From trade war to hot war? Perspectives for US-Chinese relations

The first part of this article was written in March 2019 whereas the second part was written in October 2019

Part I


March 19, 2019
By Dr. Leon Tressell exclusively for SouthFront

According to the Trump regime a US-China trade deal is on the horizon. If a trade deal is reached then no doubt global stock markets will surge even further into over inflated bubble territory Bloomberg estimates a trade deal could add 10% to global equities.

If a trade deal is struck then the mainstream media and Trump can gleefully tell us that all is well with the world: stock markets are booming so don’t worry yourself about a thing. Hyperbole aside will a trade deal lead to a thaw in US-China relations? Can it help resolve the economic and geostrategic tensions that exist between both nations?

President Obama’s much vaunted ‘pivot’’ to Asia in 2011 was a belated recognition by the American Empire that it a faced a new superpower in the making that threatened its economic and geo-political dominance of the Asia-Pacific region. During Obama’s presidency the Asia pivot was primarily military in nature although we shouldn’t forget his ill-fated Trans Pacific Partnership that was designed to contains China’s economic expansion throughout the region.

The election of the populist Trump, a billionaire businessman, on a ticket of ‘Make America Great Again’ tapped into a public mood that was angry at the de-industrialisation of America and the way Wall Street has been fleecing ‘Main street’. Trump’s election reflected a recognition by the American ruling class of the need for action against a backdrop of an escalating rivalry in advanced technology between the US and China, competition for raw materials/markets and increasing geo-political tensions.

Dean Cheng of The Heritage Foundation has argued that the leadership of the misnamed Chinese Communist Party (CCP), sees their country as being in a period of peaceful competition with the U.S.. The CCP leadership sees China as in a period of “strategic opportunity’’ that will allow it to focus upon the non-military aspects of “comprehensive national power.’’ In other words this is a period where there is an historic opportunity to not only catch up with the more economically developed nations of the West but to go on to become a world leader in advanced manufacturing and technology. Thereby, raising living standards for its 1.4 billion population whose passive acceptance of the one party state is of paramount concern to President Xi and the billionaire oligarchs whose interests he represents.

The Chinese Communist Party leadership have been looking to the future in terms of decades when it comes to the country’s economic, scientific and military development. At the CCP congress in 2017 President Xi stated that by mid century the objective was of becoming a “global leader in terms of comprehensive national power and international influence.”

Made In China 2025 Initiative

The ‘Made In China 2025’ initiative that was launched in 2015 represented a turning point in the escalation of the economic and military rivalry between China and the US. The Chinese ruling class see the initiative as an attempt to comprehensively upgrade their entire economy from advanced manufacturing tech to traditional industries and the service sector.

Scott Kennedy from the Centre For Strategic&International Studies has observed that:

“The goal is to comprehensively upgrade Chinese industry, making it more efficient and integrated so that it can occupy the highest parts of global production chains. The plan identifies the goal of raising domestic content of core components and materials to 40% by 2020 and 70% by 2025.’’

In his testimony to a congressional committee on 25 September 2018 Dean Cheng emphasised the comprehensive nature of the Made In China 2025 initiative:

“China’s “Made in 2025” program, where the Chinese hope to be able to become largely autonomous in key manufacturing areas by 2025, should therefore be seen as part of the larger effort to promote Chinese science and technology, not only in terms of innovation and R&D, but sustaining China’s industry by localizing the entire technology development, commercialization, and production process.’’

The Made In China 2025 initiative is seen as a serious threat by the United States to both its advanced technology sector and its attempts at full spectrum military dominance of the planet on behalf of corporate capital. According to the U.S. Congress the next generation IT. that China wants to become dominant in includes: 5G networks, A.I., blockchain, cloud computing, quantum computing and semi conductors. The fear of Chinese dominance in these hi-tech sectors is portrayed as a grave economic and national security threat to the United States that must be stopped.

