How the China-US Trade War Threatens Our Welfare

When it was already thought that the world had overcome the problems and consequences of the Cold War between Russia and the United States, a new confrontation arose which, although it only refers to the economic sphere, has implications so serious that they could affect the well-being of workers and consumers throughout the world. The trade war between the United States and the People’s Republic of China, characterized by a veto on companies and products and an increase in tariffs between the two countries, is indirectly impacting the economies of many countries. Its collateral effects on international trade have caused an increase in the prices of intermediate and manufactured products, reduced demand, decreased corporate profits and the growth of commercial activity, led to the rise of inflation and unemployment and, consequently, to a decrease in the economic well-being of families. These effects are already beginning to be noticed in the evolution of the Gross Domestic Product of Canada, Mexico, Ireland, the UK, Germany, Norway, Malta and South Korea. The Organization for Economic Cooperation and Development (OECD) and the IMF have warned that a continuing conflict of this nature could lead to a deep global recession.

In recent years, there has been an inescapable sense that the US and China will sooner or later inevitably slip into armed conflict, unless both countries overcome their mutual suspicions and rivalries in the political arena and substantively and effectively minimize their differences and confrontations in the economic area. This idea is currently being debated and many arguments have been raised about whether the two countries can avoid the so-called Thucydides trap. This problem in the field of international relations takes its name from the Athenian historian of the fifth century BC, author of a work describing the War of the Peloponnese (a clash between Sparta and Athens in 431–404 BC). In it, Thucydides points out that the increasing power of Athens and the fear this provoked in Sparta made war inevitable. Some experts have suggested that, in the twenty-first century, Athens can be replaced by China and Sparta by the US.

The main defender of this theory is American scholar Graham Allison, who bases his argument on historical research that shows that, over the last five hundred years, when a booming power has challenged another already established power, the result has often been war. Today’s intense rivalry between China and the US, though fundamentally originating in the economic arena, may produce a dynamic that inevitably leads to war.

In less than four decades, China has transformed itself from an impoverished regional state to an economic and military superpower. Its behaviour seems to suggest that it perceives the United States to be in decline. The current actions of many leaders of the Chinese Communist Party seem to demonstrate that they have followed the thinking of their former leader Deng Xiaoping (1904–1997), who once stated, “Observe calmly, secure your position, face issues calmly, hide your capabilities and wait for the right moment, keep a low profile and never claim leadership.” Everything seems to indicate that China wishes to 1) become the world’s greatest superpower, 2) defeat any competitor for world trade, 3) achieve greater firepower and 4) reaffirm its political legacy, in which the state is the central axis of the socialist market economy.

China Acts as a Superpower

Is China determined to challenge the United States and does it have the capacity to do so successfully? The current international order was created by the victors of the Second World War (with the United States exerting a decisive influence). China took formal possession of its armchair in the United Nations in 1972, while immersed in the Cultural Revolution, which completely changed the country’s foreign policy. But it was not until the end of the Cultural Revolution in 1976 and until Deng Xiaoping adopted economic reforms in 1978 that China began working within the system, rather than against it.

China remains a major beneficiary of the world order and should therefore be considered more of a reformer than a destroyer. For a country whose power and international stature are growing, this is no surprise. The remodelling of the international order may begin in Asia, where evidence abounds that the ambition of China is to be the greatest power and the regional leader. But, to achieve that goal, it seems unlikely that it will directly challenge the current greatest power: the US.

Even if we accept that US power is in decline (whether relative to other countries or absolutely), it remains an unrivalled global superpower and has the largest economy in the world. The US has the most powerful armed forces and is the only country, for better or worse, capable of projecting enormous power across the globe, since the US government can exert international political influence like that of no other nation. The obituary of the United States as a world power has been written many times since the end of World War II, and yet the country has always demonstrated a remarkable capacity for self-renewal. China has carefully studied the reasons why the USSR collapsed and lost the Cold War (systemic bureaucratic corruption, unhappy provinces, unsustainable high defence spending and weak economic growth). The Asian giant  has probably taken these lessons very seriously.

In the military sphere, China’s sustained economic growth throughout the 1990s and 2000s provided it with the necessary financial resources to transform its armed forces into a powerful combat element, equipped with a state-of-the-art arsenal. According to the US Department of Defense, in 2016 the Asian giant spent $180 billion on the People’s Liberation Army. Respected Swedish think tank SIPRI puts the figure at $226 billion. In 2019, it is estimated that expenditure will be almost €156,675 million, according to the financial report presented by the Chinese Ministry of Defense in the annual session of the legislative assembly. That means that China will remain the second country in the world in terms of military investment, after the United States.

The Chinese army continues to face serious shortcomings and will probably need several decades to be able to match the capabilities of the US army. However, according to the US Department of Defense, the armed forces of the People’s Republic of China are increasingly able to project power and reaffirm their regional dominance in peacetime. It is estimated that in a short time they will be able to dispute the military superiority of the United States in any regional conflict.

The key bilateral relationship of the twenty-first century is that of the United States and China. Although Russia claims to be a key Euro-Asian power, long-term economic and demographic expectations indicate that it will never be able to reprise the powerful role it played during the Cold War. Moreover, neither the United States nor China considers it their equal. However, it would be a mistake to ignore Russia. Its permanent seat on the United Nations Security Council, as well as its vast nuclear arsenal and formidable conventional armed forces, ensure that it remains an important factor in world affairs, although its political role will probably be more disturbing than constructive. Notwithstanding Putin’s turn to the east, Russia is expected to play a relatively minor role on the global stage, as its possibilities and its purported superpower leadership appear to be limited to selling arms and hydrocarbons, as well as encouraging (probably in vain) Asian countries to invest in its resource-rich but highly underdeveloped regions, Siberia and the Russian Far East.

