Current Issues and Policies No. 2018-17
December 12, 2018
Dr. Lee Seong-hyon
Director, Department of Diplomacy Strategy Studies, the Sejong
Institute
seonghyon.lee@sejong.org
• Why
the U.S. continues the trade war that ‘damages both sides’
• Hopes
that the situation will disentangle in a short-term will rather increase the
risk
• South
Korea should have a ‘plan B’ in geoeconomic and geopolitical terms
After the Trump-Xi meeting that
was at the global limelight during the G20 summit in Buenos Aires, Argentina,
one figure who served as the chairperson of South Korean National Assembly’s
Committee on Foreign Affairs, Trade, and Unification said his forecast of the
situation to the author - “the U.S. and China will seek a compromise in the
end. Trade war harms both sides.” His assertion was that the two countries will
opt for a ‘rational choice’ to avoid the collision course from the logic of
economic theory.
A senior fellow at a prominent
economic research institute in South Korea thought otherwise. He said, “from
the people who study economics like us, it is rational for the two sides to
come up with a compromise. But the ongoing situation does not follow the
economic logic. Frankly, people within my institute are confused. It may be the
shortcomings of scholars like us who were only educated with economic
theories.”
If
the ‘economic theories’ cannot unambiguously explicate the trade war between
the U.S. and China, it denotes that other factors are in play. These
‘non-economic factors’ have a significant influence even to the extent of
unnerving the essence of the trade dispute, a supposedly economic issue.
Widening the prospects, the essence of U.S.-China trade war may not be ‘trade’
after all. In other words, this trade war may be the tip of the iceberg known
as the U.S.-China structural confrontation which surfaced recently.
Avoiding to hastily drawing to
conclusions, the situation begs the question of why the U.S. ‘waged a trade war
against China’ despite the fact that ‘it is detrimental to both sides.’ Here
lie the interesting points. Because the U.S. began the trade war, China will
have provided the reason. What did China do wrong in the U.S. view?
Several discussions have already
unfolded regarding this matter. The exemplary case is the ‘Made in China 2025’
slogan that the Chinese government proclaimed. At first, it appeared as yet
another slogan of the Chinese government stressing technology innovation.
Germany had the ‘Industry 4.0’ strategy to revive the manufacturing sector.
South Korea also promoted industrialization through slogans such as
‘mass-production-export-construction’ or ‘globalization’ in the process of
economic growth. It underwent the process of technological innovation and the
worldly-renown corporations such as Samsung and LG emerged in the
industrialization process. China’s Made in China 2025 may also be understood in
the same context. Hence, on one side, it could be viewed as China’s
manufacturing sector upgrading its level beyond the extant role of ‘world’s
factory.’
Contrarily, the Made in China
2025 program turned out to be an ambitious national project - and not a simple
slogan. ‘Made in China 2025’ was first coined by Premier Li Keqiang during the
lianghui (National People's Congress, NPC and the National Committee of the
Chinese People's Political Consultative Conference, CPPCC) in March 2015 and
officially announced in May of the same year. It aimed to transform China from
a ‘large manufacturing country’ to a ‘manufacturing powerhouse’ within a decade
- by 2025 - and to surpass the frontrunners in the manufacturing sector,
Germany and Japan, by 2035 - having a specific deadline and goal. And it
aims to become the global leader in manufacturing state-of-the-art products by
2049. Although it did not explicitly state it, China’s goal is to surpass the
U.S.
The year 2049 marks the
centenary for the founding of the so-called ‘modern China’ after the CPC won
the civil war against Kuomintang. President Xi proclaimed to build a ‘modern
socialist power’ by 2050 at the 19th CPC National People’s Congress with such
schedule in mind. This also has its roots on the zeitgeist of President Xi’s
ambition - achieving ‘the great rejuvenation of the Chinese nation’ and being
the leading military and economic power in the world.
The core of the ‘Made in China
2025’ program is manufacturing cutting-edge products and services and it is an
ambitious plan to compete and exceed the industries that the U.S. dominates
such as IT, aeronautics, advanced materials, artificial intelligence, and life
sciences. The sense of competition that ‘China will have what the U.S. has’ has
been Mao’s instinctual motive to develop nuclear weapons and China’s purchase,
renovation, and deployment of an aircraft carrier from the former Soviet Union
in 2012 signaled the prelude to preparations for the hegemonic competition with
the U.S.