Hi-tech economic rivalry

The fear and alarm at China’s emergence as a competitor to the U.S. in high-tech industries is not unfounded. Chinese supercomputers are some of the fastest in the world. China is now the largest producer of supercomputers in the world. In 2017 202 of the 500 fastest supercomputers were Chinese compared to 143 for the U.S. A Chinese lunar probe is scheduled to make a landing on the far side of the moon while the world’s largest radio telescope is based in China.

Alex Barrera, Chief Editor at the Adelph Report has observed:

“The US and Europe are lagging behind in technological adoption. Robotics, AI-based systems, automated education, Quantum computing or smart mobility are all happening in China, not in the US.’’

The emerging gap in terms of investment, research and adoption of AI and Deep Learning is staggering. This has led to the US Congress holding a series of hearings into the economic threat posed by China to the United States. On 26 September 2018 the U.S. House of Representatives held a hearing titled: “Countering China-Ensuring America remains the world leader in Advanced Technologies and Innovation.’’ The chairman of the hearing, Rep. Hurd, stated in his opening remarks that China wanted to “replace us’’ as the world leader in advanced technology and was guilty of intellectual property theft that was costing the US economy between $225 and $600 billion annually.

The arrest of Huawei CFO Meng Wanzhou on 1 December 2018 by Canadian authorities, at the request of the U.S. government, has brought into the public spotlight this rapidly escalating technology rivalry between China and the U.S..

It is also evidence of increasing U.S. frustration at China’s emergence as high-tech powerhouse that may well eclipse the U.S. in the next 20 years.

In 2018 Huawei became the number one smart phone maker in China, eclipsing Apple to become the second biggest maker globally. In 2017 its revenue was greater than Chinese corporate giants such as Alibaba, Tencent and Baidu combined. Over half of this revenue came from sales abroad in Europe and Asia. This revenue growth has increased far faster in recent years than U.S. rivals such as Cisco. In 2012 both had similar revenues but by 2017 Huawei’s revenues far surpassed those of Cisco: $92 billion for Huawei compared to $50 billion for Cisco. Blake Schmidt of Bloomberg has observed that Huawei’s revenue growth, “strikes fear among some policy makers in the West.’’

The military-industrial complex in the U.S. is pushing Trump to ban Huawei from supplying wireless carriers as they upgrade to 5G. American allies such as Australia, New Zealand and Japan are planning to limit use of Huawei gear in their countries.

It will be interesting to see how the “impending’’ trade deal manages the issues of intellectual property rights, access to software and patents for the advanced tech sector.

Challenges facing China’s leadership

President Trump’s imposition of trade tariffs on Chinese imports reflects another front in this escalating trade war between the two superpowers. U.S. trade tariffs have undoubtedly hurt the slowing Chinese economy  that is facing a number of major challenges not least of which is maintaining annual GDP growth above 6% to ensure social stability.

The Chinese ruling class is still haunted by the memory of the Tiananmen Square uprising that threatened its very existence. Hence, its economic programme is motivated by the key priority of avoiding social unrest in a country with a well educated population that has high expectations raised by its economic revolution over the last 40 years. Professor Marshall Meyer of Wharton Management has noted that the current government of President Xi, “is not totally secure. This is the first government post-1949 that has not had the mantle of Mao or Deng, and it is struggling a bit for legitimacy.’’

Hence, the continuing slowdown in manufacturing is of great concern to the CCP leadership. China has made concessions to the U.S., such as resuming soya bean purchases last December, and is no doubt keen to get the $250 billion of U.S. trade tariffs lifted in the hope of boosting its slowing economy

U.S.-China co-dependency

On the one hand both nations are mutually dependent upon one another yet they are both in competition with each other on the economic, technological, diplomatic and military fronts. The question is whether their state of mutual dependency is strong enough to stave off any further deterioration in their relationship that raises the prospect of a military conflict.

