Forebodings of war: US against China – hopefully a trade war only

As late as the end of the last century, one could read in Der Spiegel, a German magazine, that after the downfall of the Soviet Union the super-power US had achieved complete victory. In fact, Hollywood movies were on display all over the world, people dressed in jeans, singing and making American music, drinking Coca-Cola, and spreading Windows, Apple, and the American-made Internet all over the world. In the nineties, no world power seemed to exist or even to be conceivable other than the mighty United States of America.

Those, however, who like to cast a glance back in history could have perceived even then that the American elite was busy carrying out a work of destruction. Since the 1980s, it continually undermined the world position of their own country. Of course, it was not for the first time that such a work of destruction was carried out. The predominance of Great Britain as the undisputed super-power had been undermined by the rich in just the same way. During the second half of the 19th century these people preferred to invest their money abroad, above all in the US, but also on the continent, because ambitious emerging countries generally yield higher returns. In this way there was a transfer of capital and technology, which transformed the United States as well as upcoming Germany first into an economic, then very quickly into a military competitor of Great Britain. America was still too far away at the end of the nineteenth century to frighten the English, but the divergent power interests of England and Germany in the early twentieth century were enough to spark the inferno of the First World War. Competition – even trade competition as a struggle to dominate markets – has never been fun. It can be bitterly serious.

Sometimes, history offers nothing better than a rehearsal

The transfer of money and capital, which broke the position of England as a world power, has been taking place in a similar fashion between the United States and China for about three decades. The top one percent very wealthy Americans profited greatly during this time when they scrapped more and more industries at home in order to rebuild them in China. In the economic jargon one speaks of a more favorable “allocation of capital”. Undoubtedly, capital yielded far better fruits in China, that is, returns were much higher, but a high price had to be paid – indeed a price as high as had once been enforced on Great Britain. If the industrial base at home is gradually thinned out, then a great deal of technical and engineering knowledge gets lost. Instead of being acquired in the US it is transferred to China. We must pay the Chinese the compliment that they not only learned the scientific and technical lesson the West was so ready to give them, but that they proved to be its masters in a very short time. With the number of patents obtained, the country has already climbed the top. The sheer quantity of this technological advancement is remarkable, even if the quality of many patents may still be questionable. Looking to Japan, it should be obvious that a total breakthrough is but a matter of time. Japan is now one of the technologically leading nations – but China’s population is ten times as big.

Two types of competition: external and at home

States are competing for a better standard of living – this is a struggle they wage against the outside world. If this were the only fight, the US would still be a world power today that need not be afraid of China. But within modern states, another struggle is waged that is hardly discussed or even known to the actors themselves, and yet its effects may be as powerful as the victory of an external power – this is the struggle carried out by an economic elite against its own people when it ruthlessly strives for its own interests. Had the rich elite of the United States merely helped a foreign nation like China so that it may develop in a way that does no damage to the interests of the American people, then it would deserve praise without any qualification, but institutional precautions to prevent such damage have up to now never been considered, let alone enforced. The outsourcing of much of American industrial substance has harmed a majority of Americans because the resulting cheapening of goods was achieved at the cost of destroying jobs and the incomes obtained from them. Outsourcing companies did much more than help China to develop – in fact, such selflessness never was a driving motive. The truth looks much gloomier. Out of pure self-interest, the American superrich passed the trump card of world power to China – just like a century ago the British elite had done for quite the same reason. The internal power struggle of an elite, that is, its quest for more riches, power and status overruled external competition and thus decided the fate of America.

At some point, blinkers will not help anymore

It was foreseeable that some American president would sooner or later recognize the true state of the Union. Nobody, who does not blindfold himself with ideological blinkers, can overlook the fact that the US though boasting of a handful of world-renowned centers of excellence, and being still home to some of the world’s best universities, conserves such highlights within an industrial landscape made desolate by systematic outsourcing – the notorious rust belt. And certainly, no unprejudiced observer will deny that general education in America has been so neglected that for every American scientist, figuring among the world’s best in his field, there are at least ten people who regard Charles Darwin as an envoy of diabolical powers. Anyone with sound judgement will furthermore notice that the country’s infrastructure – the substance of bridges, roads, railways, energy networks, etc. – is in rapid decline, while the exorbitant debt raised by successive governments prevents any effective change. The money the President may still able to obtain – above all by way of further increasing indebtedness – is absorbed by the military, so that America may still uphold a leading position in this field at least. However, even the money the Bush administration needed for its wars in Afghanistan and Iraq between 2003 and 2006 – about four hundred billion dollars – was no longer American money. It was paid by China, which in the same period acquired US-Treasury bonds and Government-guaranteed mortgage bonds worth $ 464 billion. How long will the Chinese give credit to the Americans if the Trump administration now resorts to trade sanctions against their country?

It’s the merit of a President called Trump,

that he became aware of the miserable state of the Union, persistently denied by the Washington elites of both state-sponsored parties, because many of their members represent the neoliberal class that derived so much profit from the outsourcing of American industries. But it is America’s misfortune, that it has turned into a kind of china shop where a bull named Donald Trump has become the elected shopkeeper.

There can be no doubt that in an ideal world protectionism is nothing but evil – in so far orthodox economic theory is perfectly right. Unfortunately, the world has never conformed to the ideal. Peaceful coexistence becomes a problem if one state gets stronger at the expense of others; such imbalances harbor the potential for war – the First World War provides a warning example.

