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What the China-U.S. Trade War Reveals

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What the China-U.S. Trade War Reveals

A trade war between the world’s two biggest economies could spell disaster. Beneath the tariff battle, however, Washington and Beijing have a fundamental conflict of interests.

Learn the why behind the headlines.

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Where there is war, there are casualties. And when it comes to the two largest economies butting heads over trade superiority, every country in the world can only hope to dodge the stray bullets zipping across no man’s land.

The tit-for-tat tariffs between the United States and China has continued to ratchet up toward a full-out trade war through the summer. It began with U.S. President Donald Trump’s first step toward his goal of reducing the trade gap with China by imposing a 30 percent tax on solar panels—China produces two-thirds of the world’s solar panels. Soon after, Washington slapped tariffs on Chinese steel and aluminum.

China retaliated by placing taxes on $2.4 billion in American exports, specifically those that would affect farmers.

Back and forth, the tax-slapping continued: Washington added taxes to everything from Chinese parachutes to sardines; Chinese foreign ministry spokesman Geng Shuang warned that Beijing will defend its “lawful rights and interests” with a return strike on a wider range of U.S. goods.

Public fears were stoked throughout the months-long ordeal, as both China and Europe—and the news media day after day—warned that an all-out trade war would trigger another global recession like the 2008 Financial Crisis. Further, Chinese authorities warned that if the dispute escalated, they would adopt unspecified “comprehensive measures.” That prompted concern among American companies that retaliation might expand to disrupting their operations in China.

Indeed, the world economy is at the mercy of these two nations, whose markets make up almost 40 percent of the global GDP.

Yet the outcome of the battle is largely uncertain. On one side, some economists proclaimed U.S. economic growth as proof it was winning. New York-based managing director of global markets research for FTSE Russell stated to USA Today: “There’s a lot of ways to judge this, and I expect a lot of twists and turns, but if we just look through the lens of the market, we’ve seen a much stronger U.S. stock performance.”

On the other side, some pointed out that the trade war will hurt Washington and politically bolster Beijing, even though the U.S. is likely to win.

Forbes reported that the tariffs “hurt U.S. consumers” and reduce the competitiveness of domestic markets. It also suggested that the tariffs “are a side-show”—a “camouflage” for China’s government to continue running the market communist style, which tends to incur losses.

Indeed, beyond the media brouhaha, the U.S.-China trade war is merely one result of much deeper, longstanding differences.

Quiet Cold War

One top CIA expert on Asia said he believes China is waging a “quiet kind of cold war” against the U.S., using all its resources to try to replace America as the leading power in the world.

Beijing does not want to go to war, he said, but the current communist government, under President Xi Jinping, is subtly working on multiple fronts to undermine the U.S. in ways that are different from the more well-publicized activities being employed by Russia.

“I would argue…that what they’re waging against us is fundamentally a cold war—a cold war not like we saw during THE Cold War [between the U.S. and the Soviet Union] but a cold war by definition,” Michael Collins, deputy assistant director of the CIA’s East Asia mission center, said at the Aspen Security Forum in Colorado.

There is concern over China’s pervasive efforts to steal business secrets and details about high-tech research being conducted in the U.S. The Chinese military is expanding and being modernized and the U.S., as well as other nations, have complained about China’s construction of military outposts on islands in the South China Sea.

“I would argue that it’s the Crimea of the East,” Mr. Collins said, referring to Russia’s brash annexation of Ukraine’s Crimean Peninsula, which was condemned throughout the West.

Mr. Collins’ comments track warnings about China’s rising influence issued by others.

FBI Director Christopher Wray said China, from a counterintelligence perspective, represents the broadest and most significant threat America faces. He said the FBI has economic espionage investigations in all 50 states that can be traced back to China.

“The volume of it. The pervasiveness of it. The significance of it is something that I think this country cannot underestimate,” Mr. Wray said.

National Intelligence Director Dan Coats also warned of rising Chinese aggression. In particular, he said, the U.S. must stand strong against China’s effort to steal business secrets and academic research.

Susan Thornton, acting assistant secretary of state for East Asian and Pacific affairs, said increasing the public’s awareness about the activities of the hundreds of thousands of Chinese students or groups at U.S. universities could be one way to help mitigate potential damage.