The United States is dependent upon China in a number of key areas that range from the cheap consumer goods that Chinese and American manufacturing based in China can sell to American consumers. Besides this, is the vitally important role of America’s key foreign creditors such as China, that holds over a $1trillion in U.S. treasury bonds. Foreign creditors help enable the U.S. government to run its public debt to over $22 trillion that helps pay for its huge war machine.

China’s economic problems

Conversely, Chinese manufacturing industry is dependent upon the continuing ability of heavily indebted U.S. consumers to continue purchasing its products. China’s leaders are also mindful that in key technology areas its industry is heavily dependent upon foreign sources. Major Chinese companies such as ZTE and Huawei and key state enterprises like Petro China are still heavily dependent upon Western technology in certain key areas.

More importantly, China’s leaders are acutely aware that they have to tread carefully in managing its huge debt problems, particularly in the sphere of corporate debt running at 145% of GDP. According to the IMF 15% of bank loans to the corporate sector (Over $1.3 trillion) are “at risk’’ meaning their earnings cannot cover their interest expense. Hence, why the Chinese government is so keen to try and stimulate its slowing economy to help resolve this escalating debt crisis. The One Belt One Road project and the Made In China 2025 projects, that are seen as major threats by the American Empire, are integral parts of trying to boost economic growth.

The U.S. and China will probably come to a trade deal that will resolve some of their short term issues. However, longer term trends suggest any trade deal is unlikely to resolve the economic, technological and military rivalry between the two nations.

U.S. economic problems

Despite the much trumpeted boom in its economy the United States faces a number of structural economic problems that threaten to undermine its superpower status to the advantage of rivals such as China. The economic problems facing the U.S. also illustrate the profound short termism of American capitalism which threaten to intensify the great power rivalry with China.

In 1945 the U.S. was both the chief creditor and the workshop of the world. It was able to dictate the terms of world trade through the Bretton Woods agreement of 1944 to its advantage. The U.S. dollar became the world’s reserve currency which together with fixed exchange rates between all other currencies and the dollar allowed the U.S. to dominate the global economy in a totally unprecedented way.

Fast forward to 2019 the United States has allowed a major portion of its manufacturing industry to be sent offshore to China and other low wage economies. Corporate giants such as Apple produce their iPhones in China and ship them to the U.S. The United States faces increasing attempts by more and more countries, with China leading the way, to bypass the dollars dominance of global trade by deals that allow the purchase of goods and services in their own domestic currency. From the world’s creditor the United States has become a nation drowning in unpayable debts from the $22 trillion in government public debt to the record $13.4 trillion of household debt.

Since the 9/11 attacks the U.S. has thrown off the so called Vietnam syndrome It has used its military power to engage in naked gun boat diplomacy fighting one regime change war after another in an attempt to reassert its political, economic and strategic dominance over the Middle East.

Instead of investing in its education system, creaking infrastructure, and unbalanced economy the U.S. ruling class, dominated as it is by the demands of finance capital, has degenerated into myopic short termism allowing the pursuit of massive profits by Wall Street and the bloated financial industry at the expense of the rest of society. This had led to huge wealth inequalities in America that threaten the long term stability of its society. The U.S. Federal Reserve, probably the most powerful central bank on the planet, has dedicated itself to propping up financial markets creating a gigantic wealth transfer unprecedented in history.

The Fed’s low interest rate policy along with money printing through it s Q.E. programme has fuelled an orgy of parasitic debt based activity since the 2008 financial crisis. This had led to a merger and acquisition mania (worth over $400 billion in 2018 and stock buybacks worth over $800 billion in 2018 surpassing capex for the first time since 2008.

Despite the stock market correction in the last quarter of 2018 the Fed’s policies, particularly its recent statements that further rate rises and the unwinding of its $4 trillion balance sheet are on hold, have fuelled a speculative frenzy that has boosted U.S. financial markets into making huge gains this year.