What China has learned from the West

The recipe for economic strength is no mystery at all. First of all, the politico-economic elite should not engage in politics against the interests of its own people. In this regard, the Chinese Communist Party is far ahead of America’s two leading parties. Although the number of Chinese billionaires continues to grow with each passing year, this trend will not lead to serious opposition as long as the majority of people becomes more prosperous as well. In fact, China’s landscapes are not scattered with rusty belts, but with sparkling new industries. But what is still more important for China’s relation with the outward world is the topmost maxim that the country has learned from the West, because the latter used to apply it in its in dealings with less powerful countries. It reads: If you want to achieve permanent economic superiority and political dominance, then be careful to import raw materials and food while exporting industrial products. Political and military power is based on industrial production, not on bananas, cheese or soybeans.

In this sense, the 2025 industrial program, just passed at the recent Chinese Party Congress, amounts to nothing less than a concerted attack on the last bastions of Western superiority. In the field of communications technology, the giant Huawei already ranges at the top. In the aircraft industry, the Chinese are on the verge of providing a wide-body aircraft that will, of course, be as efficient but much cheaper than Boeing and Airbus. It is only a matter of time until China will no longer depend on cars imported from Germany and America. Instead, the Chinese will flood Western markets with their own electric cars while importing soybeans and pigs from the US and dairy products from Germany and Austria. The Austrians have just sent a large delegation to Beijing, so as not to miss out on their contribution to this development, promoted by Beijing with magisterial intelligence.

The struggle for power

An economically hollowed-out world power, whose remaining advantage is largely based on military strength, is a danger to itself and the rest of the world. For too long the country’s elite was so sure of its own global standing that it confounded the success of the American economy with its own account balance. A prudent policy of national self-interest should have made this impossible at the start. In the 1980s, such reforms were still easy to carry out as the process of outsourcing had only just begun. But meanwhile conditions have greatly changed to the detriment of America and the rest of the world. We can be pretty sure that the global repercussions of Trump’s trade war will be extremely serious, perhaps so serious as to be followed by paralysis and the collapse of the global economy. At an initial phase, American companies will be particularly affected, since it is they who are chiefly responsible for the trade deficit in relation to China producing all those goods in Chinese factories which they sell on the American market, whereas China needs far fewer goods and services from the US. Meanwhile the American population is likely to suffer for quite a time, because of a fundamental economic imbalance: thousands and even millions of jobs may be abruptly destroyed by outsourcing, but to restore them usually requires the strenuous work of years.

China will suffer much less from Trump’s attack, as its dependence on Western technology is by now reduced to a low level – it exists only in individual sectors. China’s takeoff is an indisputable fact: the country has become so strong scientifically and technologically that it has turned into an independent center of material progress. But Chinese leaders are much too clever to behave like an American president boasting incessantly about his own and his country’s pretended eminence. When addressing the outer world, Chinese still present themselves as a developing country in need of foreign help and sympathy. Only those who listen to Chinese broadcasting addressed to a Chinese audience may know better. There speaks a great power, that is very conscious of its own strength and no longer ready to cower from America – and least of all from Europe.

Twenty years too late

Well informed circles in the US have long known that China will be Number One if America continues to do nothing against such an outcome. Its industries are likely to be the world’s leading exporters in most sectors over the next one or two decades. An American president is now trying – but twenty years too late – to pull the emergency brake by limiting the access of Chinese high-tech firms to the US market so as to slow their rise. Hitting at the same time many American companies producing in China, it is doubtful whether he will be able to enforce these measures against their fierce resistance. In other words, it is doubtful whether the President will succeed with his policy. It may well be true that America’s economic decline can no longer be averted regardless of whether the country takes action or not.

Playing with fire

It is pretty sure, however, that the effects of the President’s trade war will go far beyond the US-China relationship as the whole world economy has become so strongly interconnected –connected, that is to say, to the Chinese economy. And the Chinese government will not idly accept a sudden change in American trade policy that threatens to drive lots of its citizens into unemployment. If the US forecloses its market, China will put even greater pressure on Europe to divert goods that can no longer be sold in America into the EU. Deindustrialization due to superior competition has for years been the fate of southern European countries. It could very soon also create industrial rust belts in the north of Europe. The necessary means with which to threaten Europe are certainly at China’s disposal. Major German companies such as Mercedes, BMW or Volkswagen rely on China as their largest single market. It is highly unlikely that any German government could oppose Beijing’s desire for unlimited market access to the EU if the German car industry supports the Chinese demand.

And this would happen in spite of the fact that China will most likely produce cars of equal quality within ten years at the latest – just as the Japanese have been doing for years already. They will also produce a far greater number of them than the comparatively tiny Federal Republic of Germany. Once this stage is reached, the far-eastern giant would only be interested in agricultural products from Europe – and no longer in German cars.

It would be wrong to demonize China,

because the country acts just like any other state out of well-understood self-interest. But it would be even more stupid to take at its face value the ferment belief in global free trade as professed by Chinese politicians. As a matter of fact, these pronouncements are pure opportunism – not long ago the Chinese had still and with all means at their disposal shielded their own industries against foreign competitors. They have turned into the mouthpiece of free trade because now their industries have become so strong that they are no longer in need of protection.

Such manner of opportunistic mendacity is, of course, quite normal, but hopelessly disunited Europe would be well advised to reconsider its future position. The Americans just started to play with fire. Belatedly, they want to protect themselves – a legitimate goal – but in order to reach it, they would have to take action against the selfishness of their own elites. The question is, which will be the course taken by Europe? Will it follow America by making the same mistakes? Or will the old continent be able to assert itself, preserve its industries and continue to play an independent economic role in the future? At any rate, China’s opportunism should certainly not be too much trusted.