Agreement reached, fruit of victory for the US

After 19 months of talks and quarrels, the phase one of the agreement between China and the US is about be materialized. Judging from the text, both sides have made concessions. The US got its way regarding intellectual property rights and lowering trade deficit; China secured the cancellation of some of the tariffs imposed. From the perspective of the respective needs of both sides, Xi Jinping got a breather in alleviating domestic economic pressure; Trump got to free his hands to focus on the general election in 2020. Only two groups of people felt particularly dissatisfied with the deal. One group being the people do not want to see Trump reelected. Paul Krugman for one wrote a piece for the New York Times on December 17, insisting that Trump lost in this trade war. The other group being the opposition camp in China, a camp that wished Trump to directly bring about the collapse of the Communist party by means of the trade war. These two groups people had basically disregarded the fact that the fruit of victory for the US lay not in such trivial matters as tariffs but in forcing the Communist Party to revert from the aggressive mode back to the defensive mode.

The fruits of victory for the US came from three directions.

Firstly, China switched from expansionist mode back to contraction

China`s expansionist approach chiefly manifested itself in economic expansion, and the primary indicator for this was its investment in other countries. Back in 2017, China was still envisioning the creation of a “circle of friends” spanning across Europe and Asia after the implementation of the Belt and Road Initiative. Chinese media outlets ran numerous reports on BRI, stating that the “circle of friends” would encompass 65 countries along the overland economic Belt and the maritime Silk Road; involve 4.6 billion people, or 60% of the world`s total population; and account for about 30% of the total of GDP of the world.

After the trade war started in March 2018, China`s investment in other countries markedly decreased. According to data from AEI China Global Investment Tracker, China`s investment in other countries was 165.7 billion in 2016 and peaked at 175.9 billion in 2017. The figure dropped sharply afterward. In 2018, this figure fell to 112.4 billion. In the first half of 2019, China`s investment and construction projects around the world valued 27.5 billion, which was a whopping 50% decrease from the figure of the same period in 2018. Analysis estimated that this downward trend would very likely remain unchanged for the next few years.

At different times, the drop in China`s investment in other countries was caused by different reasons. Initially it was because China implemented capital control to prevent forex reserves from shrinking. Then in the second half of 2018, China`s investment in other countries decelerated as the trade tension between China and the US escalated. Currently the majority of China`s forex reserves came from the trade surplus from the US. If the surplus got threatened, whether by the tariff imposed by the US or by purchasing more US products in accordance with the agreement reached with the US, the money China could use in overseas acquisition and merger or BRI projects would be reduced. In the first half of 2019, the majority of the international investment sector believed that foreign investment from China dropped was caused by the increasing wariness of technology transfer to China and more and more countries were setting restrictions on investment from China.

Secondly, with the globe`s industry chain restructured, China pasted its peak in terms of trading.
Foreign capitals were already in the process of gradually leaving China, and, as I pointed out in my article in September 2018, the trade war between US and China sped this up. This article would only focus on the obvious consequence of industry chain restructure: China is no longer the number one exporter of the world. As Maarten-Jan Bakkum, NN Investment Partners` senior strategic analyist for emerging markets, put it, the shift could be the forerunner of the passing of peak China. According to data from the IMF, in the first half of 2018, China`s export to 174 countries was greater than the US, which was the biggest exporter to 51 countries only. In the first of this year, however, the US regained its position as the world`s largest exporter, China`s position as a major exporter, held throughout the last two decades, was dealt with a blow.

This is a significant victory for the US. Ever since China`s accession to the WTO, the US had been slowly losing its grip on the status of the world`s largest trading power, and its trade deficit grew through the years. A major goal of president Trump`s trade war has been to reduce trade deficit to China. Although China has been stalling in becoming a signatory of a deal, the US managed, with the pressure created by the trade war, to make foreign investment leave China. All of the top ten export entities of China were foreign companies, four from Taiwan. Even if China signed the deal now, it had no means to lure back these foreign enterprises.

Thirdly, regarding intellectual property, the US put an end to the stealing project of China`s “Thousand Talents” and aroused the world`s guard against China.

