Us-china trade stand­off lays the foun­da­tions for a new iron cur­tain

The Sunday Telegraph - Money & Business - - Business - JEREMY WARNER

Af­ter her visit to Bei­jing ear­lier this year, Theresa May con­fi­dently pro­claimed the start of a new “golden era” in UK re­la­tions and trade with China. Amer­ica, by con­trast, has vir­tu­ally de­clared war on the place. Pres­i­dent Don­ald Trump wants to halt the coun­try’s progress in its tracks.

What do these dif­fer­ing ap­proaches mean for the econ­omy and mar­kets? David Lip­ton, deputy man­ag­ing direc­tor of the In­ter­na­tional Mon­e­tary Fund, has called it the “three Ts” – trade, tech­nol­ogy and trust.

It’s hard to know ex­actly what’s caus­ing the cur­rent slow­down in global growth, but one of the more plau­si­ble ex­pla­na­tions is that in­ter­na­tional busi­ness has been se­ri­ously un­nerved by ris­ing trade and geopo­lit­i­cal ten­sions; in­vest­ment plans are be­ing pared back ac­cord­ingly.

It’s pos­si­ble the US is a mi­nor ben­e­fi­ciary of this phe­nom­e­non. Where in­ter­na­tional sup­ply chains are threat­ened, US cor­po­ra­tions seem minded as a pre­cau­tion­ary mea­sure to in­vest more heav­ily in the US in­stead – a vic­tory, if you like, for Trump’s Amer­ica First poli­cies. Yet it is prov­ing un­com­fort­able for ev­ery­one else.

If any­one thought the high-level del­e­ga­tion Trump sent to Bei­jing last week was in­tended as an olive branch, they were in for a rude awak­en­ing.

The Mnuchin, Ross, Lighthizer and Navarro road­show rolled into town with a lengthy list of de­mands, in­clud­ing that China re­duce its trade sur­plus with the US by $200bn (£148bn) a year and that all Chi­nese gov­ern­ment sup­port for ad­vanced tech­nolo­gies should be aban­doned.

The de­mands presage a com­plete break­down in trust be­tween the two su­per­pow­ers. Provoca­tive they cer­tainly were, but it is also hard to avoid the im­pres­sion that they were de­lib­er­ately de­signed to be un­ac­cept­able. The US must know that un­con­di­tional sur­ren­der is not in pres­i­dent Xi Jin­ping’s play­book. It’s al­ready be­ing called a new “cold war”, only worse be­cause at least in the days of the iron cur­tain ev­ery­one knew roughly where they stood, there were rea­son­ably ef­fec­tive forms of com­mu­ni­ca­tion and di­a­logue, and the prospect of “mu­tu­ally as­sured de­struc­tion” ac­tu­ally worked quite well in keep­ing the peace.

In some re­spects to­day’s world looks rather more un­sta­ble and frag­ile. We must as­sume that Peter Navarro, the pres­i­dent’s trade ad­viser and au­thor of a book on the Chi­nese threat called Death by China, largely wrote the script for last week’s stand­off.

In so far as we can fig­ure out pre­cisely what he is af­ter, it is not only that China slashes its trade sur­plus with the US, but that it also scraps its “Made in China 2025” in­dus­trial strat­egy, and re­frains from in­vest­ing in semi­con­duc­tors, aero­space, elec­tric cars, ro­bots, ar­ti­fi­cial in­tel­li­gence and any­thing else that might pos­si­bly give it a lead over the US. I ex­ag­ger­ate only a lit­tle.

As I’ve writ­ten be­fore, I don’t quar­rel with Trump’s com­plaint; China has been ruth­less in ex­ploit­ing Western “open­ness” to fur­ther its own eco­nomic and geopo­lit­i­cal am­bi­tions, con­spic­u­ously abus­ing the sys­tem to steal tech­nol­ogy, jobs and mar­kets. The World Trade Or­gan­i­sa­tion has proved spine­less in de­fend­ing free and fair trade from the Chi­nese on­slaught.

