Will China, US fall into Thucydides Trap?

According to the Thucydides Trap theory, a rising power threatens to displace the supremacy of an established power, and war is often the result. Some may be inclined to characterise the currently escalating China-US trade war in such terms, but military conflict is unlikely to be the outcome of this spat. As Deng Xiaoping said, “the China-US relationship can never be too good or too bad”, for it is simply too important. It is that central importance— for the global economy and regional stability—that will prevent this fundamentally economic dispute from turning into a military dispute.

Since the establishment of diplomatic relations in 1979, China and the US have experienced numerous tense episodes, such as the US arms sales to Taiwan in 1981, the Belgrade Chinese embassy bombing in 1999, and the military aircraft collision of 2001. These incidents did not result in escalatory military conflict. Bilateral relations not only survived, but they thrived thereafter. Decades ago, when the two countries’ economic relationship was not nearly as entrenched as it is today, the leadership of both nations desired to ratchet down tension and preserve the relationship, and that has proven to be the cornerstone of bilateral relations ever since.

The foundation of the current dispute is the imbalance between both countries’ trading relationship; it is not, at its core, about a desire for trade supremacy. America’s merchandise trade deficit surged by 12% to US$ 566 billion in 2017, the highest since 2008, of which 66% (US$375 billion) was attributable to China. From the US perspective, this is of course unsustainable, even if it has itself partly to blame. US manufacturers, in search of inexpensive labour and access to China’s marketplace, helped make China the economic engine of the world. And it was the US that agreed to the terms of bilateral and multilateral trading relationships that may have been to its own disadvantage in the long-term.

That said, while China has been a party to numerous trade agreements, including the WTO, it still has some strict conditions on foreign investors in place, which many foreign investors see as both unfair and lopsided in favour of Beijing. For example, foreign investors cannot have access to Chinese foreign exchange reserves when transferring currency and must generate their own foreign exchange. No one forces investors to invest in China, of course, but the lure of access to the Chinese marketplace has prompted many foreign companies to agree to terms they may not agree to anywhere else in the world.

According to the US Trade Representative’s exhaustive Section 301 Report for 2018, “the Chinese government uses its administrative licensing and approvals processes to force technology transfer in exchange for the numerous administrative approvals needed to establish and operate a business in China.” Although China has repeatedly rebutted such accusations, many foreign investors contend that it continues to utilise so-called “state capitalism” to its advantage.

From China’s perspective, America’s trade imbalance is a long-standing structural problem that should be resolved through bilateral negotiations. However, the Trump administration’s credo is that there is no longer any time for “consultation” and “political correctness”. It sees Beijing as having skilfully manipulated the bilateral and global trade regime to its distinct benefit, and it blames countless previous US administrations for pandering to China while the US trade relationship with Beijing became further and further imbalanced.

Trump is seeking nothing less than a reordering of the global trade regime so that it is not tipped so much in Beijing’s favour, but levels the import and export playing field for America, and the rest of the world in the process. Trump sees this escalating trade war with Beijing, and the trade war he initiated with the rest of the world, as an effort to tip the balance before it is too late. It may already be too late, however. America’s trade imbalances did not occur overnight, but rather over the course of many decades. If the balance is to be readjusted, it will take many years—perhaps decades—for it to occur.

The Chinese government and many Chinese people believe that Trump’s trade war and other investment restrictions placed on Chinese companies are ultimately aimed at curbing China’s technological development—particularly in light of its “Made in China 2025” strategy—to attempt to contain China’s rise as a great power. This is indeed a consideration in Trump’s strategy, as the race for supremacy in 5G, Artificial Intelligence, and enhanced cyber technology heats up. The stakes are extremely high in that regard.

Thus far, the US is being perceived as aggressive and offensive in the trade war, while China is being seen as reactive, defensive and reciprocal. Based on this, it would appear that China wants to avoid the Thucydides Trap. Similarly, there is no reason to believe that Trump desires military conflict with China. On the contrary, both countries’ leadership realise what is at stake, and neither ultimately desires to derail the mutually beneficial economic relationship that forms the foundation of their economies.

In post-War history, there have been many opportunities for both countries to escalate tension and trigger military conflict. Beijing and Washington understand that this is a line that neither has crossed in the past, and there is every reason to presume that neither desires to cross that line in the future. Both countries have proven that they are masterful at taking two steps forward and one step back. That also appears to be what is happening now.