Ukraine and Venezuela

Ukraine and Venezuela are countries of major geopolitical importance because of their geographical locations. With important natural resources and large military budgets, today they form two battlefields in the new Cold War between the United States and Russia. Recently, just over 130 soldiers arrived in the Ukraine from the famous 101st Airborne Division of the US army—created during the Second World War and the recent architects of the American manoeuvres in Iraq—as part of the military training agreement between the United States and Ukraine. The arrival of American troops in Ukraine is not new. Every nine months on average, the United States changes the military personnel in that country. However, it has attracted attention, as indicated by an article in the KVYV Post.

Since February 2014, when Russia intervened militarily in Ukraine, and took possession of the Crimea, the country, which is considered a bridge between Europe and Russia, has, according to many experts in diplomacy, become the latest battlefield in the new Cold War between the White House and the Kremlin. The military support that Ukraine enjoys today has given it the second largest army in Europe, with one of the largest military expenditure budgets in the region (all purchases are made from the United States)—two factors that denote its clear desire to join NATO. But, since 2014, Ukraine has been experiencing daily tensions between the constant threat of a Russian military intervention and the strong US military presence.

Many regard the situations of Venezuela and Ukraine as mirror images of each other—but with the main protagonists taking opposite roles. In the Caribbean country, there is a strong Russian military presence and the daily threat of military intervention by the United States. Since the early twentieth century, Venezuela has been an ally of the United States. Almost all the armaments it has purchased came from the US and there have been cooperation agreements between the two countries. Outstanding students from the Military Academy of Caracas participated in courses at the Military School of the Americas, in Georgia, US. Even the F-16 aircraft pilots participated in training at the Top Gun Academy in San Diego (Venezuela was the first Latin American country to use F-16 aerial equipment, starting in the 1980s).

But all this changed with Hugo Chavez’s ascension to power in 1999. Russia is now the largest supplier of armaments and military training in Venezuela. The strong American military presence in the Ukraine and the strong Russian military presence in Venezuela, as well as Russia’s economic and geopolitical interests in the Ukraine and US interests in Venezuela cannot be seen as independent facts. For many experts, Venezuela has provided Putin with a bargaining chip for the Ukraine: i.e. the small cold War that began in 2014 now includes Caracas. Indeed, Donald Trump recently reported that he has held discussions with his counterpart Vladimir Putin, in which they dealt with the problems of Venezuela and the Ukraine. This indicates that, if Russia and the United States agree on a solution to the problem of Venezuela, Ukraine will be part of that solution.

The People’s Republic of China has sought to avoid defying the United States head-on, but has been working hard to weaken US power and influence in Asia, by attempting to remove some Asian countries from the system of US strategic alliances (the foundation of its regional power). To this end, it has created alternatives to US-led institutions, such as the Asian Infrastructure Investment Bank (BAII) and the Regional Comprehensive Economic Association (a competitor of the Trans-Pacific Economic Cooperation Agreement). It is also using its growing economic power and regional initiatives, such as the Silk Road and Belt initiative, to pressure certain countries in the region to adopt policies that do not harm the interests of the People’s Republic of China. Everything indicates that the long-term objective is to create a synocentric order in Asia (an ethnocentric perspective with China at the centre).

Current trends suggest that, in the coming decades, the international system is likely to be markedly bipolar: with the US and the People’s Republic of China at its two poles. The other powerful players on the world stage, such as the European Union, Russia, Japan and India, are likely to line up partially or totally with the United States or China. This will probably generate an asymmetric bipolarity, in which the US will possibly remain more powerful than China, but which will encourage China to continue to challenge US leadership by expanding its active presence in countries that are not aligned with the Americans.

How Did China Become a Superpower?

Many think that the United States neglected its global political and economic leadership during the first decade and a half of the twenty-first century. It was intensively engaged in combating terrorism, actively involved in the conflicts in the Middle East, and had to face the consequences of the 2008 global financial crisis (which swept away large financial institutions) as well as managing the effects of the first major widespread dot com corporate bankruptcy. Unbridled capitalism rekindled the problems of racial discrimination and intensified the poverty of minorities, which made them look inward to try to lessen growing social pressures and discontents. Meanwhile, the People’s Republic of China rapidly increased its economic power, its presence in world trade, its military strength and its global political influence.

Since the introduction of economic reforms in 1978, China’s GDP has grown by an average of 10% per year (although in the first quarter of 2019 its expansion dropped to 6.3%, which still represents huge growth). This enormous—indeed incomparable economic expansion—has, according to the World Bank, managed to lift almost 800 million Chinese out of poverty, the largest number of people to achieve prosperity at the fastest pace in history.

The People’s Republic of China emerged from the global financial crisis of 2008 relatively unscathed. In 2010, it surpassed Japan to become the second largest economy in the world. Today, China is already one of the world’s major producing economies and the largest exporter of almost every product. It is predicted that by 2030 it will surpass the United States to become the world’s leading economy. If you measure the size of China’s economy using purchasing power parity (as estimated by the International Monetary Fund), it is already the world’s largest economy.

Millions of Chinese are, to some extent, now living in the American way. This has increased the consumption of meat, the purchase of vehicles and real estate and trips abroad. In other words, Chinese citizens are spending their growing (albeit unequally distributed) economic wealth in the same way as Americans do. In China, the total consumption of several basic commodities, such as grains, meat, crude oil, coal and steel, has already reached that of the United States. It is foreseeable that by the year 2031 per capita income in the People’s Republic of China will equal that of the US for that same year. This undoubtedly represents an incomparable economic achievement, especially taking into account China’s larger population.

