by Pepe Escobar (cross-posted with the Asia Times by special agreement with the author)
The tariff tussle that began today is linked to Beijing’s ambitious ‘Made in China 2025’ and Belt and Road strategies, which will transform the global economic and geopolitical landscape; this rivalry could last for decades, some experts have said
Way beyond the first midnight shot in what could possibly turn into a vicious trade war, the US-China tariff tussle must be seen in the context of the game-changing geopolitical and economic Big Picture.
The blame game, as well as all sorts of speculative scenarios on how the tariff tussle may evolve, are peripheral issues. The ultimate target of what started today is not allegedly dysfunctional “free trade”; the target is Made in China 2025, or China configured as a high-tech powerhouse on a par, or even surpassing, the US and the EU.
It’s always crucial to stress that it was Germany that actually supplied the blueprint for Made in China 2025 via its Industry 4.0 strategy.
Made in China 2025 targets 10 techno-strategic fields: information technology, including 5G networks and cybersecurity; robotics; aerospace; ocean engineering; high-speed railways; new-energy vehicles; power equipment; agricultural machinery; new materials; and biomedicine.
For Made in China 2025 to bear fruit, Beijing has already invested in five national manufacturing innovation centers and 48 provincial centers, aiming at 40 national centers by 2025. And by 2030, via a parallel strategy, China should also be established as a leader in artificial intelligence (AI).
President Xi Jinping’s Chinese Dream mantra, also billed as “the great rejuvenation of the Chinese nation”, is strictly linked not only to Made in China 2025, internally, but also, externally, to the Belt and Road Initiative (BRI), the organizing concept of Chinese foreign policy for the foreseeable future. And both Made in China 2025 and BRI are absolutely non-negotiable.
In sharp contrast, there’s no evidence a Made in USA 2025 is in the cards. The White House would rather frame the whole process as a battle against China’s “economic aggression”. The National Security Strategy frames China as the top challenger to US power. The Pentagon’s National Defense Strategy sees China as “a strategic competitor using predatory economics”.
So how did we get here?
Innovate or perish
A quick background is in order.
David Harvey, in The New Imperialism, borrows from P. Gowan’s The Global Gamble: Washington’s Bid for Global Dominance, to stress how they both see “the radical restructuring of international capitalism after 1973 as a series of gambles on the part of the United States to try to maintain it’s hegemonic position in world economic affairs against Europe, Japan and later East and Southeast Asia”.
Before the end of the millennium, Harvey was already emphasizing how Wall Street and the US Treasury was deployed as “a formidable instrument of economic statecraft to drive forward both the globalization process and the associated neoliberal domestic transformations.”
China for its part masterfully played this capitalist reorientation game – investing no holds barred in what can be described as “neoliberalism with Chinese characteristics”, and profiting to the hilt from US economic power projection via open markets and WTO membership.
Now China, at breakneck speed, is finally ready to invest in its own economic power projection. As Harvey had already noted over a decade ago, the next step for East Asia capitalism would be “away from dependency on the US market” towards “cultivation of an internal market.”
Harvey described the massive Chinese modernization program as “an internal version of a spatiotemporal fix that is equivalent to what the USA did internally in the 1950s and 1960s through suburbanization and the development of the so-called Sun Belt”. Sequentially, China would be “gradually siphoning off the surplus capital of Japan, Taiwan and South Korea and thereby diminishing the flows into the United States”. That’s already happening.
President Trump is not exactly a strategic geopolitician. The reason for these tariffs may be to force the supply chains of US corporations to become less dependent on China. But the way the global economy has been set up does not support the undoing of these supply chains – with production de-delocalized back to the US, as Trump would have it. Location, location, location also rules turbo-capitalist logic; corporations will always privilege cheaper labor and production costs, wherever they are.
Now compare it with China investing in high-tech delocalization integrated with US centers of excellence. When it comes to the top of the line innovation battle between China and the US, the strategy of the Zhongguancun Development Group (ZDG) is a fascinating case.
ZDG has established a series of innovation centers abroad. The key ZGC Innovation Center happens to be in Santa Clara, California, quite close to Stanford and the Google and Apple campuses. Then there’s a new center in Boston a stone’s throw from both Harvard and MIT.
These centers offer the complete package – from state of the art labs to, crucially, capital, via an investment fund. The matrix comes from Beijing’s government, via the city’s techno-district. And it goes without saying that ZDG fully aligns with BRI in its emphasis on expansion to “learn overseas experience of [an] innovation ecosystem”.
That, in a microcosm, is what Made in China 2025 is all about.
Half a century of trade war?
So what happens next?