It would appear that the financial elite in America have completely lost their heads. Instead of punishing such short termism investors are rewarding companies that put M&A and stock buyback activity ahead of R&D and long term capital investment. The American media and corporate politicians have the temerity to complain about China’ s rapid economic development and have fallen fall back upon sabre rattling threats and imposing tariffs upon Chinese imports.

China catching up with the U.S.

No amount of American trade tariffs or gunboat diplomacy in the South China Sea will prevent China from investing massively in research and development to stimulate innovation in its economy that will threaten American hegemony over the global economy. It is estimated that this year China will surpass the U.S. in the amount of money devoted to research and development China’s R&D spending has increased by an average of 18% a year since 2004 compared to 4% a year for the U.S. which devotes ever greater resources to its bloated military.

America’s military budget for the next fiscal year will be $989 billion which is 4 times larger that of China’s which stands at $228 billion. America’s military budget is larger than the defence budgets of the next 9 countries combined!

Let’s take two examples to illustrate how China’s long term economic strategy is surpassing the U.S. in critical areas. The telecommunications sector is a critical industry for any modern industrial economy. Over the last 3 years China has outspent the U.S. by approximately $24 billion on investments in telecommunications infrastructure. It is planning to spend an additional $400 billion over the next 5 years to win the race to be the first to deploy 5G wireless technology. China has already deployed 350,000 cell sites for 5G whereas the U.S. has only deployed 30,000.

In the key sector of education China is rapidly catching up to the U.S. According to the National Science Foundation China now awards nearly as many doctorates in science and engineering as America. Meanwhile, China produces 22% of the world’s Science and Engineering undergraduates compared to 10% for the U.S. In 2017 American scientists published 409,000 science, medical and technology papers in premier international journals compared to 426,000 for China.

Dr.John Schrock, in an article for University World News, noted in December 2018 that American science is in decline as China’s science leaps forward. Schrock noted that China’s “long-term policy and investment in education and people has paid off in accelerating advancements in science. … The US has failed to move ahead in many areas of science, from particle accelerators to astronomy to organismic biology.’’

Geo-political rivalry will intensify

The much touted trade deal, if it comes off, may help to relieve tensions between China and the U.S. on a temporary short term basis. However, no matter how comprehensive the deal it will not resolve the fundamental economic problems between the two nations that are leading to rising geo-political and military tensions.

Despite its own serious problems with a gigantic debt pile China has committed itself to a massive long term investment in its economic development. All the trends suggest that by mid century or even sooner China will have eclipsed the U.S. to become a global leader in advanced technologies that will greatly enhance its economy.

This undermining of American hegemony over the global economy obviously has serious geo-political consequences as the U.S. will not allow this to happen without a struggle. It remains to be seen whether this intensified rivalry remains contained to the economic sphere or whether it may escalate to military warfare. The next global recession, that comes closer every day, will undoubtedly exacerbate U.S.-China relations and may well push military and geo-political tensions to breaking point. After all, warfare and foreign policy are merely a continuation of domestic politics and economics by other means.


Part II


October 8, 2019
By Dr. Leon Tressell exclusively for SouthFront

70 years ago in April 1949 the last Western military action took place on Chinese territory. The ‘Amethyst Incident’ saw Chinese Red Army troops fire on a British warship sent to remove UK embassy staff from the Chinese capital. At this time Chinese communist forces, on the verge of victory in their civil war against the armies of Chiang Kai Shek, feared a counter-attack by Western imperialism.

The motive for this attack on British forces lay in the century old enmity that the Chinese population felt towards foreign troops that had enforced the robbery, humiliation and exploitation of the unequal treaty system on their country during the 19th and 20th centuries.

In his account of the ‘Amethyst Incident’, historian Mark Felton, has noted that:

“The British certainly underestimated the degree of ingrained hostility towards them harboured by Communist troops who looked on the British and other foreigners as having abused, robbed and cheated China for over a hundred years for their own profit and power. The Communists did not want to see ‘imperialist’ ships on the Yangtze.”