China’s Internal Conflicts

The Chinese economy faces a host of serious problems, including rising debt levels, industrial overcapacity, capital flight, growing inequality in the distribution of national income and what economists call the middle-income trap (when a country’s income reaches a certain level and then fails to increase). Addressing these problems will require serious reforms, which could lead to massive job losses, industrial conflicts and political instability. As if that were not discouraging enough, other serious factors could also limit China’s prospects for economic growth. These include the demographic problems of post-maturity, because a large part of the population, due to its advanced age, will not effectively contribute to the country’s economic upturn. This situation is a consequence of the policy introduced in the late seventies of controlling population growth by limiting married couples to one child each.

The problems of environmental pollution in China are also extreme. That nation ejects the largest amount of pollutants into the atmosphere and produces the most deforestation, desertification, decrease in arable land and pollution of water sources in the world. Internal political problems, endemic corruption and ethnic conflicts (in areas such as Tibet and Xinjiang) could also compromise the solidity of China’s economic growth.

Paradoxically, as China has increased in self-confidence and prestige on the world stage, it has become more insecure domestically. Under the chairmanship of Xi Jinping, this has resulted in growing authoritarianism, including severe restrictions on civil liberties, a lack of transparency in judicial proceedings, limitations on media activity and restrictions on Internet access. Although the China is now the world’s second largest defence spender, domestic security consumes most of its defence budget—a clear indication of what the Chinese government perceives as the main threat to its stability.

Human rights in the People’s Republic of China are recurrently the subject of serious disputes between its government and those of other countries, and of non-governmental human rights organizations, such as Amnesty International and Human Rights Watch. In general, these accusations concern the consistent and growing restriction of civil liberties. International bodies are concerned about the restrictions on freedom of expression, the subjective judicial system, the lack of freedom of movement and the serious restrictions on freedom of worship. The Chinese government has defended itself by arguing the relative nature of the scope and meaning of human, economic, social and political rights in the West. They argue that such concepts must be understood in a Chinese political and cultural context, bearing in mind the level of development that the country has achieved.

The widespread perception is that China has expanded its human rights abuses. There has been an increase in the harassment of Chinese dissidents abroad, arrests of foreigners in China and intense repression of academic freedom and freedom of thought. The Asiatic giant uses its economic and political influence in the region to silence criticism and increase sympathy for the government. Faced with this, in the last decade there has been a change not only in foreign policy, but also in domestic policy. China has become both a more assertive nation and more aggressive in maintaining internal order.

External Disadvantages

Apart from the overwhelming internal challenges faced by China, its ambition to position itself at the top of the Asian power pyramid has led to opposition from lower-ranked nations. It has apparently insoluble territorial and maritime disputes with several countries. With Japan, it has a sovereignty dispute over a small group of atolls in the East China Sea, known as the Senkaku islands by the Japanese and as the Diaoyu islands by the Chinese. This problem has intensified since 2010 (among other things, there have been skirmishes between the coastguards of both countries), bringing Chinese-Japanese relations to their lowest ebb since they were re-established in 1972. The unresolved legacies of Japan’s aggression against China during the 1930s and World War II continue to poison relations. Tokyo and Beijing compete fiercely for influence in Southeast Asia and even in Africa. Of all the Asian countries, Japan is the least likely to accept a synocentric order.

India is the other great expanding Asian power and maintains border disputes with China that almost made both countries go to war in August 2017. New Delhi is also irritated by Beijing’s economic and military support for its rival, Pakistan. Although trade is increasing between the two countries, they remain geopolitical rivals with very low levels of mutual trust. The Kashmir region—claimed by both India and Pakistan—contains Aksai Chin, a region administered by the People’s Republic of China. Although the government of Pakistan shows Aksai Chin as within China on its maps, it describes its frontier as an undefined border. India claims that Aksai Chin is illegally occupied by the People’s Republic of China. A large part of Arunachal Pradesh, in north-eastern India, is also disputed with China. China claims control over this territory because it considers it part of the autonomous region of Tibet.

In the South China Sea, Beijing has overlapping territorial and maritime jurisdictional disputes with Vietnam, Malaysia, the Philippines, Brunei, Indonesia and Bhutan. Disputed territories include: i) Spratly Islands, small islands with gas and oil reserves which form several reefs near the Philippines; ii) Paracel Islands, several archipelagos between the maritime zones of Taiwan and Vietnam; iii) Scarborough Shoal, a small island near the Philippines; and iv) North-West Bhutan/Chumbi Salient, several kilometres of territory northwest of Bhutan. All these conflicts have generated tensions for decades and have strained China’s relations with the region’s main diplomatic community, the Association of Southeast Asian Nations (ASEAN).

Many fail to understand China’s claims to annex all these small territories and islands, especially considering that China’s current continental space occupies 9,600,000 km,2 making it the largest territory in Asia and third largest in the world, after Russia and Canada. The explanation of China’s claims could lie in its unstoppable desire to expand its dominance and presence in the world. This is worrying, as it may demonstrate the true intentions and hegemonic strategies that motivate China’s international relations.

The Modern Confrontation of the Superpowers: The New Cold War

Given this change in the balance of power in world economy and trade, how will the United States and the People’s Republic of China behave in this new era of intense bipolarity? At present, relations have not been exempt from significant and growing inconveniences and complications, especially in the commercial sphere. The situation is unprecedented, since the relations between the United States and the Soviet Union during the Cold War were based on ideological and political, not economic confrontations. The United States and the People’s Republic of China are not enemies because of their political systems, but because of their rivalry for the commercial and economic supremacy of their respective empires or, rather, the supremacy of their companies and industries.

Although China is rapidly modernizing its armed forces, there is no formal arms race between the two countries, nor is there any open ideological competition. However, considering that the major American companies and corporations want to continually expand their operations and profits through unrestricted access to all the world’s markets, this is likely to generate serious and growing inconveniences in the US relationship with China. Those same pretensions to economic dominance are shared by Chinese businessmen and rulers, who perceive protectionism and trade barriers against their products as a threat to the development and stability of the People’s Republic of China.