Amid a tsunami of hysteria, sober analysis provided by Li Xiao, the dean of Jilin University’s school of economics, is more than welcome.
Li goes for the jugular, stressing how “China’s rise is essentially a status rise within the dollar system.” From Beijing’s point of view, change is imperative, but it will be gradual. “The goal of the yuan’s internationalization is not to replace the dollar. The dollar system is irreplaceable in the short term. Our goal for the yuan is to reduce the risk and cost under such a system.”
Li, realistically, also admits, “the conflict between two major powers could go on for at least 50 years or even longer. Everything happening today is just a curtain raiser of history.”
Implicit in the curtain raiser is that the Chinese leadership seem to interpret this first midnight salvo as the revving up of what’s described in the US National Security Strategy. The conclusion, for Beijing, is inescapable; the US is now threatening the Chinese dream.
As the Chinese dream, the “rejuvenation of the Chinese nation”, Made in China 2025, BRI, multipolarity, and China as a driver of Eurasia integration are all non-negotiables, no wonder the stage is set for major, inevitable turbulence.
Yes Pepe, the Big Bully has to go after the new tough guy on the block – he doesn’t have it in his book to react in any other way. It is not going to be a century of peace and reconciliation. It could be a time of great awakening from the nightmare of history, but selfishness and greed and false pride will never let that happen – they would rather die, and maybe we all will.
Except, of course, there really is no trade war. The Fake Media Industrial Complex of Soros and his acolytes are trying to manufacture a crisis when none exists. That is why there are bizzaro-land crazy stories such as “Freighter rushing to China to beat tariffs”.
The shipping industry closely monitors trade, and has diagnosed the current situation as wholly non-threatening.
https://www.americanthinker.com/blog/2018/07/shipping_industry_blows_off_medias_trade_war_hysteria.html
__________
China cannot afford a major trade war as they desperately need the U.S. as an export market, and have huge vulnerabilities due to their portfolio of U.S. treasuries.?
The EU has already figured this out and is in the process of Merkel-ing (a.k.a. Surrendering) to the U.S. on trade. For example, the EU consensus position on car tariffs.
https://legalinsurrection.com/2018/06/germanys-largest-auto-makers-support-abolishing-eu-u-s-car-import-tariffs/
Onĺy 17% of China’s exports go to the US. Meanwhile 15% of US exports go to the US. This is simply a matter of who has the higher pain threshold. My bet is on China.
In 2015 Chinese trade with the USA was about 14% of its entire foreign trade. Hardly ‘desperation’ to see that interfered with, particularly with China’s own internal market growing so rapidly. The USA can hardly afford the losses to its farmers etc, from Chinese retaliation, or the loss of cheap goods for all those Walmart stores that the burgeoning US underclass need to use. And if China starts dumping its US Treasuries-watch out. Plus China is governed by meritocratically selected technocrats, and the USA by corrupt buffoons.
Li Xiao is being diplomatic. The petro-Yuan is indeed intended to replace the US dollar, especially when it becomes gold backed. Both Russia and China are preparing to introduce gold backed currencies, and both know that the days of the US dollar are coming to an end. How long can the US dollar last when it’s printed in huge amounts backed by nothing ?
How long can it last?
So far, almost 50 years. Which is how long its been since Nixon took the USD off the gold standard to ‘paper over’ the cost of America’s war in Vietnam.
Anonymous
Yes, since 1971, when Nixon took the dollar off the gold standard. He made a deal with Saudi Arabia and we got the petro-dollar, backed by the US military. However, times are changing. The US military is not what it used to be, while the petro-yuan has made it’s appearance. Pretty soon we shall get gold backed roubles and yuans. Then what, bearing in mind the gigantic US foreign and domestic debt ?
Donald Trump made his fortune producing and selling real estate. In the United States he would be described as a “Main Street” merchant, a person whose tangible goods are located within a town and who has a long-standing relationship with his clients and they with him. By contrast, Donald Trump’s political adversaries represent “Wall Street,” who never touch tangible goods and for whom everything and everybody is drained of all distinguishing characteristics except price, preferably a very low price.
The United States has been governed for over 50 years by Wall Street, as the country was stripped of 92 million Main Street jobs and $ Trillions of manufacturing capacity. The overwhelming majority of politicians in Washington DC reaped handsomely by catering to Wall Street, rather than Main Street. (For example Congressman Paul Ryan has the naming of several Post Offices in his home state and few other inconsequential bills as the modest total of his 18 year legislative record — and a retirement nest egg of $18 million ! )
2016 was electrifying as Donald Trump broke into the political environment with a Main Street message of repatriating Main Street jobs and withdrawing from foreign adventures promoted by Wall Street. Within a very short time, he dispatched a cadre of 16 carefully chosen, Wall Street Republican rivals, revealed 95% of his media critics as so many paid flaks and exposed his Democrat rival as a crook.
