Since China-U.S. trade war started in the Mid-2018, it has lasted for more than 14 months. From the beginning, the World Bank and the IMF have taken the position that the trade conflict America has trigged will serve no country’s economic progress and their action is patently wrong. Since then, China has at several occasions showed its good-will and sincerity including purchase of the products from the U.S. and the consensus reached between the two heads of state at the summits in Argentina and Japan, during which both parties agreed to move towards dropping all of the additional tariffs introduced during the dispute, and reach a comprehensive agreement that is fair and beneficial to the two sides. Yet, there is still no insurance of the end of trade war between the two largest economies of the world.
Now comes a new possibility that from October 10-11, a senior trade delegation from China, headed by Vice Premier Liu He, is scheduled to meet their American counterparts in Washington DC, led by U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin. Yet, the trade talks also come at a precarious time in Trump’s decision to reduce the number of U.S. forces in the Syrian border areas with Turkey and amid a spiraling impeachment inquiry into his interactions with Ukraine. More than that, the White House has repeatedly used national security as a reason to sanction Chinese companies, and this has been a talking point in U.S. presidential campaign speeches.
As a matter of fact, the Sino-American rivalry, like the German-Britain rivalry one century ago, is as much a clash of two major powers as it is of two systems: the authoritarian and state-protected development of a rising power vs. the liberal, free-market constitutionalism of a ruling power. Therefore, differences in economic system inevitably amplified the salience of the narrowing economic gap, leading the ruling power to feel cheated and the rising power to feel unsatisfied and threatened. By taking the current China-U.S. trade war into consideration, several factors are complicating the upcoming round of talks.
First, the American resentments against the Chinese economy have grown and seemed to be systematic steps to decouple the world’s two largest economies. As American scholar James Rae argued that with a series of steps, ranging from the tariff rollout to restrictions on dealings with major Chinese technology firms and “ordering” American companies to move production out of China, the U.S. has signaled that this is a trade war, indeed a confrontation over the fundamentals of two rival economic models involving at least four economic tools—standard-setting, technology acquisition, financial power, and infrastructure investment.
Second, the U.S. argues that the Chinese story historically resembles the German one in an overall sense and these parallels are not entirely coincidental. China has long admired the German export-led growth model and is skeptical of laissez faire capitalism. The founding statesman of unified Germany has been consistently seen as an icon of a modernized and powerful country since China has taken its own modernization in the later 19th century. Even it is held, though groundless, that after China emerged from the civil turbulence in 1979, it supposedly structured its development banks on the German model, though it supplemented their loans with Western capital. Under state-directed development, China eventually emerged as the world’s largest exporter with enormous market share in the United States, similarly creating economic interdependence while inadvertently laying the foundation for political competition. This is one of the sources of the Thucydides trap” occurred in the United States but rejected by China and in particular President Xi Jin-ping.
In addition, as a result of these strategies, the speed of the catchup is equally alarming to American elites now. For instance, China’s GDP was only 25% of U.S. GDP in 1990 after a decade of reforms, but has since approached American GDP in 2018. On the one hand, China, like previous Germany, is perceived to have undergone a radical and alarming economic modernization that catapulted it into the rank of first-rate power in mere decades. On the other hand, the United States, following the British mentality of the day, holds that the Chinese developmental model is a form of cheating, forced technology transfer and manipulation in finance. In light of this, China has paten reasons to be concerned that the United States has sought to halt its peaceful rise and undermine its economics by restricting trade, technology and capital flows—whether through economic means or direct subversion.
Yet, Trump’s instinct to do something is not entirely unwelcome, and some of his administration’s policies may prove promising. For example, bipartisan legislation like the Foreign Investment Risk Review Modernization Act presents an instrument to deal with China’s state-backed purchases of Western intellectual property that is somewhat more surgical than blunt U.S. tariffs. Other challenges, including China’s forced technology transfers, non-tariff barriers, and subsidies to state champions remain, and although they violate WTO rules. It seems to testify some people’s growing concerns that the economic escalation is now moving the trade dispute into the political realm, from where it had formerly been immune. First, the U.S. has already used the dubious frame of national security to make rhetorical demands as well as launch new policy initiatives to punish the Chinese firms. Second, even the issue of human rights has been inserted into the equation as the U.S. has released an export blacklist of companies with business in China’s Xinjiang Autonomous Region. Also while President Trump has been quiet enough on the riots in Hong Kong, a commentary on the topic by the Houston NBA franchise has ironically started a new row that could have major implications for the broader relationship. As Rae observed, the consequence is that debating social issues is easily a slippery slope and the intrusion of trade into China’s domestic affairs even crosses highly sensitive issues related to China’s core national interests and sovereignty. It is true that once those red lines are crossed, unraveling a pathway back will be enormously complicated.