“China is not just a footnote to what we’re dealing with with Russia,” Ms. Thornton said.

Marcel Lettre, former undersecretary of defense for intelligence, said China has the second-largest defense budget in the world, the largest standing army of ground forces, the third-largest air force and a navy of 300 ships and more than 60 submarines.

“All of this is in the process of being modernized and upgraded,” said Mr. Lettre.

He said China also is pursuing advances in cyber, artificial intelligence, engineering and technology, counter-space, anti-satellite capabilities and hypersonic glide weapons. Army Lieutenant General Robert Ashley, head of the Defense Intelligence Agency, told a congressional committee earlier this year that China is developing long-range cruise missiles—some capable of reaching supersonic speeds.

“The Pentagon has noted that the Chinese have already pursued a test program that has had 20 times more tests than the U.S. has,” Mr. Lettre said.

Century of Humiliation

To understand why Beijing is pushing toward expansion and fighting back against the U.S., it is vital to know the history of Sino-American relations.

The New York Times explained through the lens of a resident of the French Concession, “a leafy part of Shanghai whose name itself carries the humiliation of China’s biggest trade war. The ‘concession’ itself was one of many slices of territory, including Hong Kong and parts of other port cities, that China was forced to hand over to foreign powers after its defeat in the mid-19th-century Opium Wars. ‘China was so weak and backward then,’ [Ye Fangsu, a retired schoolteacher,] said…”

The article added that “for many Chinese, there’s a sense of history repeating itself. The Opium Wars, as every Chinese schoolchild is reminded, began as a British attempt to pry open the Chinese market. Much as it does today, China in the 17th and 18th centuries ran a huge trade surplus with the West, exporting large quantities of tea, porcelain and silk but importing little in return…By hooking China on opium, British and American merchants redressed the trade imbalance even as they weakened the country’s social fabric. The Chinese revolted, but they were no match for Western gunboats—leading to the unequal treaties that have fueled China’s sense of historical grievance and patriotic ambitions ever since.”

This sense of grievance gave rise to Communist China in 1949, when Mao Zedong ousted the government and vowed a revolution that would bring an end to the “century of humiliation.”

In the following decades, China painted the U.S. as its arch-enemy. Diplomatic relations were cut off. During the Korean War, Chinese soldiers flooded into North Korea and fought when UN, U.S. and South Korean troops advanced toward the border. China also amassed its army along its border with Vietnam during America’s involvement in the conflict there. The U.S. threatened to drop a nuclear bomb on China in 1955; Mao in effect retaliated by initiating the development of atomic weapons to assert the “national will” and stand up to the U.S.

It was not until a split in China-Soviet relations in 1969 that put Moscow in front of Washington as China’s biggest threat. This led to reconciliation with the U.S. in the early 1970s, beginning with allowing journalists to enter the Asian nation for the first time in more than two decades.

President Richard Nixon’s visit in 1972 officially restarted diplomacy. During the trip, Nixon acknowledged differences, but suggested the two could move together on “parallel highways” toward the same goal of peace.

In 1979, President Jimmy Carter granted China full diplomatic recognition and the turn of the century brought deeper trade relations. Beijing was granted permanent normal trade relations with the U.S., joined the World Trade Organization in 2001, and in 2006 surpassed Mexico as America’s second-biggest trade partner, exceeded only by Canada.

Between 1980 and 2006, U.S.-China trade expanded from $5 billion to $231 billion, and China’s economic growth exploded during this period.

However, animosity never truly disappeared as Beijing has used this prosperity to work toward its longstanding dream of becoming a superpower.

Butting Heads

The determination to rise above Western dominance lives on today through the efforts of President Xi. He adopted the motto “China dream” in 2012 when coming into power, an ethos that Beijing aims to result in the “great rejuvenation of the Chinese nation.”

This “rejuvenation” included constitutional reforms that allow President Xi to rule for life, as well as a crackdown on political rivals and separatists.

Mr. Xi has also put China’s military through its biggest overhaul since the 1950s, including the launching of a second aircraft carrier to bolster its dominance in the highly contested South China Sea.

