September 20, 2018 | By Ivo H. Daalder

This Week's Reads: The US-China Escalation Problem


 

Wars have a nasty way of escalating—both in terms of the pain inflicted and the objectives that are being sought. Trade wars are no different in this respect, as the latest round of tit-for-tat escalation in the US-China trade war attests.

This week, the White House announced it would go ahead with imposing new tariffs of 10% on $200 million worth of Chinese imports, and escalate the tariffs to 25% if no deal was reached. Predictably, China responded with new tariffs of its own, of 10% on $60 billion worth of US imports. President Trump had threatened to impose tariffs on an additional $267 billion worth of Chinese imports if China retaliated, so everyone expects the next escalation to be announced very soon.

This series of moves in the trade war raise two big questions. First, where will this end? Second, what will be achieved as a result of this war? The answers to either question are far from clear.

The White House is convinced that it has the upper hand in this escalatory drama—that the US, in military parlance, enjoys escalation dominance. Since China exports four times more goods to the US ($529 billion) than the US exports to China ($135 billion), the US can impose more tariffs on more goods than China can in return. Indeed, whereas Beijing matched Washington dollar-for-dollar in the first two escalatory rounds, it couldn’t in this latest round because it is running out of US imports to tax.

But that doesn’t mean that China can’t match US action in other ways. It can impose new regulations, slow goods passing through customs, or resort to a host of other non-tariff barriers. It could halt exports of critical components or items that US producers would be hard-pressed to replace. Or it could to resort to non-economic forms of retaliation, for example easing up on sanctions on North Korea or accelerating the militarization of the South China Sea. In other words, it’s easy to escalate in a wide variety of ways.

Each escalatory step, however, makes it harder to de-escalate. As the costs increase so will the price each side will need to exact for ending the confrontation. What is particularly unclear in the current confrontation is what the White House hopes to achieve. Last May, Washington delivered a long laundry list of demands, including that China cut its trade surplus with the United States by $200 billion, cancel its Made in China 2025 industrial plan to become a leader in critical new technologies, treating US service providers the same way it did Chinese providers, and agreeing not to challenge any of the US demands at the WTO.

In any negotiation, it makes sense to start off with maximalist demands. But it’s equally important to know your own bottom line, and also which of these demands are achievable. President Trump and his hardline trade advisers put particular stock in reducing the trade deficit, even though most economists note that deficits are a function of macroeconomic policy and unlikely to change by imposing tariffs. Others focus on the structural obstacles to the Chinese market, including failure to respect intellectual property rights, placing obstacles on foreign investment, and embracing protectionist policies on critical technologies.

Washington isn’t alone in worrying about these market-distorting practices by Beijing. Our allies in North America, Europe, and Asia share these concerns. Yet, rather than forging a common front with our allies in confronting Beijing on these matters at the World Trade Organization, the administration has at the same time entered (albeit smaller) trade fights with those very countries.

As in real wars, so in trade wars, once you start shooting in all directions, it becomes difficult to know what you’re aiming for or when it is time to stop.

As always, I welcome your comments and thoughts.

The Cost of American Retreat

Robert Kagan / The Wall Street Journal

Liberal ideals triumphed after World War II because, for the first time, they had power behind them, Kagan argues. That power was the United States. But the liberal order has always faced internal and external challenges. “Like a garden, it can last only so long as it is tended and protected. Today, the US seems bent on relinquishing its duties in pushing back the jungle.” See Robert Kagan speak more about the retreat of American global leadership on October 9 at the Council.

The Return to Great-Power Rivalry Was Inevitable

Thomas Wright / The Atlantic

According to Wright, the notion of a liberal international order never really resonated with voters, and its success arose from the fact that American power was unrivaled–and that fact has changed. For several years, geopolitical competition between the major powers, including Russia and China, has been intensifying, but only recently has it come to light that, “…this competition would also directly and negatively impact the lives of citizens in Western democracies.” From Russia’s attack on American democracy to China’s mass theft of intellectual property, examples of the emerging great-power competitions abound, and Wright explains why they will only get worse.