Robert Bickers in his acclaimed two volume history of China’s relations with the West, Out Of China: How The Chinese Ended The Era Of Western Domination, states that Chinese public opinion applauded the attacks upon the British navy, ‘for the foreigners who had kicked the Chinese around for 100 years had finally got what they deserved’.

This military encounter between Chinese and Western military forces over 70 years ago may seem obscure to most people in the 21st century. However, it helps shed light on the current trade war between China and the United States.

Understanding of China’s suffering under Western domination in the 19th and 20th centuries gives us insights into the clash that underpins the trade war: the attempt by the U.S. empire to maintain its hegemonic position over the world economy against the rapidly rising power of China. It also helps us analyse longer term perspectives for the U.S.-China relationship: can they resolve their economic, and geo-political differences through negotiation or will the current cold war escalate to a military conflict in the future?

U.S.-China Trade War and the global economy

The trade war appears dead locked with little prospect in sight of any kind of resolution to this conflict. Yet financial markets appear to have placed a lot of hope on some kind of deal being brokered at the upcoming trade talks on October 10-11.

President Trump claims that America is winning the trade war and that the US is inflicting economic pain on China that will force Beijing to the negotiating table. His claims are accompanied by threats of further action such as delisting Chinese companies from U.S. stock markets. The trade war, that Trump initiated, has inflicted damage on both countries and the wider global economy

In China manufacturing has taken a considerable hit from the trade war with car sales declining for 14 out of the last 15 months. In the first six months of 2019 car sales fell by 13% compared to the same period in 2018. Meanwhile, in the U.S., Moody’s Analytics has estimated that the trade war has already cost the U.S. 300,000 jobs which could rise to 450,000 jobs by the end of this year if no deal is reached.

The IMF estimates that the current phase of the trade war will knock 0.8% off global GDP as it has undermined business confidence and helped reduce investment and global trade. Both the IMF and Moody’s Analytics have stated that if the trade war continues with no deal it has the potential to push the slowing global economy into recession by Q4 of 2020. The trade war has also precipitated large declines and rallies in global stock markets over the last year as they react to the jaw boning of politicians on both sides with their threats and talk of a deal.

All the evidence that the global economy is slowing down and heading towards recession, from inverted yield curves to weakening economic growth, is being dismissed by politicians and mainstream economic pundits. They point to the bull market in the U.S. stock market and state that further interest rate cuts by the Federal Reserve together with a trade deal with China will push financial markets further to make new all-time new highs for the year.

This hopium based analysis has already got one of its desired goals namely further interest rate cuts by the Fed. Meanwhile, the ECB has already gone all in and announced a rate cute and stimulus through a renewal of its bond buying programme that was so unsuccessful the last time it was tried.

However, the other central premise of this bull market analysis looks increasingly unlikely to happen any time soon. The “hope” that the U.S. can bully and cajole China into a trade deal that infringes upon its economic sovereignty is based on a complete lack of understanding of how China views the world. Having said that, it appears markets are willing to accept any kind of deal even a sticking plaster one that lifts some tariffs but doesn’t resolve any of the fundamental issues between the two nations.

China’s outlook on international relations, including the current trade war with the U.S., has been fundamentally shaped by its experiences of Western domination in the 19th and 20th centuries. The degradation, exploitation and violence that China suffered during this period, referred to in China as the Century of Humiliation, still fundamentally shapes its foreign policy and how it relates to the American empire that is trying to stifle its economic development.