It is understandable that China appears more optimistic or even confident in resolving the current trade war. It declared to purchase huge amount of soybeans, pork and other agricultural products from the United States, signaling that such deals will be exempt from additional tariffs imposed on U.S. goods. This is another gesture of goodwill from the Chinese side to further demonstrate its sincerity in ending the trade issues between the two sides. In the span of two days, China and the United States are supposedly to take a series of positive steps in preparation for a new round of trade talks scheduled for this talks in Washington D.C. Although China resolutely opposes any escalation in the trade war, it admits that there are no winners in a trade war, and therefore a constant escalation of tariffs is not the road to a solution. Only by adhering to the principles of equality and mutual respect, and by negotiating with a calm and rational attitude, can the dispute be defused and differences resolved. To that end, it argues for sincerity, patience and practical action needed. On the eve of the new round of talks, the two sides did have taken actions and created favorable conditions for making substantive progress, in line with the expectations of the international community.
True, as a cliché goes, where there’s a will, there’s a way. China has expected a positive result from this round of talks, but the issue is that the United States has already perceived or misperceived China exactly following the path of rising Imperial Germany one century ago. Some observers even hold that Trump’s trade approach is emotionally satisfying but diplomatically disastrous, therefore they fear his confrontational strategy and support a more cooperative economic relationship with China. Yet, in an overall sense, China has been described frequently as a rising power with patent ambition to take advantage of having a state-directed system competing in technology standards, innovation, financial politics, and geo-economics, which force the United States to seek a coordinated response. Given this, that American response should neither be blindly confrontational nor naively cooperative; instead it should be competitive. Sure competition remains the theme of the China-United States relations in the next decades. It is unclear if it takes the scenario of the cold war or the cold peace, but it is clear that the approach America will adopt would be to work with its allies to strengthen rules, set standards, punish Chinese industrial policy and technology theft, invest in research, welcome the world’s best and brightest, and create alternatives to its geo-economic statecraft. It is truly hard to predicate who might be able to play a better hand in this globalized chessboard.
The complex puzzle of Canberra-Beijing ties, as diplomacy takes a back seat
Australia and China seems to be engaged in a repulsive tariff war targeting each other’s goods. Canberra is struggling to manage its complex economic relationship with Beijing even as it finds itself in the strategically opposite camp. How did things turn out this way? Here, I analyse.
There was a time when Australia under the Mandarin-speaking Prime Minister Kevin Rudd, who was in office from 2007 to 2013, had the highest level of warmth in relations with China.
The Labour premier saw a promising prospect of economic partnership with a rising China at that point of time, but gravely under-estimated the geopolitical threat that would be soon posed by Beijing, a mistake later governments would realise and is still striving to rectify.
Quad pullout and comeback
Rudd even pulled Australia out of the four-nation Quad grouping in 2008, a year after it was conceived by former Japanese PM Shinzo Abe, in a move to appease Beijing with which Canberra’s economic partnership was progressively moving upwards. But, nine years later, Malcolm Turnbull’s premiership brought Canberra back to the Quad as regional and global security dynamics witnessed a paradigm shift.
A decade later since Rudd took office, despite closer economic ties with Beijing, Canberra pushed for a closer alliance with the United States since 2017, the year Quad Security Dialogue was revived during the ASEAN and Related Summits in Manila.
It was a result of changes in security assessments by Canberra with regard to new threats and challenges from an increasingly assertive Beijing in the Indo-Pacific and beyond.
