China’s resistance to the US trade war

Defensive measures by the People’s Republic are accelerating the very process the US has been trying to halt.

Lalkar writers

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China has now overtaken the US in key technologies such as 5G and AI and is on course to become technologically independent of imperialism.

Lalkar writers

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China is taking strong measures to defend itself against the trade war that the USA has launched against it. For example, The Times of 30 May 2019 gave details of how it is increasing its soya crop in order to avoid having to import soya beans from the US.

“Almost two years after the first salvos of President Donald Trump’s trade war with Beijing, the agricultural workers of Jilin province are reaping the rewards of seeds sown thousands of miles away.

“Their crop, soya beans, is being supported with generous government subsidies from Beijing as part of President Xi’s attempt to move China away from its dependence on US imports.

“As a result farmers in Jilin are diversifying. Some 60 miles northeast of the city of Yanji, one rural cooperative planted more than 1,700 acres of soya beans this spring, up from 1,000 acres two years ago.

“‘When American bean farmers are not happy, we are quite happy,’ said the cooperative’s head, Zhao Xianqing, a 53-year-old villager who manages almost 5,000 acres of land …

“Soya beans are the United States’s second-largest cash crop after corn, worth an estimated $39.1bn a year. The vast majority of US soya bean exports have been to China …

“In the village of Yongqing, Mr Zhao allocated 1,400 acres to bean-growing last year. That entitled him to more than £250,000 in subsidies in the past year from the Jilin government and net profits were more than £340,000, he said, which was shared among the cooperative’s more than 1,000 members.” (Chinese farmers reap the benefit of soya bean row by Didi Tang)

China’s tariffs against products like soybeans and beef, and a recent move to cancel a major pork order, have hit US swing states such as Iowa, Ohio and Wisconsin especially hard.

As a result, US farmers are becoming increasingly anxious over their future. “Those worries helped spur Mr Trump last week to suddenly drop steel and aluminum tariffs on Canada and Mexico, which agreed in turn to withdraw stiff levies on American farm goods.

“On Thursday [23 May], the agriculture department said it would provide up to $16bn in aid to farmers hurt by trade retaliation … The financial support came after the administration handed out $12bn in emergency relief for farmers last year …

“The Federal Reserve bank of New York said … that Mr Trump’s tariffs will cost the average American household $831 annually.” (Trump gives farmers $16bn in aid amid prolonged China trade war by Ana Swanson, New York Times, 23 May 2019)

China in turn has apparently substantially increased subsidies to its own companies, “in a move”, according to the Financial Times, “likely to further strain trade talks with Washington”. (China paid record $22bn in corporate subsidies in 2018 by Tom Hancock and Yizhen Jia, 27 May 2019)

Clearly the Financial Times does not partake of the view that what is sauce for the goose is sauce for the gander. As Xie Feng, commissioner for the ministry of foreign affairs of China in Hong Kong, pointed out in the Financial Times of 23 June 2019:

“The US tries to justify its trade war by claiming that the Chinese government … improperly intervenes to support state-owned enterprises (SOEs) at the expense of the free market. But any economy, be it socialist or capitalist, needs government regulation, and it is misleading to decry China’s model just because its government plays its role.

“Even in the US, a self-proclaimed champion of free markets, the government has never ceased to intervene. From its founding days, the US used tariffs to protect some sectors. Since the second world war, the US has increased state intervention based on Keynesian economic policy. The US government fostered the growth of the internet, biotechnology and shale gas.

“During the 2008 financial crisis, the US rescued banks and provided fiscal stimulus. Donald Trump’s administration has resorted to protectionism and measures to bring back manufacturing jobs, as part of its ‘America First’ goal.” (US attacks on China’s economy reflect a double standard)

Quite honestly, if a country as powerful as the US launches a trade war against another country, attempting to hamper the exports that are a lifeline on which millions of the latter’s citizens depend for their wellbeing, what is that country supposed to do?

