There are times when the purpose to which money is to be put is more revealing than the sum. This is such a time. And there are times when a trip to Moscow is more about China than it is about Russia. This is such a time. A time when a president of the United States has finally recognized that for years China has been waging, unanswered, a war to drive the United States out of the Asia-Pacific region, and to displace it as the world’s leading militarily and economic power.
President Trump had Secretary of State Mike Pompeo announce a $113,000,000 “strategic investment in deeper engagement with the Indo-Pacific” region. A paltry sum, especially when measured against the $1,000,000,000, or more, China is prepared to spend on its Belt and Road Initiative. But the fund’s significance exceeds its amount. Donald Trump has recognized that he is not the only world leader who plans to make his country great again.
So does Xi Jinping, China’s president-for-life.
Xi’s competing plan to make China great again, dubbed by him “Made in China 2025”, is more comprehensive; his chosen weapons more effective than Trump’s tariffs on the stuff China sells to America. To China’s theft of U.S. intellectual property—worth between $225 billion and $600 billion, annually, according to the U.S. Trade Representative—and a requirement that American companies wanting access to China’s market turn over their IP, Xi is adding targeted subsidization of industries of the future, such as artificial intelligence. This will guarantee China leadership in those important sectors, and with it the wealth to fund an expanded military.
And its Belt and Road Initiative (BRI) is carving out preferred access to markets in more than 70 countries in Asia, Africa and Europe, Latin America and the Caribbean, not to mention a voice in their economic and foreign policies. Xi has declared Latin America-Caribbean an “indispensable participant” in the BRI, and presented the Chinese program as “a new platform for mutually beneficial cooperation” between China and countries until now considered in America’s sphere of influence—foreigners keep out. Now, it’s Monroe Doctrine, RIP.
A newly awakened Trump, recognizing that he is to lead his country in a Cold War rather than in a mere trade war, dispatched national security adviser John Bolton to Russia to announce withdrawal from an arms-control treaty that limits America’s ability to increase its nuclear arsenal. That treaty was a good idea when only Ronald Reagan and Mikhail Gorbachev were players in the geopolitical battle for supremacy, when China mattered too little to be asked to be a signatory, and before treaty-violator Putin rose to power in Russia. That was then, this is now, when Trump figures America must be free to rebuild America’s nuclear arsenal and prevent China from driving the U.S. out of the Asia-Pacific region.
The morphing of a trade war into a Cold War has important implications for several aspects of U.S. policy. Tariffs are no longer merely a tactical and temporary weapon to force Xi to the bargaining table, where he would agree to accepting more U.S. exports, and limits on Chinese exports. They are only one weapon in a broader and far-from temporary Cold War that will last a very long time. The costs to America will include:
- Higher, tariff-inclusive prices for many consumer goods,
- A costly disruption of supply chains that run through China, adding to upward pressure on prices,
- Increased pressure on the Fed to continue raising interest rates to prevent those cost and price increases from creating excessive inflationary pressures,
- A stronger dollar in response to higher interest rates, raising pressures on emerging markets to finance their interest payments on dollar-denominated debts, and their dollar-denominated oil purchases.
All wars, even winning ones, have costs.
Optimists point out that in the past Trump has been content with “tweetable wins” such as the peripheral changes that converted NAFTA into the USMCA. That won’t work in the case of the new Cold War: there is no way the president can claim victory if all he achieves is an improvement in America’s trade balance with China.
Both Democrats and Republicans are fed up with China’s trade tactics. So are the farmers who will bear some of the war’s costs. And the trade unions. If there is any crack in the support for a new Cold War it is the business community. Jamie Dimon, CEO of JPMorgan Chase, remains confident that one day his bank will have a tower in Beijing to house its wholly-owned Chinese brokerage operation, for which the regime has not granted permission—a tower “that looks like the tower we have in New York”. He worries about the trade war, and even more about a complete collapse of relations with China.
Then there is Silicon Valley, which increasingly regards itself as a state-within-a state, with its own foreign policy. Googlers won’t work for the Pentagon, but are developing a search engine that will not “find” anything critical of the Chinese regime, hoping at long last to gain a major foothold in the Chinese market. Odd that, since co-founder Sergei Brin, born in Moscow, surely is aware that Lenin predicted that “the capitalists will sell us the rope with which to hang them.”
Apple CEO Tim Cook, heavily dependent on China’s low-wage work force, worries that moves against China will result in “lower economic growth and . . . have “unintended consequences.” Apple is obliging Xi by locating its data center in Guizhou, a province in southwest China, rather than in the United States. That will make data on Chinese users of Apple products more accessible to the rulers of the police state.
Hopes that the Trump-Xi meeting scheduled for Buenos Aires next month will resolve the current clash of the economic titans are unlikely to be realized. The best that can be hoped for is that the rival powers will avoid what Harvard professor Graham Allison calls the “Thucydides Trap”—in 12 of the past 16 instances in which a rising power has confronted a ruling power, the result has been war. Hot, not cold.