The rift between Australia and China further widened, earlier this year, when the Australian government supported an inquiry into the origins of the novel coronavirus, annoying China where it originated. Australian politicians also became increasingly divided on hawkish and dovish lines.
Huawei and ZTE ban
Tides were turned in 2018 when Australia became the first country in the world to ban Chinese telecom giants Huawei and ZTE from 5G trials and rollout, citing security concerns, as these companies ‘allegedly’ had links to the Chinese ruling establishment which they deny.
Beijing also reciprocated with tit-for-tat measures from time to time. The latest in line of such measures was the imposition of temporary anti-dumping tariffs up to 212.1 per cent on Australian wine imports with effect from November 28, this year.
Ongoing tariff tensions
2020 saw a foray of imposition of tariffs and reciprocal duties from both sides right from the beginning of the pandemic. Attempted mergers and acquisitions by Chinese companies involving companies in Australia were also blocked by Canberra citing security reasons.
Adding oil to the fire, anti-dumping investigations were initiated by both sides against each other, for using its findings as rationale for imposing more tariffs on different sets of goods such as aluminum, steel, paper, coal, copper, sugar, log timber, and barley.
What will be the fate of the 2015-signed China-Australia Free Trade Agreement (ChAFTA)?
The worsening ties might take a toll on ChAFTA as it readies for a five-year review next month, notwithstanding the other broad-based trade pacts in which both countries are participants such as the recently-signed, 15-nation Regional Comprehensive Economic Partnership (RCEP).
ChAFTA took about a decade to complete and led to zero tariffs on many goods, but RCEP is still in its infancy.The main issue is not whether a review of ChAFTA is possible, but how to prevent the looming prospect of Canberra and Beijing retreating from the current commitments directly or indirectly that would effectively reduce the pact into a state of coma.
As ChAFTA goes for review in December, the most likely outcome could be both countries agreeing to maintain the deal’s status quo. If any of the parties wishes to terminate the pact, there is a six-month notice period after which they can leave, with or without a review.
Still economic partners, but political rivals
Today, China has positioned itself as Australia’s largest trading partner. Moreover, Australia strongly benefits from its close proximity to the vast markets of China and Japan which together represent over 40% of all Australian exports, in which a little over 32% amounting to $89.2 billion, are exclusively to China, as data from 2019 show. Despite this, Canberra and Beijing remain at odds politically.
Exercise Malabar 2020 and beyond
One of the striking questions in the strategic circles of all Quad partner countries is, will Australia continue to take part in the annual Exercise Malabar in the coming years, annoying Beijing further?
While Japan is a strategic partner in the Quad, ties with China are moving on an adversarial path, particularly worsening since Canberra took part in the annual Exercise Malabar in the Indian Ocean this month, after a gap of 13 years since it left the mega naval war games.
The exercise by the four Quad partners of India, United States, Japan, and Australia is apparently a warning to Beijing’s naval ambitions in the waters of the Indo-Pacific.
Supply Chain Resilience Initiative
In fact, all the Quad partners and other democracies in the Indo-Pacific wish to decouple itself from over trade dependency on China. But, domestic economic realities prove otherwise. With a raging pandemic and the unravelling US-China cold war threatening supply chains, Japan has recently put forward an idea – the Supply Chain Resilience Initiative or SCRI.
It is a trilateral approach to trade, with India, Australia, and Japan as the key-partners aimed at diversifying its supply risk across a group of supplying nations instead of being disproportionately dependent on just one, apparently keeping China in mind.
Despite all these measures, the prospect of closing of huge Chinese markets for Australian exports, owing to a disproportionately high level of tariffs is haunting domestic producers in Australia that could potentially make Australian wine largely unmarketable and non-feasible in Chinese markets.
Ineffective diplomatic efforts
Current Australian PM Scott Morrison has been trying to bridge gaps in a reconciliatory tone by stating that his government’s actions are wrongly seen and interpreted by some only through the lens of the strategic competition between China and the US. But, Beijing doesn’t seem satisfied, as evident in the decision to impose the recent set of disproportionate tariffs on wine.
Loss of businesses for Australian domestic producers is already hurting the Australian economy badly as goods remain stalled at ports. But, the behemoth of Chinese economy appears to be largely resilient to adverse impacts, compared to the Australian economy.
