The trade war between the United States and China isn’t about trade. It’s about global economic dominance. Both are locked in a struggle over the international economic order. This has been a long time coming. In three fundamental economic areas, China is challenging US economic hegemony.
First, in terms of trade. A rapidly growing consumer class with rising demands has turned China into a massive market. Companies are falling over backwards to get a piece of that action. Over the past decade, China has displaced the US in many economies as the top export destination, shifting the centre of world trade.
Second, with regards to economic relations. Its grand infrastructure plan – the Belt and Road Initiative – aims to connect more than 60 countries across three continents to China. This flagship project intensifies China’s economic reach from Asia into Europe and Africa, deepening economic ties thereby carving out a new Chinese-dominated economic space. Joe Kaeser, CEO of Europe’s largest industrial manufacturing company Siemens, has warned that “China’s One Belt, One Road, is going to be the new WTO – like it or not.”
Third, technology. Washington was content with its deep economic ties to Beijing as long as China was playing the subservient role of mere supplier of lower-value goods. But those times are over. The world’s workshop is becoming the world’s innovation hub. We are bearing witness to China’s technological return to the world stage. By 2035, China wants to become the world’s most important force for innovation. Consequently it’s massively investing in key technologies ranging from artificial intelligence to quantum computing. China wants to dominate the industries of the future, the very area where the United States derives its future economic competitiveness from. Hence the economic relationship between the US and China is changing. And the US is unwilling to let it change without a fight.
In all three areas, China is creating economic dependencies, which translate into political influence. It has leverage over foreign companies that depend on its market. Daimler’s CEO Dieter Zetsche had to apologize profusely after the company published an Instagram post showing one of its luxury cars along with a quote from the Dalai Lama. Shortly thereafter, Chinese billionaire Li Shufu bought a sizable share in the company.
It has leverage over many developing countries. The Belt and Road initiative is giving China not only control over strategic infrastructure but is also forcing the recipient countries into a Chinese-fuelled debt-trap.
And lastly, China’s technological ascendancy is giving it an increasing amount of sway in the digital world as well as in future markets, affecting developed economies. China manufactures an estimated 90 per cent of the world’s IT hardware. This doesn’t come without problems. A case in point is the Bloomberg “Big Hack” story, which illustrated that the Chinese secret service had managed to add a tiny chip in the production of servers. These servers had then been used by US companies such as Apple and Amazon and therefore gave China secret access to their data. The world is increasingly finding itself in a Chinese IT chokehold.
Especially Europe seems to be naively letting China build its future digital infrastructure. Europe, and particularly Germany, are all building their 5G networks based on hardware from the Chinese company Huawei. In Germany, there hasn’t even been any public debate on this issue and whether or not it constitutes a security risk if the critical digital infrastructure is based on Chinese hardware. After all, the US, Australia and India have already banned Huawei from participating in their 5G networks and others, such as Japan and South Korea are investigating whether to follow suit.
We are witnessing how China is expanding its economic zone to build influence in Europe, Africa and Asia and the United States pushing back. This isn’t a short-term trade war, this is a fundamental shift in the economic order. The international economic order is breaking down and a scramble for its replacement is underway. In its element, this is about power. Because economic dependencies translate into political influence. And in the end it is also about the supremacy of political systems. Will China’s digital authoritarianism – a kind of gamified 1984 that mixes Big Brother surveillance with a social credit system akin to Pavlov’s dog – fuel future technological revolutions, drive innovation and promote economic modernization and competitiveness, or will free market liberal democracies?