The commercial war between the United States and China is very simple in origin: each party is struggling for unlimited access—without restrictions or competition—to the markets represented by the millions of consumers the other provides, as well as the rest of the world. Not only the American and Chinese commercial markets are being fought over, but those of other countries too. The principle is very simple: by dominating the commercial market offered by the competing superpower (be it China or the United States), the other world markets (countries) will succumb and must allow the companies or industries of the dominant country access under equivalent conditions, since regulating its access could lead to strong economic sanctions by the dominant superpower, which would endanger the economy of the host country, with all the harmful political and social consequences that implies. According to this vision of extreme economic neoliberalism, markets are represented by countries or geographical regions. Thus, in terms of corporate governance, countries are simply considered target markets, and addressing, dominating and expanding such markets is in their justified corporate interest. When markets are commercially contested, the focal objective is to establish dominant positions through monopolies or oligopolies, annihilating two basic threats: competition from other companies and regulatory and protectionist attempts on the part of governments.

The profit and speculation strategies of large multinational companies run contrary to the interests and welfare of consumers. The dominant positions that the companies manage to establish generate notable imbalances in the transparency of the markets that intervene (countries), since the unrestricted conditions that define the offer (the price of the products) is imposed on the demand of the consumers (capacity of purchase). The commercial confrontation between the great superpowers is therefore a matter of importance and concern to every country, especially because the confrontation deals with raw materials and essential manufactured products, as well as industries of vital importance to the economic development of every country (energy, transport, electronics, minerals, agriculture and agro-industry, technology, medicines, etc.).

This kind of dispute over markets generally materializes in the presence and permanence of large multinational corporations in a country. These corporations use their enormous power and influence to establish their own operating conditions, which generally involve no limits or commercial restrictions. This allows them to impose themselves upon, manage and compete fiercely in markets and to combat the protectionism and entry barriers that governments seek to impose. When trade wars between countries are fully developed, the victims are usually the companies of the host countries, which cannot compete with the monopoly power of large corporations. This ends up affecting the employment of large numbers of workers, as well as thousands or millions of consumers, who are left totally unprotected and exposed to implacable markets. These circumstances may put pressure on the governments of these countries, generating social conflict and loss of autonomy and dominion over trade and fiscal policies.

Although the conflict between China and the United States is not the result of military or ideological disputes, their large and powerful companies need to reach an agreement. This agreement should involve, if possible, the equitable distribution of the disputed markets (those of the US, China and other countries) according to their speculative interests. Unfortunately, this has not been seen as feasible so far, so the least desired solution, in the medium or long term, will probably involve a military conflict between the two countries.

The current relationship between China and the United States is overshadowed by mutual suspicion, by distrust that originated some time ago and by new areas of conflict that arise daily. The United States is concerned that the ultimate goal of the Asian giant’s economic actions is to establish a synocentric order in Asia, in which Americans would play only a minimal or no role. On its part, China has a widespread and ingrained perception that the United States is actively working to limit its power and growing influence by applying a policy of containment. In recent times, the United States has accused China of applying protectionist and extremely mercantile economic policies (although the US does exactly the same thing itself). The US has also warned of Chinese manipulation of currency markets and its intense involvement in cyber attacks and acts of large-scale industrial espionage. It is worth highlighting the arrest of Meng Wanzhou in Canada in December 2018, at the request of the United States. Wanzhou is the daughter of the founder of the Chinese technological giant Huawei. This has intensified the conflict between Beijing and Washington, which is why China is expected to take action against major American companies (Apple, Google, etc.). In the opinion of the Chinese government, the arrest of the Chinese executive is a reflection of the Trump government’s intention to take advantage of the intense commercial war waged by both countries. Washington accuses the Chinese company of violating the sanctions imposed on Iran and of unfair trade practices, theft of industrial secrets and cyber-espionage.

China has also frequently accused the United States of hypocrisy and double standards because of its interference in territorial and maritime disputes in Asia, its incitement of separatist forces in areas such as Tibet, Xinjiang, Taiwan and Hong Kong, and its attempts to undermine the Chinese Communist Party through colour revolutions, i.e. political mobilizations against authoritarian governments in Eastern Europe and the Middle East, in which demonstrators, generally led by civil and student organizations, often adopt a specific colour as the symbol of their peaceful protests, a colour that gives its name to the group.

The Chinese Dream

In 2017, as part of China’s strategy to expand its influence and power in the world, during the nineteenth National Congress of the Communist Party of the People’s Republic of China, President Xi Jinping first described what has come to be known as the Chinese dream. In his words, this consists in achieving the success of socialism and national revitalization, and will usher in a new era, which he described as characterised by the connection of China to the world. The idea is to incorporate a more humane global vision into international relations, uniting all countries through an economy with a win-win criterion, based on three fundamental pillars: peace, harmonious development and cooperation.

The Chinese leader stated that all countries should achieve economic growth and that that longing responds to the aspirations of all countries on Earth. He uttered a phrase that represents the core of his seemingly integrative vision: “No one can be left behind.” On the basis of this idea, he pointed out the principles that encompass the Chinese dream: i) you can’t talk about freedom when thousands of people don’t even have enough to eat and ii) you can’t talk about human rights, when so many people don’t have a place to live and can’t find a decent job, in a society where only a few have a slice of the cake and their leftovers are taken to tax havens.