Twenty-Five Years Since Oslo: An Insider’s Account

Joel Singer / Fathom

Singer, the Israeli delegation’s legal adviser to the Oslo talks, reviews, what he believes, were the three errors and successes of the agreement meant to bring the Israeli-Palestinian conflict to an end. He faults the Rabin-Peres government for trusting Yasser Arafat to be a willing and capable negotiating partner, while also criticizing the decision not to freeze settlement activating during the autonomy period. On the positive side, Singer lauds the creation of a foundation for future Israeli-Palestinian peace agreements, writing that Oslo’s most important accomplishment was the existence of an autonomous Palestinian leadership on the West Bank consisting of both PLO and non-PLO leaders. The fact that peace has not been achieved 25 years later doesn’t shadow Singer’s outlook: “Until the situation is ripe for a final Israeli-Palestinian deal, the focus must be on ensuring that the good foundation established in Oslo, which still exists, does not collapse.”

How Obama Made It Easier for Trump to Launch a Nuke

Marc Ambinder / POLITICO

“Thanks to upgrades to our nuclear systems under President Obama, and recent shifts in Pentagon protocol, it has never been easier for an American president to launch a tactical nuclear attack anywhere in the globe,” Ambinder writes. While alluding to the fact that the current US commander in chief may possess a particularly impulsive temperament, Ambinder insists the argument isn’t about the inclinations of a single US president, but rather why any US president, “…still has an unchecked ability to launch a nuclear attack in the first place.” The modernization of the US nuclear arsenal was part of a Faustian bargain President Obama made with Senate republicans to achieve his nuclear-diplomacy goals of reducing the number of warheads each country is allowed to keep at the ready. These enhancements however, Ambinder argues, also increase the likelihood that a US president might be tempted to use one for a wider array of attacks, fulfilling, “…whatever military or even political purpose he wanted.”

Trade Wars: China Fears an Emerging United Front

Tom Mitchell / Financial Times

A gathering last month of trade officials from the US, EU, and Japan represents a potentially critical shift in the confrontation between Washington and Beijing, Mitchell writes. While China seems confident in its ability to weather a full-scale trade war with the US, the threat of a coordinated assault by the other two powers on China’s unique model of “state capitalism” keeps Beijing up at night. And experts agree it is becoming increasingly obvious that the Trump administration is determined to contain China, in which case more tariffs are inevitable and the trade war will most likely be a protracted one. “The risk of China and the US sliding into a new cold war is increasing. It will be a nightmare for China, the US, and the world,” Mitchell writes, quoting Professor Tu Xinquan of the University of International Business and Economics in Beijing.

Fraying Ties With Trump Put Jim Mattis’s Fate in Doubt

Helene Cooper / The New York Times

“Interviews with more than a dozen White House, congressional and current and former Defense Department officials over the past six weeks paint a portrait of a president who has soured on his defense secretary,” Cooper writes. She says the turn may come from President Trump’s weariness over comparisons to Mattis as the “adult in the room,” and concern that he is a Democrat at heart. Secretary Mattis is himself becoming weary, according to Cooper, “…of the amount of time spent pushing back against what Defense Department officials think are capricious whims of an erratic president.” Staunchly apolitical by nature, Mattis has avoided the limelight during his tenure to avoid publicly disagreeing with his boss or showering false praise, as other Trump cabinet members have been apt to do. “The fate of Mr. Mattis is important,” Cooper writes, “because he is widely viewed as the cabinet official standing between a mercurial president and global tumult.”

How the Enlightenment Ends

Henry A. Kissinger / The Atlantic

After listening to a speaker at a conference explain an artificial intelligence (AI) program named AlphaGo, which could decisively defeat the world’s greatest Go players, Kissinger pondered the impact on history of self-learning machines that can apply their knowledge to ends for which there may be no category of human understanding. Unlike the Age of Reason, which replaced faith with scientific knowledge as the principal criterion of human consciousness, Kissinger argues that AI, the next great upheaval, may culminate in, “…a world relying on machines powered by data and algorithms and ungoverned by ethical or philosophical norms,” which is a future we have failed to fully reckon with. Kissinger goes on to raise a series of philosophical and political questions that he feels AI developers should ask themselves, “…in order to build answers to their engineering efforts.”

African Cities Surge to Top of Global Growth League

David Pilling / Financial Times

From 2018 to 2035, the UN predicts that the world’s 10 fastest growing cities will be in Africa, and the consultant firm McKinsey found 24 million more Africans would be living in cities each year, compared to 11 million in India and 9 million in China from 2015 to 2045. “But managing urban growth…has become one of the biggest policy challenges on the continent,” Pilling writes. Focusing on one case, Mali’s burgeoning capital Bamako, Pilling illustrates that rapid urban expansion has left people bereft of services–from roads and transportation systems to sufficient housing and policing–making these cities more and more unlivable.

 

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