From trade war to global anarchy?
The arrest of a top Huawei executive may spark a conflict that could cripple America’s rivals and unleash chaos in the world order.
WE shouldn’t be misled into thinking that the “trade war” between the United States and China is being resolved following their presidents’ recent meeting.
Instead, President Donald Trump is taking the conflict way beyond tariffs into many other areas in a comprehensive attempt to stop or slow down China’s economic development. This has implications not only for China and countries like Malaysia, which are integrated into the Chinese production chains.
The evolving conflict spells the end of the Western countries’ belief in the win-win benefits of trade and investment liberalisation. It accompanies the emergence of an alternative view that China and some other countries are not partners after all but rivals that must be checked.
Just as Trump and China President Xi Jinping were sitting down for dinner on the sidelines of the G20 summit to thrash out a “truce” to their tariff war, the Canadian authorities were arresting the daughter of the owner of Huawei, China’s giant technology company whose smartphone sales are now bigger than that of Apple’s iPhone and second globally only to Samsung phones.
Huawei chief financial officer Meng Wanzhou was in transit at Vancouver airport when she was detained at the request of the US on the grounds that her company violated US sanctions against Iran years ago. Only after many days was she released on bail, and she has to wear an electronic tracker.
The Chinese government called the action “very nasty” and Chinese citizens are outraged. It would be equivalent to China arresting Melinda Gates, co-head of the Bill and Melinda Gates Foundation, for alleged violation of China’s regulations on healthcare. In the whole Western world, there would have been a tremendous outcry and threats of very dire consequences.
Yet the Chinese are supposed to accept Meng’s arrest as a routine matter that is unrelated to the trade war. It cannot be sheer coincidence that years after the alleged crime, the arrest took place at the exact hour that Xi was having dinner with Trump to work out a truce.
The incident reminds us of the US accusation against another Chinese tech leader, ZTE Corp, in 2017 of breaking the same sanctions. A ban was imposed on ZTE from buying telecom chips from US company Qulcomm, which paralysed the company for weeks. Only much later was a political deal struck, with ZTE paying a fine before resuming production.
With China, Trump is concerned not so much with his country’s big trade deficit, but more with the threat to America’s global supremacy.
Suspicions over China’s global ambitions became certainty in the fevered minds of Trump and his hawkish advisers when Xi moved from the rhetoric of the Chinese dream to the concrete industrial plan of Made in China 2025.
This was to get Chinese firms to be world leaders in 10 high-tech sectors, including artificial intelligence, robotics, semiconductors, electric cars and aerospace.
Alarmed by the prospect of Chinese domination of the commanding industries of the future, Trump has been countering the ways by which China is developing its world-class companies. This is through trade, investments, subsidies and support, and acquisition of technologies and intellectual property.
The extra tariffs are meant to inhibit Chinese exports. The new Export Control Reform Act increases powers to regulate US exports of emerging and foundational technologies of importance to national security, and can be used to ban sales of components and technologies to China.
To prevent Chinese companies from buying into US companies (and acquiring their technologies), the review powers of the US Committee on Foreign Investment have been strengthened.
Last month, new national security rules were passed to allow review of small minority investments into sensitive US technologies, including biotechnology, nanotechnology and wireless communications equip- ment. The aim is to hinder Chinese firms from buying even small stakes in US tech start-ups.
The US has also been blocking attempts by Chinese firms to take over or buy controlling stakes in US companies, also on national security grounds. For example, the same committee recently refused to approve a US$1.2bil (RM5bil) deal between Money Gram, a US money transfer company, and Ant Financial, a Chinese electronic payment company.
European countries and Australia are also increasingly restricting Chinese companies from investing in or taking over domestic firms.
Moreover, the US has banned the use of Huawei’s 5G-related equipment, with Australia and New Zealand following suit.
US officials have also been touring Europe to warn against choosing Huawei equipment, leading to growing concerns over the risk of Chinese spying and the security of 5G networks that use Huawei technology.
When slapping extra tariffs on Chinese products, Trump accused China of intellectual property theft and forced technology transfer.
The US actions cited national security grounds or used the unilateral Section 301 of its domestic trade law. Most World Trade Organisation (WTO) law experts view these actions to be a violation of various WTO laws.
Many countries have taken cases against the US in the WTO.
Perhaps feeling that the WTO rules constrain several of its planned actions, the US has moved to cripple the organisation’s dispute settlement system by blocking its appellate body from adding new members.
By the end of 2019, that body will not have enough members left and the WTO will become ineffective as it loses its strongest function.
There would be no more formal way within the multilateral trade system to legally challenge the US actions against China or other countries. Or for any country to challenge the actions of another. The system would break down.
Then the global trade order would slip from rules-based to each country for itself. America first, France first, Britain first, are already in vogue, and many others will follow suit.
The trade war that started with some aluminium and steel may thus snowball into a world of anarchy, where only might prevails.
It is an awful scenario, but not an unrealistic one to ponder upon as 2018 draws to a close.
It is not too late to halt this trend, but something has to give or change drastically in the US, if we are to have even a small chance to avoid disaster.