Damage to the world economic system

Meanwhile, the US’s tariffs and sanctions are doing incalculable harm not only to their intended targets but also to the rest of the world, not least the United States itself.

“President Trump’s trade war is chilling business investment, confidence and trade flows across the world, a development that foreign leaders and business executives say is worsening a global economic slowdown that was already underway …

“Weakness in China, driven in part by fallout from the trade war, has spread to Germany, Australia and other nations, raising supply chain costs, chilling exports and worrying political and economic leaders …

“The effects of Mr Trump’s trade war have been particularly hard on Germany, Europe’s largest economy, which has been bracing for a decision about whether the United States will impose tariffs on auto imports. Trade anxiety has led to a decline in business sentiment and spending: overall German industrial production contracted sharply in April, falling 1.9 percent on the month versus the 0.5 percent analysts expected …

“Global flows of foreign direct investment fell by 13 percent last year, to their lowest level since the financial crisis …

“The World Bank cut its forecast for global growth by 0.3 percentage points for this year in response to unexpected weakness in trade and manufacturing across advanced and developing economies. Global trade growth has slowed to its lowest rate since the 2008 financial crisis as exports from Europe and Japan have plummeted, particularly to China …

“International Monetary Fund economists estimate that if Mr Trump follows through on his threat to broaden the Chinese trade spat, tariffs added this year alone will subtract 0.3 percent off global gross domestic product in 2020, with an additional 0.2 percent drag coming from tariffs the administration put in place last year.” (Trump’s war is making a slowdown even worse by Jeanna Smialek, Jim Tankersley and Jack Ewing, New York Times, 18 June, 2019)

As for the US itself, James Dean of the London Times tells us: “Recession warning lights flashed in the United States yesterday [3 June] as Wall Street banks feared that severe economic consequences would result from the growing trade war with China …

“Manufacturing activity in America fell unexpectedly last month to its lowest level of the Trump presidency …

“Yields on benchmark US government bonds continued to fall, further inverting the ‘yield curve’ in a sign that bond investors are growing more concerned about the state of the global economy …

“Morgan Stanley said the market cycle in the US had shifted into a downturn phase for the first time since 2007, with an increased risk of recession. Chetan Ahya, its chief economist, said that if trade tensions continued to escalate, ‘we could end up in a recession in three quarters. Is such a prognosis alarmist? We think otherwise.’” (US recession warning as China trade war escalates, 4 June 2019)

Telecomms at the heart of the trade war

Henny Sender of the Financial Times wrote on 18 June 2019 : “Friction between the US and China, which seemed to have its origins in trade disputes, has moved on. Today telecoms and wireless technology are at the forefront of the competitive sparring between the two countries.” (US-China contest centres on race for 5G domination)

As she goes on to explain in some detail, US efforts to suppress the rise of China’s technological superiority is for US imperialism a matter of life or death. This is the reason the US has imposed various embargoes to prevent China acquiring the necessary components to enable it to maintain its lead in communications technology.

Nevertheless, the momentum generated by China towards becoming the world leader in communications technology is almost certainly unstoppable, not only because of China’s economic vibrancy but also because of America’s fading strength:

“Less than 10 years ago, all top 10 technology companies by revenue were American. Global telecom standards were set by US companies such as AT&T and Verizon. Today, by contrast, four of the top 10 internet firms are Chinese …

“In a world where everything is dual-use technology, it is increasingly hard to distinguish what is commercial and civilian and what is strategic and military. And technology, unlike trade, does not easily lend itself to concessions at the negotiating table. To have the technological edge is existential for both countries …

“Chris Wood, equity strategist for Jefferies in Hong Kong notes: ‘The origin of America’s ultra-aggressive stance remains a determination that China will not dominate in 5G or other emerging technologies.’

“Yet if no less a source than the Defense Innovation Board, launched in 2016 to help bring innovation and independent advice to the Pentagon, is to be believed, the US is behind in developing the latest technology and in setting global standards for 5G. That is according to an assessment of the prospects of the two national giants in a report on the 5G ecosystem the board released in April.

