Building pressure on China

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Building pressure on China

Choi Byung-il
The author, a professor at the Ewha Womans University Graduate School of International Studies, is president of the Korea Foundation for Advanced Studies.
China signed a truce in its trade war with the United States just before the world learned of the outbreak of a new, hazardous coronavirus in the city of Wuhan. A key element of the Phase One trade deal agreed to on Jan. 15, 2020 was that Beijing would purchase an additional $200 billion worth U.S. goods and services over the following two years.
Now that two years have passed, has China kept its side of the deal? Although there is no official data yet, the Peterson Institute for International Economics (PIIE) found China behind on its promise. Data from January 2020 to November 2021 shows China’s purchase of covered products from the U.S. stood at 62 percent. No data suggests Beijing rushed to increase imports to meet the target by December. China attributes it to setbacks from force majeure — obviously meaning Covid-19 — despite its claims to have battled the virus more successfully than any other countries, although it was, of course, the original epicenter of the pandemic.
China’s purchases in the agriculture, energy, industrial goods and services categories were artificial and unrelated to the real demand from the start. In other words, China promised the purchases in return for a truce in the trade war with America. Since peacetime is over, how will the U.S. address China for failing to keep to the deal?
It’s a war over systems
Various cases show how seriously the U.S. viewed non-compliance with international agreements. For instance, Uncle Sam pressed a high-level opening in exchange for non-compliance. Beijing has fallen into the trap. Will Washington resort to strong punitive tariffs or sanctions? Will it start a new trade war?
The U.S. could choose to give China more time to keep to its promise. But the overture won’t likely be approved by Americans. Despite their contentious relationship, the Democrats and Republicans have been on the same side when it comes to China. The majority of Americans bear hostility towards China. Given the negative political grounds, a conciliatory gesture won’t likely be an option. At the same time, Beijing’s non-compliance could be a test of Washington’s determination.
Therefore, America will likely opt for a hard-line policy toward China. It could flag the option of high tariffs to fasten the purchases up to the agreement. The U.S. keeps levying double-digit tariffs on two-thirds of imports from China regardless of the Phase One agreement. President Joe Biden had criticized his predecessor Donald Trump for making grocery prices go up with his high-tariff actions on Chinese imports. But Biden has kept the tariff rates unchanged.

As the deal struck two years ago was the first-phase of an agreement, the fundamental conflict between the two countries would not have been solved even if China dutifully fulfilled its import promise. The two are clashing because the Chinese economy is state-controlled. Big public enterprises monopolize its economic infrastructure — and various discriminatory regulations against foreign companies work favorably for Chinese businesses. Chinese big-tech enterprises were able to become mammoth during the digital transition period thanks to the un-level playing field. China leveraged Big Data from its huge population to advance artificial intelligence, biometrics and wireless technology for employment on security area.

No cause for a second phase
The rivalry between America and China is evolving from trade and technology to defense and eventually headed to a contest of regimes. The hegemonic battle between the two is complex. Since the trade deal with the U.S., China’s Communist Party’s control over the economy only strengthened. Big-tech companies have lost much of their sovereignty despite their omnipotence in cyberspace. Dissidents are not allowed for the sake of security in the regime. Jack Ma, founder of Alibaba, paid a dear price for speaking up against the outmoded Chinese system.

Can the U.S. end the trade conflict through diplomatic means? Even against outspoken Trump, Beijing bluntly drew the line, insisting that numbers were negotiable — but not the system. Therefore, the Phase One agreement was just self-serving for the two leaders. Ahead of the presidential election in November, Trump wanted to show that he was the only person who could tame China, while Xi Jinping needed to avoid high tariffs from the U.S. The delicate compromise was the Phase One deal.

Since he declared a clash with the Western ways, Xi will hardly sit down with U.S. officials who demand changes in the Chinese system in next-stage negotiations. Trump had vowed to play harder ball. Trump is no longer in the game and Biden is a different player.

Biden does not want to escalate trade talks with China to the next level. Nor does he want to rebuild the near-dysfunctional World Trade Organization to address the structural and behavioral problems of China. Time is not on Biden’s side. While Trump entirely resorted to showing American muscle to fight China, Biden is rounding up allies to form an anti-China front. The anti-China alliance could be a strategy to draw China to the negotiating table, but Beijing won’t likely go along.

Jobs for the middle class
In his first year in office, Biden moved to realign global supply chains in IT components like batteries and semiconductors to wean the world off its reliance on China. In his second year, he is poised to muster foreign countries to U.S.-led supply chains. His administration is working on the Trade and Technology Council (TTC) with the European Union and the Indo-Pacific Economic Framework with partner countries. Biden believes multilateral platforms would work faster compared to trade talks that require congressional approval to enter negotiations and agreements.

But isolating China from the global supply networks of strategic commodities while enhancing partnerships with the EU and countries in the Indo-Pacific region cannot be sufficient. Biden is putting more efforts into strengthening America’s self-sufficiency. The “Build Back Better” (BBB) framework is aimed at upgrading U.S. infrastructure and human assets. The BBB agenda seeks to make America stronger though innovations across the board and job creation for the middle class.

America and China confront crucial elections this year. A third term of Xi will be decided in fall. In November, Americans go to the polling booths for a mid-term election to pick new members of the Congress and a third of the Senate. Regardless of the election results, U.S. pressure on China will continue.
Translation by the Korea JoongAng Daily staff.
What's Korea's choice? 

The globalization that panned out over the past 30 years has been shaken. The global supply chains — where the roles in providing core technologies, key materials, and assembly services had been divided to reduce costs — are gaining fissures. In the contest for hegemony, stability has become more important than efficiency.

In the aftermath of the pandemic, each country must establish controllable manufacturing base. Gone are the days when strategic supplies were shared among different countries. South Korea must tread carefully on crevice.

The economics textbook may have to be rewritten. The concepts and experiences from the post-Cold War era —where efficiency was top priority in economic management — cannot be enough for survival and existence in the new Cold War between America and China. It would be foolish to think the realignment in the global supply chain could be delayed through the logic of efficiency. National capabilities and imagination are put to test in an age where the paradigm for economic management has shifted from efficiency to security.

We cannot avoid external shockwaves. But how fast we can recover from them depends on abilities of the country. Blindly calling for cooperation and coexistence in an era of confusion is as absurd as choosing not to believe the shocks will arrive. Let’s hope the disastrous ending in the movie “Don’t Look Up” stays fictional.    — CBI
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