Australia’s producers and farmers are largely unhappy and unsatisfied with the way Canberra is dealing with Beijing as it directly threatens their livelihoods.
As things turn out worse, Canberra will have to strategise newer options to effectively balance geostrategic and economic considerations with regard to Beijing, possibly through the diplomatic route, in a way to immediately diffuse the prevalent confrontational approach to come out of this diplomatic impasse.
Is China on the brink of a food crisis?
It is not a secret that the current COVID-19 pandemic has been affecting people all around the globe. The virus touched almost all spheres of regular life – i.e. it resulted in temporary or permanent closure of businesses, a rise in the unemployment rate, inability to physically spend time with family and friends. Such drastic changes in times of uncertainty significantly impacted the well-being of the world population. Moreover, Food and Agriculture Organization of the United Nations (FAO) warned about the emerging food shortages worldwide. According to FAO statistics, global food prices have been on the rise for four consequent months, hitting their maximum in September 2020. China – the place where the virus originated – is one of the states that have been seriously affected by the disruptions, including production and distribution of food.
In his speech on August, 11 Chinese leader Xi Jinping did not admit any food shortages. However, he promoted food security through the campaign “operation empty plate,” thereby encouraging people to stop wasting food. It is interesting to note that Mao Zedong introduced a similar food campaign before the 1959 Great Chinese Famine. Meanwhile, there has undoubtedly been a significant increase in food prices in China. Many experts claim that China is on the brink of a food crisis that has been manifested as a result of lockdowns, infected livestock, and poor weather conditions. It is difficult to give any predictions or estimations about the future food situation in China because the country does not share enough of its data with the rest of the world, yet it is possible to answer the question why the state faces food difficulties.
Average food prices increase
The National Bureau of Statistics of China reported that, on average, food prices have increased by 11.2% compared to 2019. The price level of vegetables increased by 6.4% in one month; egg prices soared by 11.3% within the same period. Pork prices grew the most, by 52.6% compared to the last year’s statistics. Why is it important?
Firstly, many workers and their families who faced loss or decrease of income or remittances became food insecure. That, in turn, has had social repercussions for the overall level of crime, health concerns among adults and infants, high death rate, different demographic and economic challenges. Furthermore, international trade will also suffer: due to the lack of labor force Chinese imports in foreign countries will seemingly increase in price.
Secondly, China, along with other countries, was in a period of recession earlier this year. Food insecurity will cause difficulties in coming out of this financial downturn.
The impact of lockdowns on food supply chains
One of the main factors contributing to the declining agricultural productivity and spiking food prices in China is the restrictions on personal mobility and transportation of goods. In January Chinese authorities adopted measures to limit mobility within the country; they imposed “city lockdowns, traffic control, and closed management of villages and communities.” Such restrictions impacted food supply chains. For the production part many workers experienced difficulties getting to work that created a shortage of physical labor. That is why some crops were not picked, others were not even planted. As a result, the supply of agricultural goods decreased. On the other hand, at the beginning of the year, the demand for them also fell as restaurants and bars were closed. Thereby, many crops went to waste, while farmers did not make enough profit to purchase the seeds and fertilizers for the next season. It is a problem because businesses continue to open up, raising the demand and prices on crops. Immobility also impacted the distribution of seeds and fertilizers to the farms that disrupted the plantation season. Furthermore, the distribution of agricultural goods to grocery stores became difficult. Particular inconveniences associated with the restrictions on mobility all added up to the spike of prices on crops.
African Swine fever outbreak
Another factor impacting the emerging food crisis in China is the failure to rebuild last year’s loss of pigs due to the infection. Chinese porcine farms were hit by the African swine fever outbreak that infected and killed a large number of pigs (40% of total Chinese pigs’ population), decreasing the supply but increasing the prices on pork in 2019. According to China’s National Bureau of Statistics, pork prices were 52.6% higher in August this year than the year before, while corn prices – the main porcine fodder – increased by 20% compared to last year. Chinese farmers failed to improve the situation in 2020 due to severe flooding. The increased amount of precipitation caused considerable losses of corn and thus the inability to feed pigs. China began to import crops from abroad – particularly, corn from the US. As the United States Department of Agriculture (USDA) stated, China had been importing 195,000 more tonnes of American corn than the year before.