“The report portrays a technological world in which the US, far from dominating, is in danger of becoming ever more marginal. ‘The country that owns 5G will own many innovations and set the standards for the rest of the world. That country is currently not likely to be the United States,’ the report concludes starkly. ‘Chinese equipment is cheaper (and) in many cases is superior to its western rivals.’ …

“The introduction of 5G is a big deal, both in itself and because of its multiplier effect on a range of other technologies including autonomous vehicles, the internet of things, smart cities, virtual reality and, battlefields, whether physical or in cyberspace. The companies or countries that are the first movers will set global standards. That in turn brings hundreds of billions of dollars in revenues, substantial job creation and leadership in any other technologies that require ever swifter transmission of data, the board notes”.

And why has the US fallen to such an extent behind from a situation of world dominance only ten years ago?

The same Financial Times article cannot help but blame the decay of the capitalist system: “American companies including Verizon and AT&T have too much debt to undertake the huge investment necessary to build out the numbers of base stations required.”

Why do they have this debt when they have been so long in a position to rake in monopolist profits? Because in a capitalist system the investors demand a return on their investment, and the huge profits have been distributed as dividends, leaving too little for effective reinvestment.

These monolithic companies surged ahead in the past on the basis of massive borrowing, but these debts have now become shackles impeding their further progress. The US military machine, which is so expensive to maintain, has also hindered the progress of US telecoms because “in the US, the government and the military appropriate most of the spectrum being used by the rest of the world for commercial purposes, leaving the US market isolated”.

Although the ‘spectrum’ in question, the C spectrum, is a mid-range spectrum a great deal of which is unused and is therefore available for reallocation to the commercial sector, the Trump administration has apparently been anxious that the private sector – starved as it is of avenues of profitable investment in this era of overproduction crisis – should benefit from its deployment and to that end has been proposing to devolve the auctioning process from the government controlled Federal Communications Commission (FCC) to the private sector.

This has resulted in interminable squabbling about if and how the process should proceed, which has grossly delayed the holding of the auction:

“A year ago, the Trump FCC announced a proposal to reallocate such C-band spectrum for 5G. With much fanfare, the FCC trumpeted a plan to outsource to the satellite companies the process of auctioning these airwaves. Rather than the kind of open and transparent auction process the agency has followed since the first spectrum auction in 1994, the Trump FCC declared it would be ‘faster’ to embrace what they called a ‘marketplace approach’ in which the licensees took over the job traditionally done by the FCC.

“The trade-off for moving ‘faster’ was that the licensees – rather than the American taxpayer – would keep the money the auction generated …

“It has been a year since that announcement and the ‘faster’ process has yet to bear fruit. The current goal of the commission is to decide whether to proceed with the outsourcing, or adopt another solution, by the end of 2019. Over a year and a half will have been wasted as the Trump FCC tried to find a way to pass off its essential public interest determinations to private interests.

“It’s hard to win a ‘5G race’ when you’re stuck in the starting blocks. The UK auctioned 5G spectrum last spring. Italy held its 5G auction in October. Germany’s 5G auction ended this week. France’s 5G auction starts this fall. All the while, the Trump FCC has been considering a ‘faster’ solution for a year.” (How the FCC lost a year in ‘the race to 5G’ by Tom Wheeler, Brookings Institute, 14 June 2019)

As a result of this, the Financial Times concludes:

“By themselves, the US markets, both civilian and military, are no longer big enough to dictate to others or to prevent Chinese 5G from continuing to increase market share globally.

“The larger question of course is whether what is true in telecoms becomes true on a wider scale.

“Meanwhile, the effect of any US sanctions against Huawei or others is likely to only accelerate Beijing’s efforts to achieve self-sufficiency.”

China’s advance to technological self-sufficiency

Foreign Affairs, published by the influential US foreign policy thinktank, the Council on Foreign Relations, also considers that current US policy is merely hastening China’s moves to self-sufficiency, which will hit US imperialism hard.

