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After a week of total confusion among President Trump and his policy advisers, Robert Lighthizer, US Trade Representative, made a categorical statement that trade negotiations with China need to reach a successful conclusion by March 01, or tariffs would be imposed. He emphasised this was a "hard deadline''; after which tariffs on US$200 billion of Chinese imports into the US would jump from 10 per cent to 25 per cent. It is impossible to know inner workings of the Trump administration and how the trade negotiation is proceeding with China. Despite a huge slump in the Dow Jones Industrial Average, Larry Kudlow, Trump's economic adviser claimed that trade talks were still moving in a "positive' direction and insisted "we are on track''.
Meanwhile, the arrest of Meng Wenzhou, a senior executive of Huawei, has further complicated the situation and indicates the trade war is not simply a Trump administration agenda. Indeed, this is an agenda also pursued by the intelligence and military state apparatus to forestall China's rapid economic and technological progress which they view as an existential threat to US global economic and military dominance. They are totally determined to use whatever means available to prevent this happening. Lighthizer warned that further cases against Chinese companies were likely to be filed as a part of the crackdown on technology theft and other infractions like sanctions violations. He also warned that US wants genuine "structural changes'' on intellectual property and technology. Now there is a growing belief among many policy analysts in China that the US state security apparatus is not interested in cutting a deal, despite Trump or even Wall Street's desire to do so. The objective is to isolate China completely.
Furthermore, Meng's arrest was also a calculated attempt to send a clear message to China by its timing that the US means business. The message was clear that, US will target the high tech sector for compliance with the US diktats. Huawei symbolises China's technological prowess and China's drive towards achieving leadership in artificial intelligence (AI). By striking at Huawei, the US strikes at the very heart of that drive. In effect, Huawei has been a major US target in this trade conflict both for economic and military reasons. The former US Treasury Secretary Hank Paulson clearly articulated the US position last month when he said that a consensus has emerged in the USA that engagement has failed to change China's behaviour and that China's "Digital Silk Road'' which seeks to impose China's cyber standards elsewhere, will drive to further confrontation. Meng's arrest also underscores the US determination to enforce its unilateral sanctions against Iran or any other country like Russia or North Korea. Washington in recent times has threatened to personally target corporate executives and bankers, including European firms, if they do not comply with US sanctions against Iran or any other country under US sanctions. Now Meng's arrest signals even further escalation of ever deepening confrontation, not only economic but also military-strategic, between the US and China. More importantly, this move against Huawei, although not directly related to the trade disputes under negotiation, is related to the allegation of breaching of US sanctions against Iran. If the allegations stand, that will make any trade deal impossible. No wonder Trump is now considering to intervene in the matter.
US Vice-President Mike Pence in his speech at the Hudson Institute ( a right-wing think tank but many consider it as more a belief tank than a think tank) declared all but a new cold war with China. His speech, all of which was self-righteous, was even on the verge of paranoia and self-delusion. His doctrinaire view on China is labelled as "the Pence Doctrine'' which essentially promises reorganisation of global geopolitics to further strengthen global economic and military dominance by the US. This doctrine portends escalating conflicts with countries that refuse to obey US diktats. It is not surprising that the US trade war with China also coincided with unilateral imposition of primary and secondary sanctions against Iran, Russia, North Korea and other trading partners.
Meanwhile, US Secretary of State Mike Pompeo has declared that multilateralism in international affairs is a failure. He further added that what is needed now is a US-led new global liberal order. This is a bid for unilateralism with a quest for global domination at a time when Pax Americana is falling apart. Trump's unipolar moment can lead to serious consequences for global peace and stability.
Meng's arrest clearly highlights considerable confusion over what was actually agreed to at the Trump-Xi meeting in Buenos Aires as both sides have given different spins to the discussion. Trump is trying to depict a positive outlook and asserted that China has agreed to major concessions including to reduce tariffs on US cars from 40 per cent to 15 per cent. This assertion was definitely directed at the stock market which has been quite jittery for sometimes. But there has been no confirmation of such a deal from the Chinese side. Also, agriculture is another area where the situation remains unclear given that US farmers are at the centre of Trump's trade war. Now more than 20 per cent of US agricultural exports face tariffs. Again, the US said that China would substantially increase import of agricultural products from the US but there is no confirmation of that from China yet. In effect, if Trump continues with his trade war, that will render US agriculture less competitive and will distort the global market for agricultural products. According to the Financial Times such confusions "cast doubt on whether the two sides should be able to reach a comprehensive deal within the next three months, it raised the possibility of a collapse even before then''.
Meanwhile, the US as well as global economy appears to be slowing down as reflected in sharp fall in commodity prices, especially of oil prices, and likely to be heading for a recession. The market is reacting to fears of a recession. The intensification of trade war with China will further aggravate the situation.
There are other pressing issues that are of concern to the US President. The recent decision by General Motors to close five plants (including one in Canada) and fire 15,000 workers to counter a slump in demand and amid signs of economic slowdown is a blow to Trump's America First rhetoric. Most of these workers live in the political heartland of Trump. Automakers have blamed 25 per cent tariff on imported steel from China as a major factor contributing to increased costs of production. Indeed, car makers earlier in the years predicted job losses in the industry due to tariffs.
But to add to the trade drama, a more serious drama is also unfolding in Washington to make the situation even murkier. Senior Democrats have already raised the prospect of impeaching the President, even almost certain prison term for Trump if it was proved that he directed hush money payments to women. For President Trump there are also other issues taking up his time involving his former lawyer Michael Cohen and the Mueller investigation into Russian involvement in the 2016 Presidential election. The President is quite besieged at a time when he is getting onto a war footing with China on trade. The Commander-in-Chief looks like he got into a situation where he would have to fight a number of wars at the same time. A trade war with China now looks particularly very ill-timed.
Muhammad Mahmood is an independent economic and political analyst.