Seventy years ago, the Korean nation was divided into two separate states. On August 15, 1948, the Republic of Korea was founded in the south of the Korean Peninsula, and on September 9, 1948 the Democratic People’s Republic of Korea was founded in the north.
A Longstanding Confrontation
The Korean War of 1950–1953, which saw the United States fighting on the side of the South under the UN flag, was the bloodiest and most destructive conflict since World War II. De jure, the two Korean states are still at war. This is because the Korean Armistice Agreement signed on July 27, 1953 to stop the war is nothing but an agreement between the commanders-in-chief of the two armies to suspend military hostilities. Two powerful military contingents with cutting-edge weapons and equipment are still at the ready on both sides of the 38th parallel that divides North and South Korea. And these contingents are not just made up of Korean troops. Under the Mutual Defense Treaty Between the United States and the Republic of Korea, U.S. contingent of 28,500 troops is deployed in South Korea. When Pyongyang started to develop nuclear weapons and missiles to prevent the United States from intervening in the inter-Korean military conflict, this further exacerbated the situation.
“The Asian Tiger” and a “Rogue State”
Today, South Korea is referred to as the “Asian Tiger.” It is a highly developed and prosperous state: it is the world’s second-largest shipbuilder; the third-largest manufacturer of semi-conductors and displays; the fifth-largest automobile manufacturer; and the six-largest producer of steel. South Korea invests 4 per cent of its GDP into research, more than any other OECD member, and it has the fourth-largest number of patent applications for inventions, behind the United States, Japan and China. Seoul has its own space programme and has plans to send its first probe to the Moon’s orbit by 2020 and another to its surface by 2025.
North Korea certainly lags behind South Korea in its economic development; however, statements about the country’s cultural and technological backwardness are largely the work of western media. And we are not only talking about the fact that Pyongyang would not have been able to develop its own nuclear programme that the world is so concerned about if it did not have a high level of scientific and industrial development. No one can deny that the new blocks of high-rise buildings in Pyongyang are practically indistinguishable from those in Seoul, that Pyongyang’s metro is a year older than Seoul’s, and that North Korea launched its artificial satellite before South Korea did.
Since North Korea has its own nuclear programme, the United States has declared it a “rogue state” and has not only imposed its own sanctions on the country, but has also managed to have very harsh sanctions imposed on it by the UN Security Council. It is curious, however, that the timing of the sanctions against North Korea (after the country carried out its first nuclear test) coincided with the North Korean economy emerging from the very severe economic crisis of 1995–2000, after it had overcome famine and started to show signs of economic growth. Even more paradoxically, economic growth in North Korea picked up pace significantly in 2012–2013, when the sanctions were tightened. This was primarily due to the fact that when Kim Jong-un came to power, he launched active, albeit quiet, market reforms in the country.
From Confrontation to Dialogue
The tension around Korea has been one of the greatest threats to international security in recent years. Today, the global community is focused on forcing Pyongyang to abolish its nuclear programme. However, this alone will not eliminate the threat of a new Korean war involving the United States, South Korea’s military ally. Shutting down North Korea’s nuclear programme requires, first, a reconciliation between the two Koreas and, second, solid guarantees to Pyongyang that the United States will not take aggressive measures.
2018 was marked by important positive events in Korean affairs. On April 27, President of South Korea Moon Jae-in met with the leader of North Korea Kim Jong-un in Panmunjom. Naturally, this summit between the heads of two Koreas (only the third ever) did not resolve all the problems that had accumulated in the bilateral relations over the decades of confrontation. However, it did open the way to move on to specific talks on trade and economic cooperation and a military and political détente.
We also saw the first ever U.S.–North Korea dialogue on the North Korean nuclear programme, with a summit between Donald Trump and Kim Jong-un being held in Singapore on June 12, 2018. Even though the summit’s declaration contains nothing more than generic phrases, one thing is without doubt: no nuclear or conventional war will take place in Korea in the near future. The handshake between Donald Trump and Kim Jong-un is a real contribution to the cause of peace in Korea and throughout the world.