The fault line extends to the
fifth generation telecommunication industry, referred to as the ‘neural network
of the fourth industrial revolution’ such as artificial intelligence. On the
arrest of CFO Meng Wanzhou of China’s leading telecommunication equipment
manufacturer Huawei alleged for the violation of sanctions against Iran, U.S.
Senator Ted Cruz posted “Huawei is a Communist Party spy agency thinly
[veiled](sic) as a telecom company” on Twitter. Democrat Senator Mark Warner
called the Huawei as an agent of the Chinese government and “a threat to [U.S.]
national security.’ These comments, irrespective of the facts, represent the
U.S. threat perception against China.
China either has hacked U.S. state-of-the-art
technology or demands U.S. enterprises that do business in China to transfer
core technology (de facto forced
technology transfer) in the process of upgrading its industry. Washington
believes that China’s longstanding goal to become a power ‘superior to the
U.S.’ by 2050 through ‘technological rise’ - absorbing U.S. state-of-the-art
technology like a black hole – is to fulfill the ‘Chinese dream’ of ‘the great
rejuvenation of the Chinese nation’ that President Xi proclaimed. That is, the U.S. perceives
‘Made in China 2025’ plan as a strategic goal that contains ‘ill-suited
motives’ that puts the economic and industrial development as a vital means for
China’s rise as a hegemon in the future - not a simple slogan of industrial
policy.
In other words, from the U.S.
perspective, China audaciously prepares for a ‘hegemonic competition’ rather
than a simple competition of technological innovation in the cutting-edge
technology. The cutting-edge technology such as drone, AI, and facial
recognition technology could be applied to military technology such as
surveillance satellites and unmanned surveillance planes. As a matter of fact,
China recently has underscored the ‘civilian-military cooperation.’ Moreover,
the U.S. views that China acquired these technologies through illegal cracking,
espionage acts, and conditions such as technology transfer for foreign companies
which aims to do business in the Chinese market and not through fair
competition.
In his speech at the Hudson
Institute last October, Vice President Mike Pence began his criticism against
China, “I come before you today because the American people deserve to know… as
we speak, Beijing is employing a whole-of-government approach, using political,
economic, and military tools, as well as propaganda, to advance its influence
and benefit its interests in the United States.” In sum, China poses a threat
to the U.S. system. He allocated the whole 40 minutes of the remark on China,
condemning several issues meticulously - point-to-point.
South
Koreans had not recognized the significance of Vice President Pence’s such
address. Nonetheless, this address is prepared with a wide range of
coordination across the departments within the Trump administration. Some
experts in the U.S. even view the address as the ‘inflection point’ in
U.S.-China relations. That is, the U.S.-China relations will be differently
reshaped ‘after’ Vice President Pence’s remarks.
For the U.S.-China trade war to
end, China just has to accept U.S. demands. However, this is not that
straightforward. First, China has intentions - and wishes - to take measures
mobilizing Chinese capital. In other words, if China could assuage the U.S. by
‘large-scale purchase of U.S. goods,’ China is willing to do so. However, the
problem is whether the U.S. will be satisfied with such measures from China.
According to the former
Assistant Secretary of State for East Asian and Pacific Affairs Kurt Campbell
who served in the Obama administration, three different viewpoints intricately
exist in the U.S. regarding the trade war with China - beyond the conventional
dichotomy of ‘hardliners’ and ‘softliners.’ The first group holds the view that
the U.S. could reach a compromise with China when China ‘massively purchases’
U.S. goods - as the Chinese side would wish. The second group argues that the
U.S. should set the ‘rules’ to wholly rectify China’s ill-behaved and unfair
practices. The third group asserts that the U.S. should seize the opportunity
to block China from ever challenging the U.S. hegemony again by fundamentally
and fastidiously deterring China’s ‘technological rise.’