Shuttered diplomatic relations between China and Western states
Some experts claim that Chinese diplomatic relations with such Western countries as Australia, the US and Canada shattered due to the fire of four ballistic missiles on the Indian border on August, 26. These states are China’s major food exporters. If their diplomatic relations with Beijing worsen, then the trade has a high chance of being negatively affected as well. In other words, Chinese imports of crops have the risk of becoming more expensive, meaning that the prices of pork and other goods might rise even more.
Severe flooding and drought
Finally, worsened weather conditions – some parts of China experienced drought, others were hit by flooding – led to a decrease in crops and a significant increase in food prices. Southern, Central and Eastern China underwent a period of heavy rain and the worst flooding in the last hundred years. Excessively high water levels in major Chinese rivers, including the Yangtze River, resulted in the evacuation of 15 million people in July 2020. Moreover, the flooding destroyed 13 million acres of agricultural land, which is estimated to cost at least $29 billion of economic damage. In the meantime Northern (Xinjiang province) and Southwest (Yunnan province) China have gone through a period of severe drought. In April 2020 nearly 1.5 million people in Yunnan province were caught in an emergency situation: shortages of drinking water, damage of hundreds of hectares of crops and livestock. Consequently, the supply of many agricultural goods and pork decreased, which spiked the prices on these goods.
Chinese long-term prospects toward food security
To conclude, immobility, African swine flu, worsened weather and security conditions led to the growing food shortages and increasing food prices in China. This being said, the Chinese government has been working on that problem. It has taken special measures to ensure sufficience of agricultural goods by investing in various disaster relief funds for different crops, particularly rice and wheat. For example, Chinese authorities allocated 1.4 billion yuan to save the agricultural harvest in Hubei province. Due to the substantial loss of agricultural products, China has also increased its imports. General Administration of Customs reported that China’s grain imports rose by 22.7% in July 2020 compared to the previous year. Meanwhile, the Chinese leader took a gentle approach to solve this problem. He did not announce the issues related to the insufficient number of crops; instead, he adopted a program for encouraging people to be more frugal with their eating habits. The Chinese Academy of Social Sciences followed the same path as it denied anticipation of a food crisis in the short-term perspective, yet warned about possible food shortfalls by 2025 if no agricultural reforms take place. As of now, China is not on the break of a food crisis; however, its shuttered prospects for long-term food sustainability are subject to dangerous repercussions.
From our partner RIAC
China and Mongolia: A Comprehensive and Never-Ending Strategic Partnership
Mongolia is an exceptional country when it comes to Eurasian geopolitics, linking China with Russia, two great countries in terms of military and economic capabilities, geographical area and population. In June 2016, the China-Mongolia-Russia Economic Corridor (CMREC) was announced in order to consolidate friendly relations and promote economic exchanges for the success of the Belt and Road Initiative. Many reports indicate the great position of Mongolia on the Chinese economic map as a pillar of the modern Chinese initiative. Mongolia is a major economic partner of China, and the Chinese administration aspires to forge permanent relations of cooperation and coordination with Mongolia by virtue of its common geography and strategic location, in order to open up through it to Russia and other Mongolia is a key economic partner of China, and the Chinese administration aspires to forge permanent relations of cooperation and coordination with Mongolia by virtue of its common geography and strategic location, in order to open up through it to Russia and other international partners.
Mongolia is rich in natural resources, for example the mining industry provided up to 30% of GDP and almost 90% of exports, but its economy is not as developed compared to China. Some economic reports indicate the great economic benefit to Mongolia from the China-Mongolia-Russia Economic Corridor. Mongolia is expected to witness unparalleled economic growth in terms of international economic cooperation, which will positively affect the national economy. The Mongolian economy depends heavily on China’s investment; data of the two largest ports in Inner Mongolia Autonomous Region in northern China indicates enormous economic benefits. In the chart below, the continued economic progress achieved in Inner Mongolia is shown. In addition, rail trade increased by 16 percent year-on-year to 11.2 million tons in 2017. In the same year, 570 trips were made on the China-Europe railways passing through Ernhot (a county-level city of the XilinGol League, in Inner Mongolia Autonomous Region, located in the Gobi Desert along the Sino-Mongolian border, across from the Mongolian town of Zamyn-Üüd).