A Complex Knot of Problems
The North Korean leadership is clearly interested in a détente on the Korean Peninsula. While the Byungjin line proclaimed by Kim Jong-un several years ago entailed building a powerful nuclear potential and creating a prosperous economy, in April 2018 the Plenum of the Central Committee of the Workers’ Party of Korea said that success in building the nuclear potential allowed North Korea to focus all efforts on building a socialist economy.
The proof of Pyongyang’s words is contained in its actions. Not a single nuclear test has been carried out for almost a year now, and missile tests have not been held for over six months. North Korea’s Punggye-ri Nuclear Test Site has been shut down.
Pyongyang appears to have a precise step-by-step programme of possible bargaining with both Seoul and Washington on mutual security commitments. Kim Jong-un, however, is clearly dragging his feet in developing the positive work started at the summits with Moon and Trump. The reason appears to be that he is not confident that both his opponents will stick to the deals. Back in the day, the conservative President of South Korea Lee Myung-bak had no qualms about abolishing his predecessor’s “sunshine policy” in the country’s relations with North Korea, while George W. Bush did not hesitate to get rid of Bill Clinton’s “North Korea Appeasement Policy.” Is there any guarantee that in a couple of years, peace-loving Moon will not be replaced with some North Korea hater, or that Trump, Kim’s counterpart in Singapore, will not be impeached?
The nuclear disarmament of North Korea and the provision of security guarantees to Pyongyang is too complicated a knot of problems to be cut in a single stoke, and by the sole hands of the United States. The solution requires multilateral international efforts, and this cannot be done without the involvement of China and Russia, two countries that have historical and geographical ties with Korea. It would appear that both the Koreas are counting on the participation of Russia and China. This much is clear from the fact that Kim Jong-un has visited China twice over the past two months, and President of the Presidium of the Supreme People’s Assembly of North Korea Kim Yong-nam and President of South Korea Moon Jae-in have both paid official visits to Moscow.
The optimal way would be to go back to the six-party talks on the Korean nuclear programme: the two Koreas, the United States, China, Russia and Japan. The talks should be structured as step-by-step negotiations using the principle of “action in exchange for action.” It would be wise at the initial stage to propose that North Korea’s nuclear programme be separated from its missile programme. North Korea’s nuclear status is set forth in the country’s Constitution, and this subject currently appears non-negotiable for Pyongyang. At the same time, a freeze on the missile programme and guarantees of non-proliferation of missile and nuclear technologies can be negotiated. Given that Pyongyang has essentially introduced a moratorium on missile launches and nuclear tests, the issue of lifting some sanctions from North Korea may be raised at the UN Security Council to stimulate Pyongyang to further roll back on its nuclear and missile programme. For instance, to get North Korea to stop developing ICBMs, freeze the production of nuclear materials and open its nuclear facilities for international inspections.
Several purely political steps would also be useful. For instance, it would be good to correct the entirely unnatural situation in which the United Nations, as a party to the Korean War (in that war, Pyongyang’s enemy fought under the UN flag), is still officially at war with North Korea, one of its members. For that purpose, the upcoming session of the UN General Assembly could adopt a UN Security Council declaration stating that the Korean War is in the past and that the UN Security Council is putting an end to that chapter and, therefore, the UN Command is no longer needed in Korea.
To further promote the inter-Korean détente, it would probably be useful for North Korea and South Korea to conclude an agreement between commanders-in-chief of the two countries on preventing dangerous military activities; such an agreement could serve as a landmark on the road to concluding a Peace Treaty to replace the 1953 Armistice Agreement. This would mean that any incidents that may arise due to dangerous military activities would be promptly stopped and settled through peaceful means without resorting to the threat or use of force. The document could be based on provisions of the 2015 Agreement between the Government of the Russian Federation and the Government of the Democratic People’s Republic of Korea.
Korean Affairs and Russia
The best way to diffuse tensions between neighbouring states and establish relations based on mutual trust is to run joint, long-term and mutually profitable economic or scientific and technological projects in. Russia could play a prominent part in such work on the Korean Peninsula.
The two Korean states are immediate neighbours of Russia, and Russia is interested in having good and mutually beneficial relations with both. And there is a good basis for this to happen. Historically, Russia has never had any disputes with either of the Koreas. Russians have never set foot in Korea as an aggressor. On the contrary, the country has always welcomed Korean people into its territory: 2014 marked the 150th anniversary of Korean resettlement in Russia. In 1945, it was the Soviet Army that liberated Korea from the colonial power.