“But within China, the administration’s moves have created a powerful new consensus in support of ‘self-reliance’ and ‘indigenous innovation’, two mantras of the Chinese Communist party that the country’s tech industry has reluctantly taken up. Washington has underestimated China’s ability to ‘tighten its belt’, as Xi put it … and to develop replacements for foreign technology …

“China has a long tradition of defying international embargoes. During the cold war, China succeeded in developing an atomic bomb even after the Soviet Union had cut off its technical support. Throughout the 1990s, China developed sophisticated satellites and rockets despite comprehensive US sanctions on space-related technologies.

“In 2015, when the Obama administration prevented Intel from selling processors to China for its latest supercomputer, Chinese researchers quickly developed a local replacement. Less than a year and a half later, China unveiled TaihuLight, then the world’s fastest supercomputer, which ran entirely on Chinese-made processors …

“‘The biggest challenge for indigenous innovation is not technology, talent, or capital, but the market,’ Gao Xudong, a researcher at Tsinghua University, said in a 2017 interview. ‘Even if we produce a good product through indigenous innovation, it will not succeed if there is no market.’ China’s technology industry illustrates the problems markets pose to Beijing’s self-reliance push. The wide availability of superior foreign software and hardware has hampered progress …

“Blacklisting Huawei, however, has turbocharged the indigenous innovation effort. As a result of the blacklisting, the company plans to launch a replacement for Google’s Android operating system later this year. It is also working to replace a myriad of US components and software to which it will soon lose access.

“Last week, Bloomberg reported that Huawei has up to 10,000 developers working around the clock in three cities to ‘eliminate the need for American software and circuitry’.” (Why blacklisting Huawei could backfire by Lorand Laskai, 19 June 2019)

The author’s conclusion? “The Trump administration may well be paving the way toward a more technologically independent, and possibly more powerful, China.”

Moreover, China is also cooperating with Russia in this matter, thus greatly increasing its ability to overcome problems caused by the US embargo in the shortest possible time.

It will be recalled that under pressure from the US government, Google cut Huawei off from in its future products using its control of the android platform on which Huawei phones are currently based. Huawei is therefore exploring the possibility of using Russia’s Aurora platform, which could work just as well.

“Aurora is a mobile operating system currently developed by Russian Open Mobile Platform, based in Moscow. It is based on the Sailfish operating system, designed by Finnish technology company Jolla, which featured a batch of Russians in the development team. Quite a few top coders at Google and Apple also come from the former USSR – exponents of a brilliant scientific academy tradition.”

Moreover, Huawei is also “turbo-charging the development and implementation of its own operating system, HongMeng, a process that started no less than seven years ago. Most of the work on an operating system is writing drivers and APIs (application programming interfaces). Huawei would be able to integrate its code to the Russian system in no time.

“HongMeng, for its part, is a key project of Huawei 2012 Laboratories, the innovation, research and technological development arm of the Shenzhen colossus.

“No Google? Who cares? Tencent, Xiaomi, Vivo and Oppo are already testing the HongMeng operating system, as part of a batch of one million devices already distributed …

“HongMeng is rumored to be 60 percent faster than Android.

“The HongMeng system may also harbour functions dedicated to security and protection of users’ data. That’s what’s scaring Google the most: Huawei developing a software impenetrable to hacking attempts.”

In these circumstances, Google has apparently been “actively lobbying the Trump administration to add another reprieve – or even abandon the Huawei ban altogether”. (Say hello to Russia-China operating system by Pepe Escobar, Asia Times, 13 June 2019)

Indeed, as we go to press it has been annouced that President Trump has relented sufficiently to allow US companies to export non-strategic components to China. Trump is quoted as saying at a meeting with President Xi at the G20 meeting taking place in Japan: “I like our companies selling things to others, very complex things. These are not things easy to make. Our companies were very upset. So if it is not a national security issue, we are allowing them to sell.”

It would appear that attempts to ban the adoption of Huawei systems round the world still stand, however.