In theory, what distinguishes the Chinese dream is that it is based on a responsibility to share development and opportunities with everyone around the world. According to the Chinese leaders, it is not a question of winner takes all, leaving others to live in misery. A rational distribution of wealth is needed, something that modern economic neoliberalism is unwilling to accept. The capitalist system is based on the unlimited profits of a few, at the expense of the inequality and poverty of many. Xi Jinping’s strategists have been very skilful in differentiating the Chinese dream from the much criticized American dream. They argue that the latter only stimulates individual success and well-being, while their proposal benefits the collective by promoting group profits. Therefore, if wealth is not shared and redistributed, one cannot speak of a democracy of the people and for the people.

By contrast with the American dream, the idea put forward by Xi Jinping suggests that the efforts of the government should concentrate on achieving group welfare and not on generating market conditions that promote dominant players, such as monopolies or oligopolies. These market distortions generally bankrupt small businesses, produce unemployment and discourage individual initiatives. But the evolution or application of the Chinese dream may not bring the benefits announced by the Chinese leader. In the case of the People’s Republic of China, we need to determine the degree of congruence and veracity of these ideas, taking into consideration that, for many years, this country has allowed fewer civil liberties than most and exerted much repression and governmental control over the lives of its citizens.

The American Dream

The phrase the American dream was first coined in 1931, by historian James Truslow Adams, who understood it to mean that all citizens could achieve their goals through equal opportunities and freedoms, if they worked hard and with determination. According to Adams, prosperity is achieved with the help of skill and effort. Traditionally, the United States has been considered the land of abundance and opportunities.

When Michelle Obama gave her farewell speech, she mentioned the American dream: “If you work hard, if you get a good education, anything is possible, that’s what the American dream is all about.” She confessed that she and her husband started out with very little money, and ended by asserting that, “if we work hard and believe in ourselves, we can all be that dream, despite the limitations we encounter.” The idea of the American dream was born long before the year 1931, back when the Europeans first landed on the east coast. European migrants came to United States in the hopes of starting afresh in a new world, leaving the religious intolerance, economic constraints and old world politics of Europe behind. But the dream of the Europeans who sought the promise of the new continent of North America soon became a nightmare, as they were caught up in a web of corruption, extreme greed and consumerism. Those who managed to amass a lot of money wanted ever more, were willing to sacrifice anything to achieve that and did not share their wealth or allow others the same opportunities.

The American dream is not what it seems. The famous writer F. Scott Fitzgerald illustrates this in The Great Gatsby (1926). Fitzgerald’s famous novel describes the loss of moral values that results when opportunities are seized without regard to rationality and common sense. In the novel, Gatsby can only achieve his dream of conquering his beloved Daisy by making a lot of money. But, to do so, he has to engage in illegal business and crime. He thus becomes a gangster without scruples, all just to have an empty and superficial woman at his side.

Many believe that the hope of achieving the dream mentioned by Michelle Obama is false. That hope only comes to fruition for those who are willing to give up everything—even their integrity—for the sake of money. Many critics have pointed out that following the American dream is the best way to become greedy and materialistic, and to sacrifice ethics and morals for the sake of profit and power.

The New Silk Road

In recent years, the People’s Republic of China has displayed ever greater aggression in its quest for global hegemony. It has recently tried to expand its geopolitical influence through the One Belt One Route (OBOR) initiative, also known as the New Silk Road. The current name of this program is Belt and Road Initiative (BRI). The economic magnitude of this investment program is gigantic. In essence, China plans to create a vast infrastructure, through the construction of railways, ports, highways, pipelines and airports, which will improve and expand China’s connectivity with the countries in the rest of Asia, Europe and Africa. For now, the BRI includes two main geographical routes: the New Silk Road or Eurasian Land Bridge, which connects China to Europe via Central Asia, Russia and South Asia (in a manner reminiscent of the old Silk Road); and the twenty-first century silk road, a series of ports that will link China with Southeast Asia, South Asia, Africa, the Middle East and Europe.

The BRI program aims to create six land routes or economic corridors: China–Pakistan, China–Mongolia–Russia, China–Indochina Peninsula, China–Europe–Asia, China–Central and –Western Asia and Bangladesh–China–India–Myanmar. This configuration is both exciting and worrying, as it may entail fundamental changes to the basic structure of world trade. Currently, there are three clearly separate global spheres of economic exchange and cooperation: (i) Asia and the United States, (ii) Europe and the United States and (iii) China and Europe. Two of these spheres—the transatlantic and the transpacific blocs—are dominated by the United States, but the Chinese programme proposes to merge the commercial currents linking Asia and Europe into a single nucleus. Through the impulse generated by the new economic corridors, a new commercial and productive centre of gravity would then emerge, to which the countries of the Indian Ocean would be joined through the silk sea route. If this merger is effective, the axis of the world economy would shift to Eurasia, thus substantially reducing US importance within the global system.

China has set aside approximately $70 billion in direct investments for the BRI project and $75 billion for additional funding allocations for financing purposes (for the Asian Investment Bank and the Silk Road Fund). It is estimated that, in total, the programme will involve approximately 60 nations and more than two-thirds of the world’s population. This would represent the greatest possible challenge to the world economy and could bring about a true economic revolution. However, it is clear that this initiative is being undertaken for primarily economic and geopolitical reasons. From an economic perspective, its aim is to help reactivate China’s western and inland provinces by securing new foreign markets and raw materials, and to dispose of excess industrial capacity and surplus capital. In geopolitical terms, its focal objective is to increase the presence and activity of the People’s Republic of China as a hyperpower. Beijing is concerned because economic indicators in inland provinces and western China have persistently lagged behind those in China’s eastern coastal cities, which are much richer and more developed. China has made significant investments as part of its go west strategy, and in recent years, many selected provinces have seen significant GDP growth. Yet, they still lag behind the national average. This demonstrates the huge differences between the east, centre and west of China.