There are no disputes between Russia and either of the Koreas today either. The leadership of South Korea, for instance, stresses its interest in taking its relations with Russia to the level of “strategic partnership.” It is noteworthy that, despite the persistent pressure of the Unites States, South Korea did not join the sanctions against Russia imposed after the events in Ukraine.
During his three meetings with Vladimir Putin over the past year, Moon Jae-in has unfailingly stressed collaboration with Moscow on denuclearizing the Korean Peninsula, establishing peace there and developing Eurasia. Economically, South Korea that has virtually no mineral or other resources and is highly interested in exploring the natural wealth of Siberia and the Far East. At the same time, Russia is a promising market for South Korea’s industrial products.
South Korea is also ready to collaborate with Russia in those areas where Russia has globally competitive technologies. This much is evident from the participation of Roscosmos in the construction of South Korea’s Naro Space Center, the flight of a South Korean astronaut with two Russian cosmonauts in a Russian spacecraft, the launch of the Russia–South Korea Naro-1 (KSLV-1) launch vehicle, and the fact that South Korea imports Russian uranium for its nuclear power plants to meet over a third of its needs. Bilateral humanitarian ties are also being developed. South Korea is the only country in Northeast Asia that has a visa-free travel agreement with Russia.
During President Moon Jae-in’s state visit to Moscow in June 2018, the parties agreed to expand bilateral cooperation in the areas of civil aircraft building, automobile manufacturing, shipbuilding and the construction and modernization of shipyards in Russia. The parties intend to expand cooperation in space research, the exploration of the Northern Sea Route and the joint development of oil and gas fields. Concluding a Free Trade Agreement would be a landmark moment in the development of trade and economic cooperation.
As regards North Korea, Russia’s relations with the country were on a downturn in the 1990s. Vladimir Putin’s visit to Pyongyang in 2000, the signing of the Treaty on Friendship, Good-Neighbourly Relations and Cooperation in February 2000, and settling the issue of North Korea’s debt to Russia in 2012 all paved the way for the restoration a full-fledged partnership between Russia and North Korea. Such a development was intended to give a powerful impetus to trade and economic relations both in the Russia–North Korea bilateral format, and in a trilateral format with the participation of South Korea, thus contributing to building bridges in inter-Korean cooperation.
During the Russia–South Korea summit held in Moscow this past June, the two parties expressed interest in trilateral projects between Russia, South Korea and North Korea, such as: linking the Trans-Korean Main Line to the Trans-Siberian Railway; building a pipeline between Russia and North and South Korea; and connecting the power grids of the three countries. The problem is, however, that implementing these trilateral projects is currently hampered by sanctions imposed on Pyongyang due to its nuclear programme, as is the development of bilateral trade and economic cooperation between Russia and North Korea.
Further dialogue on the matter is expected at the Eastern Economic Forum in Vladivostok in September 2018, to which Vladimir Putin has invited the leaders of both Korean states.
The two Korean states are celebrating their 70 th anniversaries while gradually retreating from confrontation algorithms formed by the Cold War. It is in the interests of everyone that a reconciliation of the two Koreas is achieved and a solution to the nuclear problem on the Korean Peninsula is developed.
North and South Korea should become full-fledged members of the comprehensive security system in Northeast Asia.
First published in our partner RIAC
China Vision: China’s Crusade to Create a World in its Own Image
In the wake of Chinese leader Xi Xinping’s moves to make himself ruler for life, everyone is wondering about his government’s ambitions for its role in the world. Daniel Wagner has written about what the trends indicate in China Vision: China’s Crusade to Create A World in its Own Image.
The book notes the paradox that China is in regards to investment. The world’s 2nd largest economy continues to accept billions of dollars in development loans from banks like the World Bank and Asian Development Bank. Meanwhile, Chinese state banks are loaning trillions of dollars to countries around the world. Chinese entrepreneurs are feverishly setting up businesses abroad and purchasing foreign companies and real estate. If a foreigner wants to invest in China though, they must accept ownership stake limitations and obey rules that explicitly make them less competitive. In regards to domestic investment, Wagner argues that China invests way too much on grand public projects, like apartment blocs that remain largely vacant, and not enough on small-midsized businesses. One of these days (the next global recession?), the chickens will come home to roost and China will have to re-evaluate its blank-check policy.
