US-Chinese trade has traditionally kept relations cordial between the two powers. Under Trump, this is changing.
The struggle for world supremacy has often been defined by trade. In 1829, English adventurer Sir Walter Raleigh wrote: “For whosoever commands the sea commands the trade; whosoever commands the trade of the world commands the riches of the world, and consequently the world itself.”
Today, the South China Sea is one of the most dangerous strategic flashpoints in the Indo-Pacific region. Almost one-third of the world’s maritime trade passes through the contested region yearly. The power that controls the South China Sea, controls trade.
It is therefore no coincidence that Beijing’s South China Sea island-building campaign began in the same year that China overtook the US as the world’s largest trading nation. In order to guarantee its long-term economic development, China felt it must secure maritime access through the region.
China has invested heavily in its naval forces
China has been on the rise for the past decade, both economically and militarily. It is now the world’s second largest economy, with an ever-expanding defence budget.
Under President Xi Jinping, Beijing has invested significantly in its navy. A 2018 report by the United States Department of Defense revealed that China now possesses “the world’s largest and most capable maritime militia.”
While the US Navy has 282 deployable battle-force ships as of August 2018, the Chinese People’s Liberation Army Navy (PLAN) has “more than 300 surface combatants, submarines, amphibious ships, patrol craft, and specialized types”, making it the largest navy force in the Indo-Pacific region.
According to Robert S. Ross, Professor of Political Science at Boston College and Associate, John King at the Fairbank Center for Chinese Studies at Harvard University, had a naval war broken out between China and the US happened ten years ago, America would have won easily. However, if it happened now, the war would be long, painful and detrimental to both parties.
US-Chinese Trade has traditionally been a stabilising factor
China’s reliance on the US market has played a major role in keeping disputes over territorial waters under control. However, under Trump administration, this has changed.
In recent years, the US has started to challenge Beijing by boosting its military presence in the South China Sea – a signal to other countries that it will balance the rise of China in the region.
On 11 August 2018, a P-8A Poseidon flew past four artificial islands where China has constructed “garrisons with five-story buildings, radar facilities, power plants and even runways”.
When the Chinese military ordered the American plane to “leave immediately and keep out to avoid any misunderstanding”, the US Navy crew responded by insisting that they were “conducting lawful military activities” and exercising “rights guaranteed by international law”.
The US’s Freedom of Navigation Operations in the South China Sea have increased in frequency, invoking concern from Beijing. The Chinese leadership view the operations as an attempt to cut China off from foreign markets and energy supplies.
Trump views trade as an integral part of the power struggle
US President Donald Trump has laid bare the struggle for power underlying international trade, and the implicit link between the South China Sea dispute and ongoing US-China trade conflicts.
In September 2018, Trump escalated the trade war with China by imposing steep tariffs on US$200 billion of imported Chinese goods. Beijing fought back with taxes on $60 billion of American imports.
Professor Ross believes that China is “better positioned” than the US to endure the pain, at least in the short term. The Chinese government can provide stimulus packages and control public opinion within their borders. The US media, on the other hand, operates outside government control, granting the US government far less control over public opinion within its borders.
Many Chinese companies also enjoy the benefit of government subsidies to protect them during hard times and are not pressured to turn a profit every year.
Professor Ross told CNBC that the economic relationship between the US and China was not necessarily a “one-way street”. Firstly, it is undeniable that Chinese exports to the US help improve the American standard of living by allowing the distribution of low-cost consumer goods.
Secondly, many American companies are making large profits inside China, including Apple, Buick and other companies.
Despite China’s strong position, in the medium to long-term, the trade war could prove to be damaging to China as it slows its economic growth and prompts rising unemployment.
In the long-term, this could contribute to domestic political unrest. Professor Ross further elaborated on this idea in a recent interview on US-China-EU relations. He explained that the rise of the internet has enabled Chinese citizens to bypass the state for their access to global news. This, he suggested, could lead to social instability as the economic effects of the trade war reveal themselves.
Vietnam enjoys the benefits and feels the pinch
The trade dispute between the US and China will have both positive and negative impacts on many countries in the region.
Vietnam, for example, could emerge as an alternative supplier of several valuable commodities for the US. Tuoi Tre reported an increase of nearly 15% in Vietnamese exports to the US in the first two months of 2018. This spike is a direct result of the escalating trade war between the two superpowers.
Foreign investments into China could also be diverted from China to Vietnam to avoid tariffs. Additionally, Chinese companies facing higher tariffs from the Trump administration are more likely to redirect their raw materials exports to Vietnam in an effort to hide the true origin of their Chinese-made products and bypass tariffs.
There are potential downsides to this. Chinese consumer products are expected to flood the Vietnamese market, threatening the survival of local producers, especially in the textile, mechanical engineering, and construction materials industries.
The US sees China’s rise in the Indo-Pacific region as a security problem. It also sees trade as being a key component in tackling that problem in the long-term. However, China is starting from a position of strength. As President Xi further narrows the gap between the United States and Chinese power, he is more likely to stand up for Chinese core interests in the international arena, including issues related to sovereignty over the South China Sea.
The trade war is already having an impact on ASEAN nations. However, a spike in Chinese aggression in the South China Sea would have a destabilising effect on the region far greater than the trade war.
As US-Chinese trade evolves from a stabilising factor to a source of conflict between the two countries, ASEAN is the likely arena for the two superpowers to collide. It will therefore be ASEAN nations that take the brunt of the side effects, both positive and negative.