Trade war threatens to ignite a tinderbox world
China sees the arrest of a leading Huawei executive as a deliberate escalation of its dispute with the US
First published under a different title in 1909, Norman Angel’s The Great Illusion argued that the economic costs of war were so great that no one had anything to gain by starting one, and moreover that growing economic interdependence virtually guaranteed the good behaviour of one state to another. He was right on the first point, but spectacularly wrong on the second. Trade is no guarantee against war, and can, as we are seeing today, swiftly come to act as a proxy for the very same thing.
The pre-first World War consensus that Angel described was one much like our own. It was a world of hitherto unprecedented levels of global trade, international dialogue and intermingling of national elites. Right up until the point when the troops were mobilised, markets refused to believe the ensuing catastrophe was even remotely possible.
When the borders finally began to close, there followed, alongside the human carnage, the mother of all financial crises. Then lenders to the rest of the world, much like London’s financial centre today, the UK banking system was rendered insolvent as cross border loans defaulted en masse.
A matching level of complacency exists today, epitomised by the “Dell theory”, an idea popularised by Thomas Friedman, a credulous New York Times columnist who argues that no two countries which are both part of the same global supply chain, like that of the laptop computer company Dell, will ever fight a war against each other because of their shared economic interest. The theory was later simplified into the even more absurd idea that no two countries that have a Mcdonald’s in their midst will ever go to war. Thus do America’s corporate goliaths supposedly keep the peace. By the way, the same theory underpins the EU. By forcing countries to integrate, war is supposedly made impossible. Believe it if you will. As things stand, enforced harmonisation across Europe is proving much more of a divisive than a unifying force.
I’m not going to argue that history is about to repeat itself, but looking at the growing state of political chaos across much of the Western world, together with the ratcheting up of international tensions on multiple fronts, you cannot help but be struck by the parallels. The world is a similarly alarming tinderbox of seething international rivalry and discontent.
Stock markets suffered one of their worst ever days yesterday, and it is easy to see why. Just as they were starting to believe in the seeming rapprochement between Presidents Donald Trump and Xi Jinping at last weekend’s G20 summit, along comes the arrest in Canada as part of a US probe into alleged sanctions violations of Meng Wanzhou, finance director of one of China’s leading technology companies, Huawei, and the daughter of its founder. Whether the charges are legitimate or not, nobody in China believes that this is anything other than a deliberate and major escalation in President Trump’s trade war. Talks aimed at de-escalating the standoff are once again in serious jeopardy.
Ms Meng’s arrest follows recent attempts by Western security services to contain Huawei’s growth by seeking to have the company’s equipment banned from next generation 5G mobile phone networks. This is widely seen in China as overt protectionism, designed to deny China its route to Western levels of economic prosperity.
Judged by the rhetoric that comes from Trump and his aides, you would be hard pressed to come to any other conclusion. Much of the US complaint against China is entirely legitimate; China has stolen Western technology on a colossal scale. It subsidises, dumps and steals with impunity, hypocritically trumpeting free trade, while practicing protectionism in its own backyard. The international rules-based system of trade it has used as its passport to Western markets has been tested to virtual destruction.
Yet Trump’s trade war is about so much more than winning fair and reciprocal trade. America’s fear is “Death by China”, the title of a book by the President’s chief trade adviser, Peter Navarro. Chinese containment – military, technological and economic – is as much part of the story here as fairer trade. Increasingly, America’s allies are being asked to take sides. Those that appease China are being put on notice; there will be repercussions.
The abuse of international arrest warrants for political and economic purposes is by no means confined to the US. Interpol “red notices” – lists of persons who are wanted for extradition – are in growing use the world over as a means of putting pressure on political enemies and perceived economic rivals. In one ongoing case, a red notice has been issued against the chief executive of one of Hungary’s leading companies in a thinly disguised attempt to force the sale of key assets to Russia’s Gazprom.
International trade has perhaps always been as much about the exercise of geo-political power as anything else, but rarely more so in the modern age than now. These are dangerous times, and growing more so by the day.
follow Jeremy Warner on Twitter @jeremywarneruk; read more at telegraph.co.uk/opinion