Dilemma for governments around the world

US imperialism is unilaterally forcing the rest of the world’s governments to choose: either do business with China (which may lead to us subjecting you to sanctions) or do business with us. Either option is likely to cause harm to the economies of the countries in question.

For minor imperialist countries such as Britain, choosing America will probably be the less damaging of the options, although the loss of Chinese business that would probably result would also cause a great deal of economic pain, as London’s Chinese ambassador, Mr Liu Xiaoming, hinted in an interview on the BBC’s Newsnight.

“Action [against Huawei] would damage Britain’s reputation as ‘business friendly’. He said: ‘Chinese investment is booming in this country. Even last year it increased by 14 percent, but if you shut the door for Huawei, it sends a very bad and negative message to other Chinese businesses.’

“Britain was the largest western recipient of Chinese investment last year, at $4.94bn.” (Britain risks billions if it bans Huawei, warns China by Lucy Fisher, The Times, 14 June 2019)

Chinese people also contribute massively to Britain’s tourist and education industries, and a recent trade agreement between Britain and China, which came as a much-needed boon to British farmers, could also be compromised if Britain jumps to America’s command.

“A £230m trade deal for the export of British beef to China is at risk if the government freezes out Huawei, a Chinese diplomat has suggested.

“Earlier this month the Chinese government agreed to lift its 20-year-old ban on British pork and beef, imposed during the 1990s BSE crisis.

“The deal, which followed Theresa May’s 2018 visit to Beijing, is estimated to be worth £230m to British farmers over the next five years and represents a coup for the Conservative government.

“However, the agreement could be pulled into the tense negotiations over whether the UK will use Huawei technology to upgrade its telecoms networks to 5G.

“Mrs May agreed to deploy ‘non-core’ elements from the world-leading firm, but that decision is under review amid concerns for national security and pressure from the US, which is fighting a trade war with China, not to do business with a company deeply tied to Beijing.

“Ma Hui, a minister in the Chinese embassy, warned that any decision to drop Huawei could harm UK-China trade.

“It would ‘send a very negative message to Chinese investors’, said Mr Hui in comments to the Telegraph after a discussion of the trade deal signed on 18 June.

“‘If you want to trade with China, trade with Huawei,’ the minister said.” (£230m British beef exports could be at risk if the UK government freezes out Huawei, China warns by Memphis Barker and Charles Hymas, The Telegraph, 21 June 2019)

Round the world, many other governments face difficult choices, including many countries which have, with China’s help, been able to break the imperialist stranglehold on their economies, and which are continuing to benefit from China’s Belt and Road Initiative, for whom choosing China above the United States may well prove the less disadvantageous option, except for the threat of being subjected to regime-change manoeuvres from Washington that would prove costly to counter.

Building anti-imperialist unity

Sooner or later, however, the countries that are subjected to US bullying will perforce need to come together to defend themselves, a process which is now in fact beginning with the rapprochement between Russia and China.

The Financial Times has reported: “With both Moscow and Beijing under fire from the US – whether through sanctions or President Donald Trump’s trade war – Mr Putin and Mr Xi have struck up a warm friendship that defies decades of mistrust between their countries …

“The risk of new US sanctions on Russia have accelerated efforts by Moscow and Beijing to safeguard deals through measures such as non-dollar payment systems …

“The two countries’ militaries … trained side-by-side last September in Russia’s largest war games since the cold war. This was the first time that China had been invited to take part in Russia’s flagship annual exercise. The first gas pipeline between Russia and China is set to start pumping in December, joining an already-operating oil supply link.

“Bilateral trade rose 24.5 percent last year to hit a record $108bn, surpassing forecasts. Chinese officials say they are aiming for $200bn.” (Russia strengthens China ties in defiance of bellicose Trump by Henry Foy and Christian Shepherd, 5 June 2019)

It is clear that the countries that the US is bullying or attempting to bully do have an armoury at their disposal to enable them to defend themselves. US imperialism should not be surprised when that armoury is unleashed.