Much of the book focuses on China’s role in foreign diplomacy and commerce. The fledgling superpower is in the process of spending trillions of dollars on loans to the developing world, particularly through its Asia-oriented Belt and Road Initiative. These no-strings attached loans give China enormous power over many of the poorest countries in the world. Many people, like former Maldivian PM Mohamed Nasheed, have outright accused China of imperialist behavior. The author writes that, “Kenya was to be forced to relinquish control of its largest and most lucrative port in Mombasa to Chinese control as a result of Nairobi’s inability to repay its debts to Beijing.” China also owns ports in locales as diverse as Djibouti City and Zeebrugge, Belgium. Chinese firms are likewise emulating some neo-colonial tendencies. For instance, Wagner writes that, “Fewer than half of these [African-based Chinese] firms sourced inputs or had African management.” Controversial Chinese real estate projects like Forest City, Malaysia are arguably examples of literal colonialism.
Through this strategy of buying friends and building a global network of ports, China is strengthening its impunity as a Top 3 naval power. Increasingly, China is treating the South China Sea as its private fiefdom by ignoring credible territorial claims of the Spratly Islands and Scarborough Shoal by the Philippines, Indonesia, Japan, Brunei, Malaysia and Vietnam. Most disturbing of all is Xi’s recent verbal aggression towards Taiwan. By buying friends, China can mute criticisms of this military aggression in the UN and isolate foes like Taiwan (only 19 countries have diplomatic relations with it). With a rapidly expanding fleet of sea craft, the People’s Liberation Army Navy is better equipped than ever to project hard power via all of China’s ports, from off the coast of the Philippines to Belgium…. On this dire note, I wish Wagner had written more about the budding conflict between China and the other 1B-person country in the world, India. I predict that the dichotomy between democratic India and totalitarian China will determine the future of humanity. Seeing as India & China (and China’s close ally Pakistan) all possess thermonuclear weapons and have recent military skirmishes with each other, one can only hope that the Tiger and Dragon don’t initiate WWIII squabbling over a sleepy locale like Kashmir or Nepal.
In the final section of the book, Wagner writes about China’s dominance in the virtual sphere. Chinese tech companies like Baidu, Alibaba and Tencent are rapidly catching up and even beating Silicon Valley in terms of traffic, profitability and innovation (most importantly, AI). China has also become the de facto global leader in green technology. China’s blank-check philosophy funds these rapid advancements. A lot of this apparent innovation, however, is fuelled by corporate espionage. For the past few decades, Chinese firms (often with official backing) have been using spies and hacking to steal blueprints and thus reverse engineer inventions. Ironically, these knock-offs are oftentimes sold to the US government, which creates a huge security risk. In many cases, Western companies willingly share confidential data with China in order to be granted access to the Chinese market.
China’s running racket of stealing IP and personal user data from US companies that choose to operate in China demonstrates the importance of government regulation… In this case regarding national security and user privacy protection. Ironically, China enforces data encryption and other cybersecurity measures through regulations like the 2017 Cybersecurity Law. The willingness of Western companies to literally sell themselves out to China in the frenzied hope of making a quick buck in the world’s largest market is textbook junkie-mentality. These free market free-basers expose their fundamental flaw in the face of China’s system of state capitalism. By ceding responsibility of investment from the government to the private sector solely, countries like the US are being vastly outspent by China in everything from space travel to quantum computing research. As economists like Michel Aglietta and upstart politicians like Alexandria Ocasio-Cortez point out, the state must be responsible for picking up the slack when the free market fails to focus on important long term projects, like a Green New Deal (China already has its own publically funded version of the GND).