The BRI Programme is No Fairy Tale

Although a BRI economic integration plan of this kind could become an unstoppable dynamic in the world economy, some conditions of its implementation have already raised red flags. The initiative has received intense criticism, since it has been estimated that it will jeopardize the sovereignty and economic independence of developing countries. The magnitude of the BRI projects, combined with the credit risks and economic recessions of many developing countries that obviously wish to participate(especially in Africa, Central and South Asia) generates variables of risk and imbalance beyond what is acceptable.

Countries with depressed economies and high levels of poverty and unemployment may find the BRI programme very appealing. Most of the nations incorporated in the investment program of the new silk road do not have the economic means to raise their level of development autonomously and quickly. However, this program’s financing mechanism, which will be implemented by Chinese banks and financial institutions, has given rise to doubts, suspicions and concerns. The main uncertainty has to do with the opacity and subjectivity of the contractual conditions of the projects, as well as the notable bias towards the interests of the Chinese government. For example, Chinese banks, following instructions to develop projects, would approve financing to the countries involved almost instantaneously, ignoring almost all credit risk forecasts. Although the interest rates that have been set are low in relation to the international market (to which these countries generally do not have access due to their high credit risk), they may end up representing strong financial burdens for such countries. This would have a notable impact on the economic profile of the countries concerned, increasing their fiscal deficits, inflation and indebtedness, and decreasing gross domestic product, employment and balance of payment deficits.

When such countries need to renegotiate the payment of debts (for project financing) to China, they may face what experts have called debt trap, also known as debt diplomacy. Under such circumstances, countries will be left in the hands of Chinese banks and institutions, which may impose very harsh conditions and requirements on debt refinancing or repayment. Faced with the impossibility of paying or complying with the imposed conditions, countries may be forced to cede the ownership, right of use or exploitation of infrastructure or natural resources linked to BRI projects (industries, ports, mines, hydrocarbon deposits, shipping terminals, railroads, highways, etc.) to Chinese lenders, in payment.

For such countries, the benefits of the BRI projects, which leave them completely in the hands of Chinese banks, companies and contractors, may become the forced mechanisms of investments protected by the Chinese dream. These changes in the original functionality or management of the projects may have unfavourable effects for these countries, since they may contract the gross domestic product and diminish an important part of the national income or the indirect benefits generated by the assets ceded in payment. In these scenarios of debt trap or debt diplomacy, the BRI initiative will become an instrument through which the Asian giant acquires important or strategic assets, giving it greater advantages in its quest for leadership and allowing it to expand its international trade profits and geopolitical power.

Several developing nations that participated in the initial stages of the BRI are beginning to accumulate large debts to Chinese financial institutions, due to delays or defaults in the repayments of loans. The countries in a state of near insolvency are Mongolia, Montenegro, Pakistan, Laos, the Maldives, Djibouti, Kyrgyzstan and Tajikistan. Many experts believe that—given the rapidity with which emerging market debt has increased over the past decade—China’s contribution to this problem has been particularly alarming and worrying. The situation is so critical that the IMF and World Bank do not know the exact magnitude of the debt and the state of solvency of these nations.

Another disadvantage of the BRI programme is the notable imbalance or undue preference towards Chinese interests in the execution of such projects. According to the agreed conditions, the hiring of workers, materials and services must be done through suppliers and state-owned companies in China. This obviously limits the participation of domestic companies from each country and tilts most of the profits towards Chinese companies. In addition, Chinese contractors reserve the right to the direct execution of most infrastructure projects. This atypical behaviour has been highlighted by a study carried out by the Centre for Strategic and International Studies. Of all contractors participating in projects financed by China, 89% have been hired by Chinese companies. By contrast, in projects led by multilateral banks, on average almost 40% of contractors are local. This can be considered a factor in the initial indirect redistribution of the project’s income, such that 90% of the profits from the construction stage of the projects remain with Chinese companies. This seems to go against the principles of the Chinese dream. It is acceptable for China to make a reasonable profit on the investment programme, but concentrating almost 90% of profits with Chinese companies does not exactly reflect a win-win philosophy.

In addition, there is uncertainty about financial sustainability and debt risk for countries participating in the BRI. According to the RWR Advisory Group, 270 of the initiative’s infrastructure projects have already been suspended in their initial stages, due to financial problems. The sovereign debt of twenty-seven of the participating countries is considered junk by the rating agencies, while fourteen other countries have no risk rating.

Beijing’s ambitious international development plan has also been criticized for the lack of standards, transparency and accountability of its construction contracts. This facilitates corruption and nepotism and weakens existing best credit practices, as well as international standards of prudent project management. The hundreds of billions invested in these countries do not produce the benefits of true economic integration—a fact that reaffirms that China is seeking geopolitical benefits by increasing the risk of debt and acting as the main creditor of the countries participating in the BRI project.

The financial and contractual scheme applied by Chinese institutions through the BRI programme therefore has the potential to weaken the economies and sovereignty of the developing countries that participate. For those countries, which already face serious internal economic problems, it is extremely critical that they do not suffer any loss of autonomy over the administration of their natural resources, infrastructure and key industries. Such loss of autonomy may even compromise the well-being of their populations in the medium or long term and seriously affect the countries’ political stability. The BRI initiative may represent an effective geopolitical instrument through which China can expand its dominance in international trade and strengthen its position as a superpower. Therefore, the fundamental question is whether Beijing will really be fulfilling its promises to provide prosperity to and share it with the programme’s host countries or is simply furthering its own sole economic and geopolitical interests.