The Belt and Road Initiative aims for mutual profit, cooperation and peaceful communication. China shares an ancient cultural history with Mongolia, long common borders, and economic cooperation that has never stopped. The strategic geographic location of Mongolia makes it a priority for China on the new Silk Road, in addition to the richness of natural resources and livestock that China needs.
The Mongolians are a horse-loving people, a country known for its large number of horses. Mongols without horses are like birds without wings. Despite globalization and the great economic progress in the neighbor (China), as well as the cold weather and difficult geography, the Mongolians did not abandon their traditions and the Mongolian way of life still exists today. In Mongolia there are herders of horses, camels and cattle to benefit from milk, meat, wool, etc. During the pandemic in China, for example, President Battulga set up what is known as “Sheep Diplomacy” where Mongolian President donated 30,000 sheep to China. This initiative indicates the Mongolians’ positive intentions towards the Chinese and the desire to open up more. In this context, I would like to point out that China is a big importer of meat and the Chinese demand for meat is constantly increasing, as shown in the chart below. Here is a great opportunity for Mongolia to increase its exports of meat to the Chinese market.
The reading of Mongolian history indicates that this country has passed through periods of prosperity. Mongolia may be a good example of power and rule, as its borders extended to many countries during the rule of Genghis Khan (1162-1227), the man whom the Mongolians consider their historical leader and has turned into a hero and a national symbol. The Mongolians did not abandon their land despite the cold weather and difficult geography, indicating that they are a deeply rooted people with land. Mongolia, with its vast territories and few people, has turned into a meeting place for Russia and China, and a strategic center for Chinese economic expansion. Therefore, it is impossible for the Chinese administration to abandon the partnership with Mongolia.
The Mongolian economy is heavily dependent on livestock, and the number of pastures has increased significantly since the Soviet era because of the transfer of ownership to the people. However, the government is still not able to provide all services to citizens “the government has failed to promote education and health care and veterinary care in pastoral communities, so there is no longer any incentive to stay in rural areas” said Sarol Khuadu, an official at the Institute for Environmental Research in the Mongolian capital. The policy, which no longer places much emphasis on the countryside, has led to the transfer of large numbers of citizens to the capital and to engage in the world of money and business.
Unfortunately, the Mongolian government is not working seriously to support citizens in remote areas. The conditions of life are not good and the loans granted are high interest, in addition to the weather that adversely affects their businesses. In order to help the poor and rural people, in cooperation with national governments, humanitarian, development and scientific partners, FAO has developed an early warning approach by monitoring risk information systems and turning warnings into proactive actions. International organizations contribute to permanent humanitarian and social assistance in Mongolia.
Mongolia’s strategic policy through the “Mongolia Steppe Road Program 蒙古国“草原之路” is largely in line with the belt and road initiative, which is a road connecting Mongolia, China and Russia. Consequently, Mongolia, a country that mainly depends on the agricultural sector, will be a center for economic communication between China and Russia, and thus will witness a great economic development. The Steppe Road Program aims to boost Mongolia’s economic standing and create an advanced network of infrastructure for communication with China and Russia and build an oil and gas pipeline. In 2014, during his historic visit, Chinese President Xi Jinping raised the level of relations between the two countries to “Comprehensive Strategic Partnership Relations”. Since then, bilateral cooperation has begun to move faster.
China has never abandoned Mongolia; it is a country of advanced strategic location as a bridge between Asia and Europe, in addition to the important agricultural sector in Mongolia which benefits China greatly, not to forget to mention the China-Mongolia-Russia Economic Corridor which has become an important part of the belt and road initiative and a key component of Sino-Russian cooperation.
The relationship between China and Mongolia today is an ideal example of the bilateral relationship between two neighboring countries. Cultural, economic, political and tourism communication is in continuous progress between the Chinese and Mongolians, and the Belt and Road Initiative will push this communication forward. The Chinese aspire to increase free trade areas and economic connectivity through a developed infrastructure network.
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