Criss-crossing the country by airplane and speaking 2 – 3 – 4 times daily to huge rallies he connected with enough voters to clinch the national election, by speaking as a Main Street merchant to his customers. (The media flaks looked down their erudite noses at his vocabulary, never realizing that he connected with voters and they did not.)
Once elected, President Trump announced that the United States would withdraw from all trade deals that placed his nation at a $550 Billion disadvantage, while he commissioned research to identify unfair trade practices country by country. In the case of China, this research revealed concerted programs involving 50 anti-free trade policies designed to dis-advantage the United States. (Incidentally, should China be so incautious as to open a WTO complaint, it would first have to explain and eliminate those long codified 50 anti-free trade policies, such as forced transfer intellectual property.)
Ideally, President Trump would like trade deals with reciprocal 0% tariffs, 0% dumping and 0 non-tariff barriers. (He is a classically trained economist at the Wharton School of Business.) If that is not possible, the United States would withdraw from significant world trade and pursue a historic 1790 – 1950 history of internal trade alone, with 33% tariffs on luxury, foreign goods attractive to the super wealthy.
For a year, President Trump voiced this 0 – 0 – 0 proposal, which was politely and ignored. Now Mexico, Canada, the EU and China are learning about tariff reciprocity, as the United States raises compensatory tariffs and trade restrictions.
The future looks very good for real free trade ultimately — Germany is removing current auto barriers — but the path to free trade bliss may be rocky in an intermediate period.
Real estate developers are not ‘main street merchants’. Real estate developers do not develop long-term relationships with their customers. Real estate developers are quick-hit artists who build for the short term, then sell it out to others for the profit and move on to the next project.
I agree that there is a long term struggle in America between the sort of industrialists and merchants who used to build for the long-term and the Wall Street hustlers who want a quick buck. But the Trumpeters are pulling the wool over anyone’s eyes if they claim that a Real Estate hustler like Trump is a part of the ‘main street merchants’.
Real Estate hustlers are closely related to the Wall Street hustlers. Usually they work together as the Real Estate hustlers require financing for their projects. But Trump and his Art of the Con is just another variation of the same old Wall Street hustles that have been destroying America. Trump has nothing to do with main street. Never has, never will and Trump only makes such claims as a part of a con game designed as always in the case of Real Estate hustlers to make the hustler wealthy and powerful and leaving everyone else holding the bag and paying off the huge debts that Trump is now inflicting upon America.
Anonymous asserts that Donald Trump is a shoddy builder, a real estate “hustler,” who builds crummy buildings / golf courses and skips town — but our friend provides nothing more than unsupported calumny.
Perhaps Anonymous might explain why this “hustler” posts his buildings with an oversized sign which readsTRUMP? Furthermore, Trump usually retains part ownership of his buildings / golf courses and thereby a management presence. Given that most condo boards know little about maintaining buildings, you better believe Trump provides such boards with construction insight they do not generally have, as he protects his projects from rip-off maintenance.
Case in point, pollster Kellyanne Conway purchased into a Trump building in New York and eventually joined the condo board, where she met and worked with Trump. For a while it was awkward, because she was advising Trump’s rival Ted Cruz. When Cruz withdrew, Trump quietly asked her to be his pollster.
I defined Main Street as a market where a merchant sells tangible property to customers with whom he has a long term relationship. Donald Trump fits that definition.
Yes, Donald-you are a genius. No doubt about it.
“In sharp contrast, there’s no evidence a Made in USA 2025 is in the cards. ”
Damn right. If it were, then a mega-rich institution such as Harvard would be educating the best of the best for free, and educating them to make productive contributions to the progress of society and the technology, not to go into finance to make $$$$.
Higher education would be free for all qualified. Graduates would be guaranteed jobs in teaching, research, etc., so that the general level of education would continue to rise in the USA and the country would continue to lead in all fields of scientific, medical, and technological endeavour. Engineering students would be channeled into projects to restore our failing infrastructure.
Nothing like that is going to happen. Betsy DeVos seems to be bent on hastening the destruction of our public education system, and no one except Ron Unz seems to dare peep about making a Harvard education free. Well, end of that rant. We all know this already, I suppose.
I did have a thought on another subject:
Putin is regularly termed an “autocrat.” Although my Moscow contact denies this.
But, learning of the incredible construction projects that Catherine the Great ordered to have done, and they were done, I wonder whether a project such as the Kerch Strait Bridge could have been completed in 2.5 years in a Western country? In the USA? Nyet!! It took six years to complete a small bridge over the opening of our Lagoon!