The BRI initiative is often seen as an extension of China’s influence. The US government has openly criticized it and expressed concern about the growing debt crisis in the Asia-Pacific region. China has been warned of the imminent financial crisis in the region, and has been called a non-transparent emerging sovereign creditor. This issue was also raised at the recent G20 summit in Buenos Aires, where world leaders agreed to take steps to address “debt vulnerabilities in low-income countries.” The final declaration states: “We will work to improve transparency and debt sustainability, as well as to improve sustainable financing practices.” The G20 countries also called on the IMF and the World Bank to work with borrowers and creditors to improve the recording, monitoring and transparency of reports on public and private debt obligations. This has been seen as a formal program to try to nullify the effects and intensity of China’s BRI initiative.

Faced with this problem and with the threat to its global hegemony, the United States has taken some strategic steps to provide financial assistance to developing countries that have had problems with the BRI programme. In October 2018, the Senate passed the Development Investment Act of 2018. On the basis of this law, the Overseas Private Investment Corporation and other development aid agencies will be integrated into a new US International Financial Development Corporation. The new agency will receive $60 billion in funding and will be responsible for providing assistance loans to developing countries for infrastructure projects such as energy, ports and water supplies.

Concluding Remarks

More than twenty-five years after the end of the Cold War, it is no longer realistic to describe the era in which we live as the post-Cold War era. That era witnessed armed conflicts in many parts of the world, but it was marked by sustained economic growth, the fall of authoritarian regimes, the expansion of democracy, the proliferation of multilateral cooperation forums and the general stability of the international system. That is no longer the case. We are now living in the post-post-Cold War era—though future historians will probably find a shorter term for it.

The current era can be identified with the great financial crisis of 2007–9, the intensification of religious fundamentalism, international terrorism and, especially, the immediate access to information. But, perhaps most notoriously, it is the historic moment that has marked America’s systemic decline as the sole superpower and the arrival of the People’s Republic of China as the hegemonic challenger. This superpower faces a multitude of hard economic, demographic, environmental and even political challenges that could, as a whole, hinder its ascendant trajectory. It would therefore be wrong to exaggerate America’s problems and write its obituary as the world’s greatest power.

Today, we face a more complex, sensitive, disputed and changing international environment than at any time since the end of the Second World War. All international relations are characterized by uncertainty and suspicion. The ability and willingness of the United States to continue to lead the global order is being openly questioned, especially since President Trump has entered the White House. The People’s Republic of China might very well use this opportunity to more resolutely pursue its ambitions to become the centre of global economic and political power. Beijing might use economic and military coercion to force its neighbours to align their interests with China’s. If the Asian giant’s goal really is to drive the United States out of Asia and minimize its influence in Europe, will it be able to achieve this gradually and peacefully, or will the two parties be pushed into head-on conflict?

In view of the destructive power of today’s military weaponry and the global economic disruption that a war in the Pacific would bring, it is in no one’s interest for the US and China to start a war. The risk of such a scenario is mitigated by the high degree of economic interdependence between the two countries and, of course, the existence of nuclear weapons in both. Nevertheless, if both countries want to avoid the Thucydides trap, they will be forced to make concessions and reach difficult agreements.

The current commercial confrontation between these superpowers influences the wellbeing of all consumers everywhere in the world. This commercial war is necessarily related to fundamental macroeconomic variables: production, prices of goods and services, public expenditure, fiscal deficit, indebtedness, interest rates, exchange rates, employment, taxes and inflation. Therefore, any outcome, any arrangement or divergence between the two superpowers will have important and inescapable effects on the economy of all other countries.

China is now repeating a scheme designed to have similar effects to those which transformed the balance of economic power in the nineteenth century, during which Europe, and especially Britain, consolidated its dominance over the world’s supply of raw materials, consumption of manufactured goods and capital investment. Beijing is leading the beginnings of the fourth industrial revolution—with no competitors or threats—and there are strong indications that it intends to consolidate and intensify its economic progress. China has shown interest in the global shipping industry, through which (because of the magnitude of its scope) it will continue to drive its economic growth. That is why the geostrategic value of the oceans, especially the Pacific and Indian oceans, is unquestionable. Something similar is happening with aviation. Comac, China’s largest aeronautical company, is likely to displace the United States as the world’s largest aviation market by the mid-2020s. Commercial dominance of the skies and oceans, coupled with skilful but forceful diplomatic action, will ensure Beijing permanent and stable access to vital markets for energy, raw materials and food.

China is currently becoming a strong actor in direct foreign investment. In combination with its powerful commercial deployment, this will ensure it a central role in shaping the international order of the twenty-first century. China thus provides a huge counterweight to the power of the United States. It is therefore foreseeable that Washington will be concerned that China will continue to try to create its own rules in this our twenty-first century.

The conduct of these two superpowers in this modern cold war indicates that they are only interested in imposing, expanding and sustaining their global economic and geopolitical power, by whatever means and regardless of the consequences. Both countries have showed no interest whatsoever in the welfare of the populations of the other nations, which are unfortunately considered simply as corporate market objectives. Whoever wins or gains a strategic advantage in this commercial war will surely generate greater imbalances and limitations in the distribution of opportunities to other countries. In the case of nations that are still struggling to obtain a fair distribution of resources and have not achieved harmonious economic development, it is foreseeable that the actions of this war will accentuate their poverty and precarious conditions and will complicate the implementation of solutions to their peoples’ problems.

Therefore, today more than ever, the civil societies of all countries must unite their efforts to oppose this selfish and reprehensible war head-on. It is time to pressure the rulers, both of the superpowers and of the other countries, to fight a real war—a war against poverty, environmental pollution, the lack of opportunities for people, and especially against the overwhelming and unlimited corporate power of big business. The well-being, freedom, equity, security and happiness of human beings must be the true objectives of politics, the economy and international relations.