The intellectual property has been a tough spot in US-China relations. However, with the “anti espionage campaign”, the US severed the long arm of “Thousand Talents” that stole intellectual property of the US. Since the Chinese government approved the implementation of “Thousand Talents” at the end of 2008, over 7,000 scientists joined in. Many of these scientists worked at state research agencies such as National Institutes of Health、National Science Foundation and Office of Science, DOE. Through a series of actions, the US forced China to abandon its “Made in China 2025” project in 2019. Shortly after that, though, a new company with 21 billion US dollar capital was quietly set up to invest in new materials, next generation of information technologies and electrical devices and the top 10 cutting-edge industries listed in “Made in China 2025”.

Nonetheless, since China could no longer directly take away the end results of researches of the US, the industry level-up process would lose its momentum a few years from now and become increasingly unpredictable, after the existing “fruits” have all been digested to fuel rapid developments.

The exposure of Chinese espionage by the US made one Western country after another take up measures guarding against China. In February 2019, Germany announced its National Industry Strategy 2030. In a speech by Peter Altmaier, Federal Minister for Economic Affairs and Energy, the wariness of China in this strategy had been clearly manifested. Some commentators even held the view that the strategy emerged because Germany dreaded the possibility of China buying up all its industries.

China`s image rapidly slide from positive to negative

While the US engaged China in the trade war, it released numerous investigation reports about China`s espionage and infiltration activities in the US. These, added by China`s going back on its promises, self-contradictory self defense and actions in the course of the trade war, caused the world to rapidly and markedly change its perception of the Chinese communist government.

In 2005, China claimed to the outside world that its rise would be “peaceful.” From that year, Pew Research Center has been conducting a survey once every year to track the changes in Americans` perception of China. In the first year of this survey, only 35% of respondents did not find China a favorable country. This percentage grew through the years. In August 2016, 47% of respondents did not find China favorable. In August this year, up to 60% of respondents did not find China favorable, the highest in the last 14 years. As for China`s economic development, 41% of respondents considered that a bad thing. In general, the respondents were of the view China poses a greater military threat than it does economic threat. 81% of the people surveyed considered China`s military development and its reach in the Pacific, Indian Ocean and the Middle East region a bad thing.
The survey finding also showed that, compared with the Democrats, the Republicans had a more negative view of China, and were more wary of China`s military prowess.

For people of the view that the above survey has been limited to the US and does not represent the sentiments in other countries, another survey conducted by Pew Research Center in 34 countries in 2019 showed the perception of China has changed from positive to negative around the world should present a different perspective. In the six Asia-Pacific countries where the survey took place, 45% of the respondents did not feel confident in Xi Jinping about international affairs, only 29% of the respondents felt otherwise. This negative view is most eminent in the following countries: 81% of respondents in Japan, 74% in South Korea, and 54% in Australia held negative view on Xi Jinping.

In this survey, 79% of the respondents in the Asia-Pacific region considered the growth in China`s military strength a bad thing. In Japan and South Korea, the percentage even reached 90%. In African countries such as Nigeria and Kenya, the majority thought they could benefit from China`s military strength, though.

Trump`s accomplishment: cleared away the political taboo about China

As this article is winding up, I find it necessary to mention the contribution President Trump made in clearing away the political taboo about China.

After Zheng bijian published his article `China`s “Peaceful Rise” to Great-Power Status in Foreign Affair (Sept-Oct issue, 2005), the whole world (in particular France, Germany, and the anti-US camp) was eager to see the rise of Communist China; and in the US, the panda huggers dominated China policy, whoever criticized the Communist Party were in their eyes smearing China.

China became a new hegemon on par with the US. Even Barack Obama told the Americans in an interview by the Atlantic a year before he left office that "we have more to fear from a weakened, threatened China than a successful, rising China". Because of this, the China model, based on predatory environment plundering and low human right standards, got commended by many scholars in the West; it even became the untouchable political correctness issue in the China study circle.

Through the trade war, and the exposure of all the bad things the Chinese government has been doing, President Trump finally cleared away the political taboo about China, and raised reasonable doubts regarding US China policy in the last 30 years. All these successfully curbed China`s outward political-economic expansion and forced China to be on the defensive.

Although President Trump has not yet achieve his goals of reducing trade deficit and forcing China to completely relinquish “Made in China 2025”, the facts listed in this article fully demonstrated that China`s offensive approach in the international politico-economic system has ended and it is forced to be on the defensive from now.