The China-U.S. power struggle is just beginning
TOKYO — Chinese President Xi Jinping has an ambitious master plan for his country’s transformation into a wealthy, technology-driven global economic power. And U.S. companies need not apply.
That’s why the current trade rumble between the U.S. and China, in which the Trump administration is threatening to slap tariffs on $34 billion of Chinese imports and Beijing promises to respond in kind, is far more than just a spat over market restrictions, intellectual property rights and the epic U.S. deficit.
On a deeper level, the standoff reflects an escalating economic and military rivalry between a status quo power and one of the most remarkable growth miracles in history. It’s a clash between two divergent systems (one state-directed, the other market-driven) with markedly divergent world views and national aspirations. That strategic tension seems likely to intensify, regardless of how the current brinkmanship over tariffs plays out.
It’s also a battle for global influence. Whereas the U.S. has long sought to spread democracy and free markets to other nations, China’s ruling Communist Party is just starting to pitch its heavyhanded growth model as an alternative for developing nations. And Xi is backing it up with hundreds of billions of dollars in loans for infrastructure projects from Asia to Europe and beyond.
In the U.S., a bipartisan consensus has begun to emerge that now is the time to stand up to China, even if many oppose President Donald Trump’s tactics. Senate Minority Leader Chuck Schumer, a Democrat, has attacked Trump for not being tougher on China, saying last week that failure to change Beijing’s behavior now could hurt the U.S. economy “for generations to come.”
With a roughly $13 trillion economy and expanding wealth, China is now going head-to-head with the U.S. in advanced manufacturing and digital technologies. It also has the wherewithal to make rapid technological progress in defense, particularly with air-to-air missile systems that pose a strategic challenge in Asia for the U.S. and its allies. Xi is playing a long game, pursuing what he calls the “Chinese Dream,” or “the great rejuvenation of the Chinese nation.” To get there, he has set targets to double his country’s per capita gross domestic product (from 2010 levels) to $10,000 by 2021 and refashion China into a tech powerhouse, competitive in robotics, new energy-vehicles, chips, software and other bleeding-edge industries under his Made in China 2025 program.
A separate development strategy envisions China ruling in artificial intelligence by 2030.
The aim is to produce global champions — not just national ones — and Xi’s government is ready use the commanding heights of its one-party state to steer subsidies and use preferential policies and ambitious local content rules favoring Chinese companies to get there. At stake are industries that make up about 40 percent of China’s value-added industrial manufacturing sector, according to an analysis by the U.S. Chamber of Commerce, citing data by the Rhodium Group, a research firm.
China’s push for more self-reliance may reverse the trend toward deeper economic integration with the U.S. that came following China’s accession into the World Trade Organization in 2001. China is the single largest foreign purchaser of U.S. manufactured goods — led by transportation, chemical, computer and electronics — outside of North America, according to the National Association of Manufacturers. Chinese goods have also flooded across American shores, pushing up the U.S. trade deficit with China more than fourfold to $375 billion last year.
The Trump administration views such deficits as alarming and Chinese trade practices as brash mercantilism, even a national security threat. U.S. Defense Secretary Jim Mattis labeled China a “strategic competitor using predatory economics” in early January as he unveiled the Pentagon’s National Defense Strategy.
Xi views his economy’s shift into higher-tech manufacturing not only as a crucial part of its development, what with surging labor costs, a rapidly aging population and high corporate debt levels — but also as a fulfillment of China’s destiny. That process is well underway: China is set to overtake the entire euro area this year, according to data compiled by Bloomberg.
Talks to avoid a trade war have stalled in part over U.S. demands that China reduce state support for high-tech industries.
While China has signaled a willingness to buy more American goods to balance out the deficit, it has refused to trade away what it views as an essential part of its economic future.
Tech companies are on the front lines of this contest for global supremacy. Back in 2013, Chinese investigators started making life difficult for American tech “guardian warriors” like Google, Intel Corp., Apple Inc. and Microsoft Corp. after a magazine with ties to the Communist Party sounded the alarm about their dominant role in Chinese networks and business.
The U.S. has been just as inhospitable to Chinese tech concerns, with telecommunication makers like Huawei Technologies Co., ZTE Corp. and China Mobile Ltd. being viewed as national security risks. The Trump administration has also weighed restrictions on Chinese companies and start-ups in sectors ranging from aerospace to robotics.