What’s more, the ev­i­dent con­tempt with which China’s elites hold the West plainly poses some sort of threat to our in­sti­tu­tions and way of life.

Trump is de­ter­mined to nip that threat in the bud. Af­ter ini­tially start­ing out all soft and cud­dly with China’s Jin­ping, the US pres­i­dent has – by ap­point­ing the China hawks John Bolton as na­tional se­cu­rity ad­viser and Mike Pom­peo as sec­re­tary of state – re­turned to the hard­line po­si­tion of the cam­paign trail. Amer­i­can eco­nomic and geopo­lit­i­cal hege­mony is to be de­fended to the last. A re­cent US se­cu­rity strat­egy re­port warned that the be­lief that China could be turned into “be­nign ac­tors and trust­wor­thy part­ners” had been proved com­pre­hen­sively wrong.

Of par­tic­u­lar con­cern is China’s goal of be­com­ing the “pri­mary” cen­tre for in­no­va­tion in ar­ti­fi­cial in­tel­li­gence by 2030, and the po­ten­tially hos­tile uses this lead­er­ship might be put to.

In re­tal­i­a­tion, the Pen­tagon has its own “Third Off­set” strat­egy, sig­nalling a new bat­tle for tech­no­log­i­cal supremacy rem­i­nis­cent of the space and arms races of the Fifties and Six­ties. In The Thucy­dides Trap,

Gra­ham Al­li­son pos­tu­lates that when a ris­ing power threat­ens to dis­place an ex­ist­ing hege­mon, it al­most al­ways leads to war. I’m not a great fan of this the­ory, if only be­cause the Pelo­pon­nesian War, which Thucy­dides chron­i­cled, was es­sen­tially just a lo­cal, tribal con­flict.

What’s more, there are many ex­am­ples in his­tory where the ris­ing power dy­namic does not lead to war. But you can see why so many have em­braced it as a para­ble of our times.

I doubt it will lead to out­right war this time around, but some kind of rup­ture, a Yalta style di­vid­ing up of the world into sep­a­rate spheres of in­flu­ence and trade, the cre­ation of some new form of iron cur­tain in other words, seems more than pos­si­ble.

And if it comes to that, which way will Bri­tain jump? If the mul­ti­lat­eral world the UK has long cham­pi­oned is dead, it can­not be good for our post-brexit am­bi­tions as an open, free-trad­ing na­tion.

Su­per­mar­ket merger ma­nia

We’ve been here be­fore. A bit like the big banks, and once upon a time, the ma­jor brew­ers, Bri­tain’s lead­ing su­per­mar­ket groups are al­ways try­ing to merge with one an­other. Safe­way and Asda held se­ri­ous merger dis­cus­sions back in the Nineties but aban­doned the chase af­ter be­ing warned the com­pe­ti­tion au­thor­i­ties would never al­low it.

That com­bi­na­tion, by the way, was a lot smaller than the one pro­posed to­day. When fi­nally Mor­risons plucked up the courage to take a pop, ev­ery­one piled in on top – Tesco, Sains­bury’s, Asda, KKR, Philip Green, Un­cle Tom Cob­ley and all. For Tesco’s Terry Leahy, with­out a hope in hell of get­ting com­pe­ti­tion clear­ance, it was only a frus­trat­ing ac­tion.

He needn’t have both­ered. Mor­risons so cat­a­stroph­i­cally mis­man­aged the sub­se­quent in­te­gra­tion that Tesco was able to dou­ble down on its pre-ex­ist­ing dom­i­nance re­gard­less. The rise of Ama­zon makes Asda and Sains­bury’s be­lieve this time they’ll be al­lowed to get away with it.

I doubt the CMA’S new chair­man An­drew Tyrie will be that naive. If it looks like a mo­nop­oly, and walks and talks like one, that’s what it is.

‘Some kind of rup­ture, the cre­ation of some new form of iron cur­tain, seems pos­si­ble’

Af­ter a promis­ing start, re­la­tions be­tween China’s Xi Jin­ping and US pres­i­dent Don­ald Trump have cooled

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