China Vision is a good account of the Chinese Communist Party’s domestic heavy-handedness and foreign diplomacy-via-blank-check. The two are interconnected, as China’s crackdown on internal dissidents informs how it treats foreign countries and human rights activists who dare to oppose it. Through China’s Belt and Road Initiative of loaning billions of infrastructure dollars to developing nations, it can control them through a carrot-and-stick approach. China’s spy state apparatus is also being used to sabotage foreign humanitarian organizations, religious groups, governments and companies. The CCP may soon export its surveillance state blueprint to other interested authoritarian states, setting the stage for a cold war between China and its client dictatorships & the Western democracies. The People’s Liberation Army is preparing for this possibility with a huge naval buildup in the contested South China Sea, aided by all of the “civilian” ports that it’s building there under the auspices of the BRI. Daniel Wagner’s book does a good job of explaining these geopolitical trends in a concise and even-handed way. He explains how colonialism and the Cold War helped to shape China’s cynical outlook on the world and doesn’t exaggerate China’s capabilities. Anyone in politics, tech, economics or the NGO sphere will learn a lot from this book.
China’s economic transformation under “New Normal”
China’s double digit growth, also termed as “old normal growth” had dominated the country’s economy since 1980s. Despite the rapid economic development over the last few decades, this old normal growth has encountered some setbacks, including economic imbalance, income inequality, limited consumption choices against increasing level of demand, and environmental challenges.
Given this context, a comprehensive new development model, “new normal”, incorporating the innovation, coordination, greening, opening up, and inclusiveness, is formulated by Chinese authorities to enable wide-ranging growth and development throughout the country.
Analysts refer to “new normal” as China’s new phase of economic development. The recent trend of “growth slowdown” or “new normal” economic growth is also referred to new strategy of Chinese foreign policy by the analysts.
During the 2014 Asia-Pacific Economic Cooperation (APEC) CEO Summit in Beijing held on November 09, 2014, Chinese President Xi Jinping first used the phrase as “new normal stage of Chinese economy.” President Xi also referred to China’s stable economic growth in order to improve and upgrade economic structure under the “new normal” conditions.
Subsequent to this, China’s 13th Five-Year Plan (2016-2020) incorporates the “new normal” in economic development with a particular vision of building a moderately prosperous society in all respects by 2020. The key significant features of China’s “new normal” are:
Slower economic growth
One of the key reforms or significant changes on China’s medium-high economic growth rather fast growth over the past few years is exceedingly evident. To be mentioned, over the past 40 years, China has maintained an average annual growth rate of around 9.5 percent that transformed an impoverished nation to an upper-middle-income nation.
In contrast, the gross domestic product (GDP) growth rate lowered from 7.5 percent in 2012-2014 to 6.8 percent in 2017. According to China’s National Bureau of Statistics (NBS), the GDP growth rate was relatively same, 6.6 percent, in 2018, with an expected target of around 6.5 percent at the same time.
For the purpose of economic restructure and high-quality development, China’s local governments have also lowered their GDP growth targets in the same year. The new trend of normal flow of growth is projected to be relatively same in the upcoming years.
Yiping Huang, Professor of economics at the National School of Development, Peking University, and an adjunct professor at the Crawford School of Public Policy, ANU, refers to such transformation of China’s growth model as the transition from “economic miracle” to “normal development,” which is the partial departure from the traditional bottom-up approach.
The World Bank also mentions that, China’s economic slowdown is not unexpected, rather desirable from both from short and medium-term perspectives aiming at fostering China’s transition to a modern economy through the new model. This transition denotes a clear move from high speed growth to slower, steadier, and more sustainable economy.
One of the significant aspects of China’s “new normal” economic model is to facilitate market for playing “decisive role” in allocating economic resources. The “new normal” endeavors for making interest rates, currency exchange rates, and land prices more market-oriented. Incremental steps have already been taken towards the liberalization of interest rate and exchange rate set by market forces, cutting taxes, and reducing costs in order to widen market access, stimulate market vitality, and support economy.
The improvement of market environment, enhancement of private investment and investment-led growth, establishment of comprehensive pilot zones, facilitation of interest rate controls on loans, proactive fiscal policy, prudent monetary policy, and the increase of effective supply among other significant measures have also been outlined in the report on the Work of the Government delivered by Premier Li Keqiang at the Second Session of the Twelfth National People’s Congress on March 05, 2014.
President Xi first announced the phrase “supply-side structural reform (SSSR)” in late 2015, which injects new impetus into China’s economic policy framework. The SSSR mainly focuses on reducing distortions in the supply side of the economy and upgrading the industrial sector.
