Strike first, strike hard, no mercy, instructs Sensei John Kreese in the 1980s martial arts movie, The Karate Kid. It’s combat advice that United States President Donald Trump seems to have taken to heart in his dealings with China. But if his purpose in launching a first-strike trade war is to stop Chinese progress in its tracks, he’s already too late; the train has left the station.
As ever with Trump, his ultimate intentions are not entirely clear. Possibly he doesn’t know himself. Are these just warning shots, or is it about permanently degrading Chinese ambition and reach? The US president seems equally determined to start a trade war with Europe, which poses no particular threat to the American hegemon and indeed is meant to be its biggest ally. So whatever the reason, it’s not just about geopolitical supremacy.
Let’s start by recognising that America’s complaint is more than legitimate. China’s trade policies are transparently mercantilist. It has manipulated its currency, subsidised its export industries, ruthlessly exploited the openness of western markets, and shamelessly stolen western technology in what amounts to one of the greatest economic heists in history. Enough is enough. You cannot have China routinely using subsidised credit and protected markets to create global champions that come to dominate America’s own. But what’s done is done; the technological transfer is now essentially complete, and in attempting to punish China for what’s already happened, Trump is fighting a war that is already lost.
This is not to argue for abject surrender to the Chinese juggernaut. It is right that China’s continued efforts to buy up western technology companies, often through state-controlled entities, should be blocked. Britain has been particularly slow on the uptake here, mortgaging the future of its nuclear power industry to China and allowing — via the sale of ARM Holdings to SoftBank — the surreptitious transfer of cutting-edge UK chip technology to Chinese interests, a scandal yet to be fully told.
Let’s not be naive about what China is trying to achieve; its Belt and Road Initiative is not the benign act of altruistic development that promoters pretend, but an exercise in conspicuous economic imperialism. Across the great sweep of industrial and technological development, China’s ambitions know no bounds. The Made-in-China 2025 strategy aims for Chinese self-sufficiency in everything from robotics to pharma, artificial intelligence and the Internet of Things. This is not a strategy that obviously embraces the benefits of free trade and comparative advantage.
In any case, the challenge to American technological supremacy is real and growing. Trump preaches “America first”; China practises it, now mendaciously championing the “rules based” system of trade that Trump seems so determined to tear down. It should not surprise that America has chosen to act; Trump promised it in his presidential campaign, and with the mid-terms looming, he’s now delivering. But, in so doing, America highlights a quite surprising degree of paranoia and loss of self-belief.
Trump might have convinced Americans that they are a power on the edge of decline that needs to strike first and hard to cauterise the Chinese threat, but to believe this is to hugely underestimate the continued dominance of American innovation and corporate power. All technology eventually becomes widely diffused; it cannot indefinitely be made proprietorial. The trick is to remain ahead of the game, and, on this front, America shows few signs of stumbling. Even the apparently intolerable size of its trade deficit with China grossly misrepresents the true nature of the relationship, which is still overwhelmingly to the US’ advantage.
Take the iPhone X as an example. It sells at around $1,000 (Dh3,678) and has production costs of some $370, much of which gets attributed to China, where it is made. Yet, the components come from all over the world, including the US, and the intellectual property is American. China’s share of the value added is a maximum of 6 per cent. Does Trump really propose to go to war over 6 per cent?
And it’s one thing to steal the technology, quite another to apply it, as is demonstrated by China’s feeble J-31 stealth fighter, entirely built on stolen Lockheed Martin F-35 technology. You’d be most unwise to go up in this rocket-fuelled death trap.
Sheer weight of population tells you that eventually China must overtake America, but there is a long way to go. In the meantime, those who fear China’s ascendancy should ask themselves just one question: Is it morally defensible to deny China’s 1.4 billion people the opportunity of an American standard of living? Can seeking to stop Chinese economic progress in its tracks ever be justified?
If the answer to this question is no, then the US should be seeking not, as today’s White House rhetoric suggests, to contain Chinese development, but more mutually beneficial ways of encouraging it. If that’s Trump’s ultimate aim, today’s blunderbuss is entirely the wrong way of going about it.
— The Telegraph Group Limited, London, 2018
Jeremy Warner, assistant editor of the Daily Telegraph, is one of Britain’s leading business and economics commentators.
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