It is noteworthy that the
wariness against China and anti-Chinese sentiments have been expanded and
heightened across the aisle in the U.S. Congress. This has increasingly become
a ‘zeitgeist’ that represents the U.S. society.
A series of measures symbolize
such trend: the U.S. universities have tightened its visa review process for
Chinese students; there are moves to shut down the Chinese-government-sponsored
‘Confucius Institute’ in the U.S.; the U.S. government has bolstered its
supervision and management on Chinese investment, acquisition, and merger of
U.S. leading-edge firms and collaboration with universities; and the Canadian
government arrested Huawei’s CFO recently by the U.S. request.
The background of all this lies
the fact that China has narrowed the gap with the U.S. in terms of overall
national power. The Chinese economy, once one-eighth of the U.S. economy two
decades earlier, rapidly enlarged to three-fourths of the U.S. economy by the
inauguration of the Trump administration. The U.S. National Intelligence
Council (NIC) forecasted that it is only a matter of time for China to become
the world’s largest economy between 2030 and 2035 when the current projection
continues.
This concern is not limited to
the economy. Militarily, the U.S. manifests its alertness against China conspicuously.
The U.S. National Security Strategy published in December 2017 already
indicated China as a ‘revisionist’ state that challenges U.S.-led international
order. In the Nuclear Posture Review issued early February this year, the part
about China begins with the following statement. “Consistent with Chinese
President Xi’s statement at the 19th Party Congress that China’s military will
be “fully transformed into a first tier force” by 2050, China continues to
increase the number, capabilities, and protection of its nuclear forces.”
Cutting to the chase, the U.S. senses that China pursues not only an economic
rise but also military rise.
Comprehensively, the U.S.-China
trade dispute is an economic issue; but many point out that the friction has
spilled over to other realms as time passed by. Even if the two sides come up
with a temporary compromise, the U.S. pressure on China will continue across
various sectors.
It is also notable that Vice President Pence’s landmark speech appeared a month
before the Trump-Xi meeting at the G20 summit. Here, Brookings Fellow Ryan
Hass’s comment is worth mentioning, “It also signaled that the White House does not believe a de-escalation
on trade is achievable or desirable in the near term.”
The U.S. demand includes the reform
of Chinese state-owned enterprises, which are the ‘bloodline’ for the Chinese
Communist Party. One Chinese scholar’s diagnosis seems telling - “reform of
state-owned enterprises is like saying the communist party to slit your wrist
and commit suicide.” Coincidentally, state-owned enterprises have enjoyed
higher standing in the Xi Jinping era, adding suspicions to the U.S. side.
The followings are implications
to South Korea. First, if this U.S.-China trade war that we witness today is
indeed a hegemonic competition - and not simply a ‘trade’ dispute and it should
be heedful of this fact. Second, U.S.-China hegemonic competition will be a
fluctuation of mid-to-long-term confrontation rather than short-term disruption.
That is, Seoul should not regard the issue as something that ends soon. Third,
it should be poised to respond to the geoeconomic and geopolitical risks and
the repercussions ensuing the deterioration of U.S.-China relations. As China
strongly warned of ‘serious consequences’ if Canada does not release her when
Canada arrested the chief financial officer of Huawei Technologies by the U.S.
request, the bilateral confrontation may have a third country at the crosshairs
as well.
This also applies to South
Korea. Middle powers such as South Korea may have difficulties ‘positioning’
themselves between the U.S. and China. South Korea already suffered serious
ramifications by the THAAD deployment issue - a typical case. The ‘Belt and
Road Initiative,’ actively driven by China and disdained by the U.S., may be a
potential tribulation for the South Korean government. The idea of ‘middle
power’ does not denote an opportunistic approach between the U.S. and China. As
the Peloponnesian War bespeaks, the great powers will not abandon the old habit
of compelling states lying in the middle to ‘pick one side.’ Mindful of the
point that its strategic flexibility and leeway will narrow, South Korea should
preemptively prepare for the incidents to come in 2019.
This article is based on the
author’s personal opinion and does not reflect the views of the Sejong
Institute.
*Translator’s
note: This is an unofficial translation of the original paper which was written
in Korean. All references should be made to the original paper.
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