A study on China’s SSSR conducted by Reserve Bank of Australia finds five core policy objectives of China’s supply supply-side reform–cutting excess industrial capacity; reducing leverage in the corporate sector; de-stocking of property inventories; lowering costs for businesses and addressing “weak links” in the economy.
In this regard, China has focused on overcapacity reduction, especially in coal and steel production. As for example, more than 65 million metric tons of steelmaking capacity and over 290 million tons of coal-production capacity were eliminated in 2018.
Moreover, the government has already reduced tax to foster business friendly environment. President Xi has underscored the necessity of strengthening areas of weakness to boost the supply of the public goods and services.
Innovation driven economy, the vital part of SSSR, attempts to enhance the quality of products, reduce ineffective and lower-end supply through the advancement of artificial intelligence, big data, and the inauguration of 5G mobile communication equipment etc.
As per the push for services-driven economy, the socio-economic issues for the improved people’s wellbeing have also been addressed in the “new normal”. President Xi Jinping remarks, “Comprehensively deepening reform will not only liberate the productive force but also unleash the vitality of the society.”
The 13th FYP highlights the development of services and measures to address environmental challenges in order to reduce pollution and amplify energy efficiency. During the 2014 Beijing APEC meetings, temporary shutdown of Chinese factories was given “priority of priorities” to curb pollution and ensure air quality. As per the policy, China has started accelerating the development of clean energy industry from 2018.
The green development aside, robust consumption, reducing social imbalances, improving education and healthcare facilities, and expanding social protection get equal priority in the new phase of economic development.
Opening up through Connectivity
The new phase of Chinese economic growth is based on political economy that anticipates trans-border trade and investment facilitation as well as border connectivity through greater integration and sustainable relations among nations. China’s stretching connectivity over Asia, Africa, and Europe through the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road”, altogether known as Belt and Road Initiative (BRI), is extending influence from South China Sea to Indian Ocean. RMB internalization and China’s leading role from multilateral trade forums to climate change accords clearly signify the “new normal” policy of President Xi Jinping.
Implications on China’s socio-economic development
The “new normal” economic model has far-reaching impacts on China’s comprehensive development and path towards building a moderately prosperous society.
First, China’s has comfortably been maintaining its position as the world’s second largest economy. National Bureau of Statistics (NBS) reports, despite the slowdown of GDP growth rate, China contributed more than 30 percent to world economic growth during 2017. Hence, the investment-led growth since 2012 has resulted huge benefits for Chinese businesses and the overall economy.
Second, Chinese people are getting relief from the side effects of old model, mentioned earlier. The country has been witnessing growing equality among people, comparatively equal income distribution, robust consumption, environment-friendly industrialization, quality products, and other developments in other socio-economic sectors.
Third, Qualitative than quantitative aspects of economic growth, balanced and sustainable growth, stable employment, innovation, green development, investment intensification, faster industrial upgrading, and opening up are leading to China’s dream towards a sustainable socio-economic development. For example, the number of Chinese enterprises, around 27 million, and market entities have been increased in China over the past few years under both market and supply-side structural reforms. These new business hubs are boosting the country’s structural transformation and economy.
Finally, China’s new phase of economic growth and new historic juncture reiterate China’s development as per the vision broadly prescribed in Socialism with Chinese characteristics for a new era.
The Slippery Slope of Sino-US Trade War
Change is the only constant. After a struggle for supremacy in geopolitical and geo-economical spheres, now technological realms have also been contested among superpowers. The Fourth Industrial Revolution is at the verge of breaking out and it is expected that this stage of modernization will tug the very fabric of society and will alter the way individuals interact with each other and world at large. Ongoing industrial innovation will act as a modus operandi to transform global economies, communities, and politics.
The world is in stern need of a modern global architecture before the fourth industrial revolution starts encroaching on us. That is why a trade tussle emerged on statist lines among all major economic stakeholders of the international economy, especially among those having a larger share in business with the United States. The US President Donald Trump opted a pre-emptive approach and imposed tariffs and nuisance in global economies. Eminent journalist, Bob Woodward highlighted the fact in his book ‘FEAR’ that USA’s protectionist elements are far-greater than ever before and such actions will hinder economic peace with traditional allies or trade partners. Trump’s tariff imposition on China and renegotiation of NAFTA and Free Trade Agreements with EU leaves no doubt about Woodward’s projections. Another famous Nico Colchester prize-winner financial journalist, James Politi of Financial Times referred exchange of tariff brawls between USA and China as “protectionist firepower” by Trump administration aiming against China. To cut short, current trade tariff discourse is in order to contain China in geopolitical, economic and technological leadership.
