Trade will be strong, but ideological differences will continue to impact on solving globally important problems.
By Chris Devonshire-Ellis
US President Joe Biden and Chinese President Xi Jinping held a two-hour video conference yesterday (some media referring to it as a ‘summit’) in the wake of what has been talked up, again by media as a ‘dangerous time’ in relations.
That is a reference to Taiwan, which is supported by the United States but claimed as a Province by Beijing. With an increasingly anti-China President in office, rhetoric from Beijing condemning this has been swift, while military incursions into Taiwanese airspace have become daily occurrences. Why is Washington interested? Because it sells billions of dollars of weapons systems to Taiwan.
Why does Beijing want it back? Because the island has historically been considered part of China (although it was occupied by the Japanese from 1895 to 1945). Additionally, Beijing feels that the island is underperforming. Taiwan’s population is more than three times the size of that of nearby Hong Kong, yet its GDP is only two times higher. Wages in Taiwan are 20 percent less than Hong Kong, while Beijing feels its capital expenditure would be better spent on development rather than spending it on weapons. Taiwan is spending about US$11.6 billion per annum on its military, a high ratio for a population of some 24 million.
Conflict however is unlikely, although both Biden and Xi would have drawn some lines in the sand to prevent this. What will probably happen is that Beijing will gradually withdraw access to its markets by Taiwanese investors and instigate a slow decline in the island’s economy, to better promote, longer term, the benefits of being part of the Motherland. This has already started; with suggestions that visa applications to visit China may be restricted. It’s a zero-sum game for the pro-democracy support in Taiwan; China is by far its biggest trade partner with over US$100 billion per annum flowing between the Straits and an additional US$50 billion with Hong Kong (US$151.45 billion in Taiwanese exports to mainland China and Hong Kong in 2020). US imports from Taiwan in 2020 was about US$66.7 billion, or almost a third of China and Hong Kong’s combined. In many ways, the economic clout will, over time, prevail.
Despite all the perceived China-US argy-bargy however, bilateral trade is robust. As of September, this year, it had reached US$543 billion, meaning it is on target to reach well over US$600 billion for the year. That is up from US$587 billion in 2020 and the US$541 billion in 2019 – a near 10 percent YoY increase. So, the good news is that trade relations are on track.
Where the mutual rhetoric doesn’t match though is in understanding each other’s ideologies. This could become problematic. Over the past two years, in speeches held both mutually and apart, the two sides have been very consistent when it comes to both dealing with each other and handling global issues. China has stressed the need for ‘cooperation’ while the United States has avoided that and stressed ‘competition’. These are opposites when it comes to strategic thinking. Competition is good, right?
Well, it depends. Competition if not managed can be wasteful, with unwanted duplication of infrastructure leading to white elephants, and even global and regional systems incompatibility. Building projects twice can be an enormous waste of resources, just at a time when the planet needs a more considered approach to extractions and recycling. Competition can be exploitative, and the way the US economy is set up encourages this. It is a fundamental flaw in the makeup of the United States. For example, who has been the world’s largest emitter of carbons? China? India? Russia? Actually, it’s the United States, whose combined total is nearly double that of China, the next largest culprit. Yet you wouldn’t have thought that were you to listen to Biden’s beating up of China at COP26.
This competitiveness is born in some part to the educational make-up of US politicians, who study courses specifically to become involved in politics. Of the top six US politicians running the country today, four graduated in ‘political science’ – which is theoretical dogma based on the combined benefits of both democracy and capitalism. The problem is that while this had worked in the United States – it is becoming a little frayed around the edges. Competition is in part why American domestic politics has become so partisan – and why is it the world’s largest polluter. Yet that same competition can be subversive and used to deny basic facts. When this is projected onto a world stage at a time when collective unity is required, the US way of thinking is not always appropriate.
That’s not to say that China is perfect, because it is far from being so. Yet the makeup of what will probably become its next Cabinet isn’t made up of career politicians. It is likely to comprise of two Chinese scholars, an Engineer, a Mechanic, and a Lawyer. That, I suspect is a healthier academic mix. China is calling for ‘cooperation’. Washington sees that as Beijing wanting to compete and stand equal with the US at the global table. This is where conflicts arise.
Is it healthy for the US most senior officials to have all been educated in the same political dogma? It sounds more like Mao’s Little Red Book than the land of freedom of choice and expression. There is very little expression coming out of Washington right now apart from the competition mantra. I’m not convinced this is what we need, as Global citizens right now. The message then seems clear: more of the same on global issues, with the two sides advancing different systems and programs. Taiwan will gradually decline. But US-China trade will remain buoyant. Good news for manufacturers and exporters, bad news for the Taiwanese, and a complete missing of global emissions targets for the rest of us.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
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