It is ultimately the degree of economic pain both countries can endure, and the length of time it can be endured, that will determine the economic outcome of this trade war. There is every reason to believe that it will not result in military conflict, but rather, mutual respect, and the desire to continue a bilateral trading relationship that is mutually beneficial in the long-term. What is unknown at this time is how long it will take to arrive at an equilibrium, and at what cost for both countries. Daniel Wagner is CEO of Country Risk Solutions based in the US. Sun Xi is a China-born independent commentary writer based in Singapore. In the aftermath of the first meeting last Sunday of the extended Congress Working Committee, which appeared to be more like a mini AICC conclave, aimed at accommodating significant as well as not so significant activists, the High Command has been unable to put across a clear and cogent message for the cadres. In fact, by having an unprecedented 239 participants attending the deliberations, the purpose of the exercise seemed both debatable and ambiguous. The signal that emanated from this august gathering was that the high command was still in the process of exploring options on various issues such as alliances, as also its leadership role and thus was apparently unprepared for the 2019 elections as it was in 2014 when the BJP, with relative ease, wrested power from the UPA.

The important declaration of Rahul Gandhi being projected as the Prime Ministerial nominee was diluted within two days, when following a possible rethink, the Congress climbed down to suggest that it was not going to insist on the leadership of an alliance, thus paving way for regional leaders to play a stellar role. The change in stance was consistent with the largely held view that Rahul’s acceptability amongst probable allies remained in doubt, and therefore, in order to ensure its non-exclusion from a federal alternative to the present government, the Congress had to take a pragmatic view and play second fiddle to keep the dialogue going.

There is confusion on account of alliances, and with barely eight months left for the Parliamentary polls, the leadership has sought views of the state units on the subject. Nothing of this sort happened in 2017 while forging an electoral understanding with the Samajwadi Party; here the Congress did not consult its state leadership but dropped a bombshell that even took its Chief Ministerial nominee Sheila Dikshit and its campaign spearhead Rahul Gandhi, on the wrong foot.

For obvious reasons no one protested since at that time the brainwave was attributed to Priyanka Gandhi Vadra. It is another matter that the party got wiped out in more than 300 Assembly segments where Samajwadi nominees were contesting, thereby, providing an option to the grassroots’ workers to choose their political destiny. Arguably, the BJP’s unprecedented victory in the Assembly polls was perhaps, on account of the average six per cent Congress vote in each segment shifting towards the saffron brigade, rather than being cast for either the Samajwadi Party or the BSP, with whom, over 25 years, the party had been crossing swords.

Since the UP debacle, no attempt has been made to strengthen the party base in the largest populous state in the country, and Rahul in one of his speeches, has underlined the need for reinforcing the organisation up to booth, block and district levels. The bottom line is that it may be too late in the day and this story is not confined to UP alone, but to most of the states where the Congress was once a major power to reckon with. Clearly, the weakening of the organisational structure has not been sudden. Therefore to expect the edifice to once again overnight be robust was a mere fantasy devoid of practical experience.

An explanation provided by a senior Congress leader, on why the extended CWC was informed about Rahul being the PM face, is most unconvincing. In the present day Congress, Rahul is the undisputed leader, and if in the unlikely event of the party winning a respectable number of seats, he would continue to be the prima donna. However, if in 2019 the Congress’ performance was dismal, Rahul’s credentials would be openly questioned. As a matter of fact, this could happen much earlier, if the Congress was to lose in Rajasthan, Madhya Pradesh and Chhattisgarh in this winter’s Assembly polls.

On the flip side, if the Congress emerges victorious in these three states, Rahul’s gravitas and standing as a leader would improve considerably, augmenting his bargaining power with regional leaders who might just have a change of heart towards the grand old party. The success of the Congress would largely depend on the outcome of these states and a victory would boost the sagging morale of the cadres. Modi is definitely not a quintessential Indian politician like Atal Behari Vajpayee, but a leader who would throw everything he has in the battle so as to reap a favourable result. He is an extremely difficult adversary to take on, and to pin him down, the Congress has to do many overtime double-shifts.

Former Finance Minister, P. Chidambaram’s observation that the Congress would win at least 150 seats in states where it is directly pitted against the BJP betrays lack of understanding of the changed ground realities. In fact, the number of seats which would witness one-on-one contests between the Congress and the BJP are fewer, and to presume that the party would win a majority of them was being excessively optimistic.

The Congress leaders continue to delude themselves that the voters were waiting to hand power back to them without realising that the party’s mass base has shrunk. The Congress is ruling in barely two or three states, and even in these states, it faces a stiff challenge from its adversaries. Till Rahul comprehends the complex nature of his own party, it will be exceedingly arduous for him to fathom either the BJP, or his own possible allies. Between us.