An ongoing trade war is economic intimidation and coercion by the USA towards China to redevise their trade agreements and get more favorable terms for the country, which will also advance Trump’s populist mantra of America First. Trade tariffs were imposed as a consequence for not responding the sheer allegations on Chinese companies by US administration of unprecedented level of larceny and infringement upon intellectual property rights. US Politicians claim that industrial migration and capital flight from the US to China was the reason of unemployment in the USA, but economists condemned the long-term policies like reliance on imports and not saving much for the future.
China’s rise is perceived as a threat to hegemonic stability, thus an influx of uncertainty is stirring in the realm of international political economies. This rise is analogous to the Thucydides trap and also depict similar characteristics as of power transition theory. But the fault line of this predicament lies in the technological advancement of China by virtue of US private enterprises and regional economic connectivity ventures of the country. In short, it is a feud between the two leading economic powers to overhaul world trading practice (its terms and conditions) coupling with technology and knowledge-based economy with an intent to hedge and wedge each other being the contenders of global hegemony.
Both economic powers, China and USA have been in a state of economic tug of war since June 2018. To resolve his sticky situation, Trump administration imposed 25 percent import tax on $50 billion worth of products of Chinese origin in order to overcome the trade deficit between both economic giants. China countered this move by levying duties on the produce of USA and more than three rounds of tariffs worth $250 billion were exchanged among both parties, in addition, both parties threatened with each other with penalties of $267 billion. However, both countries had annual trade relations of $710.4 billion in 2017 and China is ranked as the third largest export market for the USA.
The Chinese government was alleged for backing their private companies by injecting billions of dollars every year and termed as state-owned private enterprises by several journalists and newspapers. In addition, Chinese companies were suspected to violate patent rights especially the ones related to modern technology and Chinese authorities for restricting foreign companies to access their markets freely. China also announced its strategy named ‘Made in China 2025’ which implies that majority of end-user products will be developed by China in near-term while it is also a challenging situation for the USA for being a techno-center of the world. Vision 2025 asserts that China will be a front-runner in modern technologies like Artificial Intelligence and Biotechnology in the respective year .
While campaigning for elections, Republican President of USA, Donald Trump also proclaimed that Chinese development is equivalent to ‘rape’ and his administration will levy 45 percent tariffs on total imports from China. Formerly China had been under tariff regime of USA on products worth of $50 billion annually and President-Elect also threatened Chinese government to take a radical stance and impose further 25 percent taxes on January 1st, 2019 on products worth $200 billion. Chinese government retaliated this move by imposing tariffs worth $60 billion despite economic coercion from the US government of striking further duties on all products of Chinese origin.
Joseph Stiglitz, an eminent scholar, and Nobel laureate explained stated that:
“The United States has a problem, but it’s not with China. Predicament lies in America because they saved too little, and borrowed and imported too much“.
USA and China are heading towards a war which no one wants at this point in time.In this modern era, the US and China must see ahead of time and resolve their bilateral relations which is a cause of disturbance in the international economic order. To do so there is a need to establish new norms of trading and economics which incorporate prevalent treaties and meet the requirement of the 21st century. To serve the purpose rules should be developed to cater the technology related matters in international trading practices.
Current global situation of power transition and hegemon desiring stability depict the same case as of Thucydides trap which is an outcome of structural pressures spiraling from an emerging power challenge the ruling one. Although this theory is ancient but very relevant to the on-going trade-brawls of China and USA, a case where the leadership of both countries sings hymns of making their country great again. This conflict has no resolution other than either party accepts the dominance of other whereas in this case China is not going to cap and roll their economic endeavors, and the US will also not concur to Chinese supremacy in Pacific, cyberspace and external space. There are certain stern measures which competing economies will have to take in order or else it could be an all-out war.
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