Perhaps it is because Putin was able to issue an autocratic order that this project was completed as quickly—and apparently as well (touch wood)—as it was.
Katherine
Katherine
Nice comment. You are correct. No Western country could possibly have built a 12 mile bridge in 2 1/2 years like Russia did at Kerch. However, I don’t think that Putin issued an autocratic order. He did indeed issue a decree that the bridge be built, and it was by a private corporation. Everybody knew about the importance of that strategic bridge, and everybody was eager to build it, even that private corporation. Yes, the corporation was run by a Russian oligarch. However, even he joined the effort, especially when all the oligarchs in Russia remember Putins warning that he would not tolerate any corruption and mismanagement from them.
Could or Would?
America certainly used to be able to. The similar project in America that came to mind was the Chesapeak Bay Bridge. It is 23 miles long and opened 42 months after construction began. Thus, while approx twice as long, it took 3.5 years to construct. That included a major storm striking the project and destroying some of the completed work and barges and equipment used in the project. https://en.wikipedia.org/wiki/Chesapeake_Bay_Bridge%E2%80%93Tunnel
Of course, that was back in the 1960’s when America was a very different place.
I worked bridge construction and design in my lifetime. Thus I’ve been fascinated by the project over the Kerch Straits. Certainly the technology and skills of the designers and builders to do such a project exist in America today. But America is a different place these days from the America of the 60’s in which I grew up, so I do doubt that it could be done today. It would probably take a similar emergency to find out. Russia needed that bridge after the people of Crimea rejected rule by fascists and instead joined Russia. We’d only really find out what America could do today if it really needed such a project in a similar way.
I lived for many years in northern Delaware and it was privileged to watch the construction of the second span of the Delaware Memorial Bridge. Bridge construction fascinates me to this day. How in the world did they manage to make the second bridge exactly parallel to the first? Apparently it was, at the time, the longest twin-span suspension bridge in the world, though this is probably not the case today, it is still an amazing bridge. High up over the Delaware Bay it seems there is always wind; and you can feel the bridge swinging in the wind, which makes some people very uncomfortable.
https://en.wikipedia.org/wiki/Delaware_Memorial_Bridge
Speaking of the old days, back in early ’64 when I moved there (yes, DuPont), the State of Delaware charged tolls along the new I-95 through Delaware. This was to pay for construction of the interstate highway, they said. I remember being totally shocked one day when I took the entrance ramp to I-95 in Newark (pron. new ark, not newrk), where I lived, and found the automatic gate raised, and the bin where I would throw in my dime was covered; and a few days later the entire toll bin and gate apparatus and the little booth station was gone. Seems that the highway debt was paid, and so that tax was discontinued. Only in the good old days.
https://en.wikipedia.org/wiki/Delaware_Memorial_Bridge
Compare and contrast that story to this one, the Big Dig.
https://en.wikipedia.org/wiki/Big_Dig
I couldn’t help but notice that China’s project is based on techniques that America now hates and despises. Investing in the country.
America no longer does that, and now apparently hates and despises and wages war against anyone who does that. Neither the American government nor American corporations invest in America any more. Indeed, they rarely seem to invest in the future. They don’t build plants and factories and research centers. If they build a factory, its for something like short-term explotation of cheap to slave labor, and its never to build and grow capacity for the future. America worries about the profits they can report to share holders at the end of the quarter, and any investing for the future goes into the category of costs that must be controlled. An American corporation who did try to invest for the future would only be a take-over target for Wall Street which would try to sell off that investment for a profit.
China is doing what America used to do. China is doing what Made America Great in the First Place. If America really wants to be Great Again, then it should do more of this. But it won’t because these days America is Wall Street and America is the Military and the Deep State and none of those folks believe in building and investing for the future. There are more short-term profits in war, death, destruction and contracts to outsource torture.
Not bad for the global terminus of 5,000 years of increasingly exclusive patriarchal power structures. Vivid.
The US economy has been financialised, ie increasingly run on straight rentier parasitic lines, over recent decades. The Chinese economy is already vastly larger that the USA in Purchasing Power Parity terms, and makes things, not lives off interest on debt and financial sleight-of-hand in derivatives, options, and other Ponzi schemes. The increasingly shrill uttering of the neurotic declaration that China is ‘the second-largest economy’ is wrong, and reveals the Western supremacists’ growing terror at their relegation.
Brilliant analysis, again.
Another stunner by Pepe. And timely, too!
Nonsense. We’ve already had 30 years of trade war. China started it. Our traitorous corporations immediately surrendered and collaborated. There is no more war because we were defeated 30 years ago. What Trump is doing now is just pointless noise.