trade-based rather rules-based policy, alarm bells awakened many within the US Congress, America’s powerful private sector and allies across the world. They were not just going to sit down and watch China overtake them and change the rules of economic and security engagements. It was not just about economic and military issues, it was also about technological advancement and ideology or, more specifically, it was also about democracy.

The US had already commenced strategic economic and political reforms to address various challenges by the time it started the trade war. Thanks to President Donald Trump, his confrontational approaches had sped up the preliminaries needed for many of these critical reforms.

Ideological differences

Unlike in China, leaders in democratic economies are voted into power primarily to create sustainable economic growth, meaningful employment, and essential and lifestyle-centric services, and to ensure peace and security within their country and the region. If they fail to deliver on these basic essentials, they risk being voted out by their citizens. Democratic systems do not allow for life-long presidencies or premierships. Leaders either get the job done or get voted out. This is the essence of democracy – by the people, for the people. Anything else is a sham.

With the US Democrats gaining a midterm election victory that will see them controlling the House of Representatives from the dawn of 2019, a bipartisan Congress is likely to begin driving some major reforms. Without undivided congressional support, the unpredictable Trump will find it very hard to issue any binding executive orders or new initiatives unilaterally that may rattle the world in any substantive way.

Beyond Trumponomics

Despite Trump’s current persistence in partially shutting down the government until Congress approves his funding request for a wall on the border with Mexico, it is getting too contentious even for the Republicans. As such, it may just be a good proxy to show the effectiveness of Trumponomics against the powers within the US Congress.

The US Congress needs to be much more decisive and consistent as its members have to account to their voters as the next US presidential race starts taking traction by mid-2019. The longevity of Trumponomics depends very much on Trump’s acceptance that the issues at hand are much larger than his presidency or ego.

Rules-based world order

After World War II, the Bretton Woods Conference legitimately coronated the US as the world superpower, and its Articles of Agreement resulted in the formation of the IMF and WTO, and the US dollar became the world’s reserve currency.

Advocates of alternatives to the US dollar as the reserve currency have repeatedly cited that the US had unfairly printed its own currency to get out of every crisis. In reality, the US does issue Treasury notes and bonds to balance its accounts. As such, the US does pay for such borrowing, and the truth is that the reserve currency does come with a price. It places great responsibility and accountability not just on the US but fellow IMF members accorded with Special Drawing Rights. China too was accorded these rights in 2016.

This aggregated arrangement has afforded every economy in the world an equitable rules-based platform that facilitates the continuation of their economic cooperation toward the collective desire of world peace and prosperity for all. It is in the constructive pursuit of economic collaboration that puts an end to the destructive nature of unwarranted aggressions and wars. China’s posturing in the South China Sea and its naval expansion in the South Asian subcontinent region are simply in conflict with what the free and democratic world aspires to.

Respect and leadership

Despite all the givens, it means nothing if the US failed to create the required economic possibilities and technological enablers that were needed to empower all its allies, in that they can all pursue the shared aspiration concurrently and collectively. To succeed, the US critically needed a catalyst that it could use to inspire a new world of social and economic possibilities. One that every economy and their citizens can generally aspire to, share and participates along with them.

In 1962, US president John F Kennedy was just the man when he inspired the nation and the world with his “race to the moon” speech. It was just the catalyst that the US needed and it radically transformed the world.

It was the US-led inventions of semiconductors, computer-based applications and the Internet that underpinned the early Technological Revolution that changed every aspect of modern lives in developed and developing economies across the world. It was this very innovative competency of the US that has helped sustain its power and position as the global leader, and the world has to thank the US for the many positive transformations. Economies around the world embraced democracy and capitalism as they too wanted to emulate the US. Such respect was not just a given, it was also earned.

Resentments against the US

Despite all the good things that the US has done for the world, there is much resentment whenever the US opens up its war chest and ends up in conflicts that contradict the collective desire of world peace and stability for all. If the US can be more consistent in opening up its innovation chest and exercise more discipline with its war chest, the longevity and desirability of its leadership and its ideology of democracy would be much more welcomed.

There is also a critical need for the US to be more active and consistent in its sanctioning of misbehaving leaders among its allies if it wants to advocate the dynamic of democracy over other ideologies. Dictators that hide under the guise of democracy while exploiting their people or economies are clearly undermining the prospect of democracy. As the leader in the advocacy of democracy, the US will naturally be blamed for all such exploits.

Leadership crisis and reform

With a renewed wave of political reforms sweeping the world, it is clear that the quality of many of our present political leaders in the democratic world has much to be desired. Looking at the controversies surrounding the recent elections in Cambodia and Bangladesh, incumbent leaders are being accused of manipulating their elections and taking unilateral decisions that make a mockery of the democratic election system.

Even their military and police are being politicalized into domestic politics. Such dictatorships tend to pivot toward China for support once their citizens and oppositions start to escalate their plights to the wider community.

The free and democratic world is indeed facing a crisis of poor leadership. The US must be active in the monitoring of election and help democracy regains its true purpose and functionality. The US should increase its sanctions against these dictatorships and the UN should rethink its role in the defense of democracy that has united the world.

While the ideology of democracy may not be perfect, it is still the most desirable system of collective representation of the free world. Dictatorship is incompatible with the concept of a free and democratic world.

This is the first article in a three-part series. Part 2 will examine whether China has undermined its technological push and created its own dilemmas, and Part 3 will discuss how the future global economy will be defined by the technological race and ideological differences.

Joseph Nathan has been a principal consultant with several consultancy agencies in Asia for more than three decades and is currently the Founder & Principal Consultant at Asia Strategic Consulting. He is a Singaporean and holds an MBA from Macquarie Graduate School of Management, Australia.

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