US at risk of misreading China

In place of a trade war that benefits no one, the US would do better to negotiate trade deals with China that encourage the globalisation and liberalisation of the latter's economy

In the last three weeks, there have been enough major lurches in US policies - via the active use of the United States President Donald Trump's executive powers and controversial appointments - to warrant early assessment of Trumpism, so as to prepare ourselves for what the next four years could bring to Asia and the world.

Withdrawal from the Trans-Pacific Partnership aside, Mr Trump's executive orders in his first two weeks in office signalled an unmistakable prioritising of social and geopolitical policies. These include ordering travel restrictions on citizens of seven predominantly Muslim countries and the building of the southern border wall. Surprisingly, for one who has been a businessman all his life, economic policies have taken a back seat.

Perhaps more importantly, Mr Trump's aggressive geopolitical approach may suggest a shift away from the US as a unifying global force to one that is inward looking, putting at risk US support for post-war global institutions such as the International Monetary Fund, World Bank, Nato and World Trade Organisation. That is taking the US in the wrong direction.

What is worrying for Asia is that Mr Trump seems intent on picking a fight with China. While no major executive order specific to China has yet been signed, it seems likely that the US will name China a currency manipulator and impose trade tariffs on products from China - even if that contravenes WTO rules and the US Treasury's own definition of a manipulator.

Why is China a threat to the US? It is a member of all the established global institutions and is playing a greater role than most in them. It is now the third-largest contributor to the Asian Development Bank (ADB). It contributes to other regional development banks such as the Inter-American Development Bank and the European Bank for Reconstruction and Development.

Today's China is also unlike the China of the 1960s and early 70s, which stirred unrest in countries across the globe, from Vietnam to Bolivia. The China of today shows little interest in spreading its political ideology. It is thus not so much a threat to US political hegemony as it is a hesitant stakeholder in the existing global system.

History, and China's history is much longer than that of many Western powers, suggests China has a distinctly non-interventionist world view. China has never conquered another nation and has more recently opposed intervention by Western powers in the Middle East, Balkans and Panama. It has abstained from using military force on Taiwan. In my view, China is a disruptive emerging power, but not one that harbours an ambition to ignite revolutionary change to the existing world order. Understanding why China has this world view would help shape a more pragmatic approach to dealing with this rising power.

Magazine covers featuring Mr Trump at a news-stand in Shanghai. What is worrying for Asia is that the US President seems intent on picking a fight with China. While no major executive order specific to China has yet been signed, it seems likely that the US will name China a currency manipulator and impose trade tariffs on products from China. PHOTO: AGENCE FRANCE-PRESSE

The underlying problems in US-China relations are on two fronts, each reinforcing the other. First, China is increasingly frustrated that it is denied - by US-led resistance that predates the Trump administration - greater influence over global institutions, even as its participation in and contributions to them broaden. China has successfully established the Asian Infrastructure Investment Bank - against great and ultimately futile diplomatic efforts by the US to persuade its allies not to join - with the aim of filling funding gaps for infrastructure projects in Asia that it felt were never going to be bridged by existing institutions such as the ADB and World Bank, which have in turn met China's influence with suspicion.

The second problem is that China does not subscribe to the liberal political and social ideologies of the established Western powers, the countries that established these post-war global institutions. That results in very different approaches between the established powers and the emerging one towards enforcement and maintenance of the existing world order. To the US, however, accommodating China's influence and needs is an uncomfortable compromise of liberalism and its own effectiveness.

The US must also bear responsibility for the loss of trust it once enjoyed and the loss of its hegemony, particularly in Asia, where the rot started in 1997/98 during the Asian financial crisis. Countries such as South Korea, Thailand, Indonesia and Malaysia suffered while the US-led IMF imposed harsh and demeaning conditions on these crisis-hit economies in exchange for rescue funds. Yet, starkly different standards were used when the US' own banking sector and economy slipped into a debt crisis in 2008/09. As a result, Asian countries found further justification for regional cooperation that excludes the US. China becomes a natural ally for a region that does not regard the illiberal social and political views of Beijing as a major hindrance to ties.

The US also seems to mistakenly view the Regional Comprehensive Economic Partnership, a proposed multilateral trade pact, as a China-led rival to the US-led, and seemingly doomed, TPP. The RCEP is in fact a South-east Asian initiative which has found support from regional countries, including Australia, Japan and India. With the TPP looking dead in the water, it would naturally mean that the RCEP is now more important for the region than it was before. The US has to accept the ratification of RCEP and not read it as a sign of Asia's lurch away from the US and towards China.

That does not mean Washington should not insist on the rule of maritime law in the South China Sea. But the RCEP should not be seen as a threat which justifies anti-trade policies on the part of the US as retaliation. Indeed, what's needed is the direct opposite. Should the US wish to maintain its regional economic and political gravitas, it should - instead of imposing tariffs - consider negotiating trade deals with China to encourage deeper internationalisation and liberalisation of China's economy. The inclusion of the yuan as one of the anchoring currencies of the IMF's Special Drawing Rights is a good start.

Anti-trade policies will not benefit anyone, the US included. If China is polluting its rivers and overworking its labour force in sweatshops for Americans to purchase goods at a cheaper price, how does a trade war change that for the better? The Council of Economic Advisers estimates the biggest impact of trade wars with Mexico and China will fall on the poorest Americans, the very people Mr Trump claims to be protecting, given their higher consumption of imported goods from those countries as a percentage of their income, as compared with higher-income consumers.

The more effective way to nudge China towards fairer trade, without undermining US hegemony, is to include China in free trade deals that require parties involved to adhere to higher environmental and labour law standards so as to level the playing field. Isolationism is not the answer.

The US won the Cold War, not just with its military hardware and might, but with a major dollop of "soft power" that commanded respect and admiration globally. That is lacking in President Trump's diplomacy. Instead, there are indications of an overly hawkish stance on China and Mexico, an inclination towards protectionism and an abrasive approach to international relations, and these potentially take the US in the wrong direction, towards further loss of influence.

•The writer is an economist in the private sector.

A version of this article appeared in the print edition of The Straits Times on February 09, 2017, with the headline 'US at risk of misreading China'. Print Edition | Subscribe