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10 comments

  1. Elizabeth

    This conflict (US-China) is marking a new era in relations between the superpowers and the rest of the countries. This shows that the war for economic supremacy is no longer just a problem of multinational corporations, but also of governments. In Trump’s best style, which in no way disguises its interest in business and wealth, the Chinese government is promoting the same conduct that is interested in the economic expansion of its companies and its empire. The superpowers are too interested in the evolution of the mega-companies of each country, not only the oil companies are important, now are also the high-tech and those who manufacture weapons and probably will join the group the companies producing drugs. The important thing is that we are aware that the governments of the superpowers give little importance to human welfare. Humanism has been lost, what is relevant is business, and there are fewer and fewer regulations for companies. The consumer has neither power nor importance, since the mission of governments is to protect companies, their capital and their wealth. How unfortunate!

  2. We all know that the only way to confront these superpowers is to unite, to make us more powerful socially and economically, but it seems that the governments of our countries do not know this. The European Union is a good attempt. Unfortunately, the lack of unity, national interests and political differences between its member countries, again emerge as a serious stumbling block to achieving unity. Europe must present itself as a single supra nation in order to impose itself against the economic interests and hegemonic desires of China or the United States. It is shameful, as always, the selfishness and arrogance of politicians, leaving the interests and welfare of citizens at the bottom… It is time for civil society to demand from politicians a clear, hard and frontal stance against this economic war between the superpowers, which will sooner or later affect the economy of all countries…

  3. The political aspect is the least important in the war between China and the United States. The crucial issue is the hegemony of Chinese or U.S. corporations over trade and the world economy. That being so, it is unavoidable to think that since both superpowers have the same objective, their governments are mere corporate puppets. Now the United States is concerned about China’s international economic offensive, and is interested in helping less developed countries avoid falling into the hands of Chinese corporations, but historically the Americans have given little or no importance to poor countries, only as suppliers of the raw materials required by American industries. If there is one positive thing about this crisis is that it has finally revealed the true intentions of the Chinese and Americans, which is none other than to dominate the world economy and exercise political and military power to maintain that control. In conclusion, it seems that both nations are equal and the only difference is the language…

  4. It is truly sad and disappointing to see how the political leaders of the superpowers show no interest whatsoever in the welfare of the people. Humanism is in decline, the only interest of the rulers is to protect the profits of the companies. It is not the people that matter, but the markets. The problem of the world is no longer to choose between left or right political regimes, the crucial issue is the power that big business is consolidating and the unrestricted support that it is getting from its respective governments. The fight of the politicians is no longer for the welfare of the citizens, but for the growth of the big multinational companies. Everything is reduced to greed and to annihilating competition between companies, the important thing is not human beings, but corporate interests. How far will this terrible situation go? And, will there be governors capable or willing to intercede for citizens by limiting the powers of corporations?

  5. This is a very delicate subject. The war between China and the United States must be a matter to be considered with great care by many countries, since the economic power that the superpowers have achieved is so great that what they negotiate, or how they punish each other, will inevitably influence international trade, and consequently the finances and economy of the countries that buy or sell anything on the international market. We must convince ourselves that this new cold war is not only a matter between Chinese and Americans, so the governments of the countries must pressure so that this confrontation ends and does not harm more than it has done until now to the citizens of other countries.

  6. This is a very important and problematic issue. The war between China and the United States must be a matter to be considered with great care by many countries, since the economic power that the superpowers have achieved is so great that what they negotiate, or how they punish each other, will inevitably influence international trade, and consequently the finances and economy of the countries that buy or sell anything on the international market. We must convince ourselves that this new cold war is not just a matter between Chinese and Americans, so the governments of the countries must pressure so that this confrontation ends and does not harm more than it has already done to the citizens of other countries.

  7. Asking an ethically devoid, autocratic, and increasingly totalitarian and imperialistic China to “abandon its interests” betrays a misunderstanding of everything that animates Chinese policy in the first place. It’s akin to asking a tiger not to eat you because you have a family, and being perplexed when it evinces no sign of comprehending what you’re saying.

  8. A very interesting point of view. The struggle for world domination is no longer political but economic, it is no longer important for the superpowers to impose or influence countries on the desirability of adopting a right-wing or left-wing political approach. The real struggle of the United States and China is to impose themselves economically through their mega-corporations. There is no longer any dissimulation of the governments of China and the United States, they now fight openly for the corporate interests represented by their big companies, and to do so they use their power to impose their economic will on any country. Everything seems to indicate that from now on, the power of a country will be measured according to the commercial strength of its companies and the expansion they achieve in international trade. For the superpowers, the violations of the human rights of anti-democratic governments, the pollution and decay of the environment, the hunger and thirst of millions of people, no longer matter! What really matters to the superpowers is the growth of their companies and how they can penetrate and establish themselves in all world markets, or rather, in all countries; whether they are democratic or not. The motto of the superpowers seems to be: “What is really important is the well-being of the companies, the human being is a simple instrument to achieve it…”

    Paul

  9. As a concerned citizen this is a comprehensive analysis of this incredible trade war, which many mistakenly think is a simple tariff confrontation between Chinese and U.S. markets. Reality indicates that its effects have and will have consequences on the economies of almost all countries, so it is necessary to sensitize governments to intervene in some way and express the concerns that this conflict will have on the economic welfare of billions of people around the world. It is time for China and the United States to abandon their particular interests and think, honestly and clearly, about the damage that their actions have on other nations.

    Robert

    1. Do you really think, as a concerned citizen, that the governments of other countries are concerned about the interests of their citizens, and not a small part of rich people and corrupt government officials?
      The examples of Zimbabwe and South Africa, Kazakhstan and Russia (the list is very large) convince me otherwise.
      Understand correctly, without denying the sincerity of your intentions, I am not convinced of the honesty of the intentions of the governments on whose intervention you rely.
      The further the ruler from me, the less I trust him and I have reasons for that.

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