Financial Times reported: “As well as turning China into a prosperous, technologically advanced nation, the ‘dream’ requires Taiwan, which Beijing insists is its territory, to be ‘reunified.’ It also requires Hong Kong, which was guaranteed a ‘high degree of autonomy’ for 50 years after the 1997 handover from the UK, to be integrated into the mainland.”

According to Bloomberg reporter Ting Shi, President Xi “has this great belief China totally deserves to restore its place in the world.”

For many Chinese people, aware of the nation’s beleaguered past, the reforms and developments have been a long time coming.

But none of this is sunshine and roses for Washington. President Xi’s removal of term limits and purges are eerie callbacks to communist-era strongmen like Mao Zedong and Joseph Stalin. Of course, Beijing’s increasingly aggressive activity in the South China Sea and its stated desire to repossess Taiwan are clear threats to American interests in the region—from trade security to the protection of democratic governments.

Long-term Planning

“At some point, Chinese leaders may want to get nationalistic and stir up anger against U.S. companies, but that’s a dangerous road,” James McGregor, chairman of the greater China region for the consulting firm APCO Worldwide, told The New York Times in its article “When It Comes to a Trade War, China Takes the Long View.”

He continued: “Right now, Chinese leaders are just studying the battlefield. They are not running around with shock and awe.”

In addition to the trade war, Chinese take the long-term view in all other aspects of their relationship with the U.S. An Economist article described how the 19th century Opium Wars continue to shape China’s view of the West today, though those conflicts are largely forgotten in Britain and America.

“From the British point of view, [the battles] were minor compared with those of the 20th century,” the publication stated. “And they are on the other side of the peak and decline of Britain’s imperial power, which has tended to obscure them from view. But China has not forgotten the Opium Wars. The conflicts were a humiliation, exposing the hollowness of its claims to be the world’s most powerful empire. They set it on a quest, which continues to this day, to rediscover its strength.”

Chinese schoolchildren are taught this history: It is practically obligatory for them to make pilgrimages to sites that showcase examples of Western aggression. For example, the ruins of the Summer Palace in Shanghai—which was destroyed by British and French troops during the second Opium War—was memorialized by the Communist Party as a “national base for patriotic education,” along with 428 other such sites across the country.

Contrast this with how Americans view history. Less than 25 percent of Americans age 18 or older visited a historical park or monument in 2012.

Most schoolchildren or college students never visit Pearl Harbor, the World Trade Center in New York City, or significant monuments in the capital memorializing events that have shaped our history.

As a result, the events do not make an emotional and psychological impact, or are at worst completely forgotten. One university student explained in Perspectives on History the impact of visiting the Civil War battlefield in Gettysburg: “As we toured the battlefield, I realized that visiting historical sites can not only enrich our understanding of a particular historical event, but it can also allow us to engage with history in a way that provides greater local contextualization and a visceral connection to the people who lived through it.” He also said it helped him “develop a deeper appreciation of the significance of the battle and the Civil War to American history and identity.”

In the same way, Chinese people who are more deeply in touch with their history still carry the intentions, motivations and emotions of generations past. The Diplomat explained: “Part of what is happening now derives naturally enough from the trajectory of any rising power—or a power that after years of investment and work is feeling like its time has come.”

Millennia of investment and work.

Despite China hosting the world’s largest population, as well as a history of accomplishments in navigation and technology that came centuries before Europe’s Industrial Revolution, it was America and Britain that helped bring about the Asian giant’s dynastical demise. Think about the U.S. specifically, a nation born merely in the 18th century that catapulted almost immediately to global acclaim and power.

It would seem only natural that China would hold on to a “we were here first” and “we bore the heat of the day” mentality.

But what few understand is Americans themselves have an ancient history, one that has been memorialized. Yet part of the reason we have forgotten this crucial aspect of our past is very few actually take the time to look at this memorial—even though it is easily accessible.

That memorial, the Bible, contains our ancient history. Read America and Britain in Prophecy to learn more about the incredible historical roots of today’s preeminent superpower. It details the reason for the United States’ unprecedented rise to power, as well as the success all nations—including China—will enjoy in the future.

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