All the energy US President Donald Trump has devoted to contain China has failed miserably.
The trade war was supposed to narrow the trade deficit with the Asian power and bring manufacturing back to US shores, but instead the gap has widened and manufacturing reduced since he took office in 2017.
Trump’s technology war was supposed to scare China into abandoning its innovation ambitions. Instead, the Chinese government responded by planning to spend US$1.4 trillion over the next five years to boost technological research and development, promising to become self-sufficient in advanced semiconductors and other chips.
And instead of killing China’s Huawei, it is thriving. The company’s revenue increased by more than 13% in 2019 year on year. In the second quarter of 2020, Huawei overtook Samsung as the world’s No 1 smartphone producer. It supplies more than 40% of the world’s telecom equipment. At worst, Trump’s trade war might set back the company in the short run, but will make it stronger in the long run.
But the irony is banning US and other countries’ firms from selling chips to China hurt America more than the Asian country because China is the largest customer, buying hundreds of billion of dollars’ worth each year. Companies like Qualcomm will be at financial risk if they stop selling semiconductors to China.
Moreover, without the billions of dollars from China, US technology ambitions could be undermined. Insufficient revenue will erode technological research and development.
Trying to recruit countries in the Asia-Pacific region and Europe to counter what the US called “Chinese aggression” yielded very little result and made many nations, including staunch allies Japan and others, nervous.
The US sending more warships, bombers and jet fighters to the Asia-Pacific region was met with China test-firing its nuclear-capable DF-21 and DF 26 intermediate-range missiles. In addition, China is developing and deploying more advanced and lethal weapons in the region. As the old saying goes, “when two elephants go on a rampage, the neighborhood gets trashed.”
When US secretaries of state, from Rex Tillerson to Mike Pompeo, traveled around the world to warn countries of China’s Belt and Road Initiative being a “debt trap” or “predatory economics,” they were told to mind their own business. Indeed, trade and investment under the BRI kept on rising.
So why have Trump’s policies on China backfired, making America worse instead of “great again”? The simple reason is China is not the “bad guy” the US says it is. Moreover, China is the world’s economic beacon because it contributes to a third of global economic growth and its investment truly accelerates host countries’ development.
Take the BRI as an example. China is expanding its global reach by planning to invest more than $1 trillion in the participating countries’ infrastructure and industries. In this instance, the recipient countries received an injection of new capital to build roads and other infrastructures, all of which create employment and promote economic development in the host countries.
The US, on the other hand, invests in other countries with ideas or technologies but uses recipient countries’ capital. US firms borrow the capital from host countries’ financial institutions or partners’ money. What is more, for every dollar a US firm “invests” in another country, it takes much more out, keeping the recipient country at financial risk, poor and underdeveloped.
With regard to the charge that China set up “debt traps,” it is more true for the US than the Asian power. America directed the International Monetary Fund and World Bank to impose economically counterproductive loan conditions such as barring borrowing nations from deficit financing in periods of economic slowdowns or recession.
However, when an economy shrinks, it generates less revenue. To balance the budget, the government must either increase taxes or reduce spending. Either way, the contraction becomes greater, forcing the borrowing countries to apply for another loan just to repay the previous ones. In short, borrowing nations could be forever indebted to the IMF or World and by extension the US, thus dancing to its tune.
China, on the other hand, provides concessional as well regular commercial loans at market interest rates or lower to ease the borrowing countries’ debt burden because it is in its interest to do so. If a country is unable to repay the loan, for example, it is China’s loss. In this regard, China will and indeed has done everything possible to prevent payment default.
For example, a Chinese company took over the management of Hambantota Port in Sri Lanka and has made the port financially viable, making it affordable for the country to repay the loan.
It could therefore be argued that bashing China has not stopped the country from rising, but it did make the US worse off. Imposing tariffs on Chinese imports increased US production costs and consumer prices. Banning Huawei equipment from rural telecommunication providers would cost taxpayers nearly $2 billion. Increasing military provocation in the South China is wasting taxpayers money and exposing soldiers to Covid-19. The list goes on.
It’s time for Trump to reset the US-China relationship. Using disinformation or fake news to demonize China is akin to pulling the wrong tooth and worsening the toothache.
Ken Moak taught economic theory, public policy and globalization at university level for 33 years. He co-authored a book titled China’s Economic Rise and Its Global Impact in 2015. His second book, Developed Nations and the Economic Impact of Globalization, was published by Palgrave McMillan Springer.