In a previous article on this subject I explained how the U.S. feels seriously threatened by China’s rapid development of its high tech industrial sector and the associated challenge to American domination of the global economy. Actions such as the Made In China 2025 Initiative and the One Belt and Road projects are seen as major threats to American domination of global trade. The U.S. also perceives both projects as a serious threat to its position as a world leader in advanced technology and its attempts at full spectrum military dominance of the planet,

China’s colonial past still resonates with the present

The protests in Hong Kong have led Beijing to change the emphasis of its domestic propaganda. Increasingly, the message of state propaganda, which is very tech savvy has, “more aggressively stirred up nationalist and anti-Western sentiment using state and social media.”

A variety of different sources from journalists based in China to youtube bloggers in the country suggest that this propaganda is having success in stirring up nationalist sentiment and so shoring up support for the one party CCP (Chinese Communist Party) controlled state. State propaganda over the summer of 2019 has increasingly harped upon the struggle China waged against America during the Korean War and used imagery and rhetoric from the “Resist America, Aid Korea” campaign 1950-53.

On May 19 the Global Times ran an editorial which noted, “The trade war with the U.S. at the moment reminds Chinese of military struggles between China and the U.S. during the Korean War.

The problems that China is currently having with Hong Kong are partly linked to its past of colonial domination by the West. After its triumph in the civil war in 1949 the CCP carried out a social and economic revolution in China. This saw the introduction of a centrally planned command economy along the lines of Stalinist Russia with no democratic participation by the masses. Rebuilding its shattered economy after the massive loss of life and economic destruction caused by the Japanese occupation (1937-1945) and the civil war against the Western supported forces of Chiang Kai-Shek was a mammoth task for the CCP.

Historian Robert Bickers has noted that the new government of China had its hands full preventing an economic collapse and famine while simultaneously trying to consolidate its grip on power. This situation allowed Chiang Kai-Shek to withdraw his defeated forces to the island of Taiwan which had been occupied by American forces since 1945. Taiwan was still under Japanese sovereignty until 1952 when the Treaty of San Francisco took effect. This allowed the military dictator Chiang Kai-Shek to remain in control of Chinese territory in contravention of the promise made to China in 1943 by the Allied powers in the Cairo Declaration that envisaged the return of Taiwan to Chinese control.

Besides Taiwan, the new CCP government in Beijing was de facto forced to accept that Hong Kong and Macao would remain in British and Portuguese hands respectively. So even after the momentous struggles of the Chinese people to resist Japanese occupation and their defeat of the U.S. sponsored dictatorship of Chiang Kai-Shek whose soldiers, “were drunks, brutes, rapists and murders,” (*) they were forced to accept that parts of their country would remain under Western control.

It is no wonder that many Chinese people remained wary of the West throughout the remainder of the 20th century.

To compound matters further China was involved in major confrontations with the U.S. and its Western allies during the Cold War.

From 1950-53 hundreds of thousands of Chinese troops fought against the Americans during the Korean War with Chinese losses estimated at over 180,000 men, that included Mao’s son. Meanwhile, during the Vietnam War over 300,000 Chinese troops were stationed in North Vietnam to deter an American invasion of the Communist North.

The cumulative impact of this colonial past has been to fundamentally shape the outlook of both the CCP controlled state and the Chinese population. Since 1949 the CCP controlled state has revealed a determination to build up the country’s economic and military strength to a point where it can never be dominated by the West again. This outlook has largely been accepted by the Chinese population acutely aware of the country’s ‘Century of Humiliation‘ at the hands of Western powers and Japan.

Chinese Revolution of 1949 used to bolster Xi’s oligarchic regime

The 70th anniversary of the Chinese revolution, that swept away the comprador capitalism of Chiang Kai-Shek and expropriated the rotten feudal system, that caused mass impoverishment of the peasantry, has been used by President Xi to bolster support for his oligarchic regime.

In his address to the Chinese people he spoke on the same spot from which Mao had declared the People’s Republic of China on 1 October 1949. President Xi played on the collective historical memory of how the Revolution of 1949 ended China’s instability under a U.S. sponsored regime that left the country impoverished, destitute and divided. President Xi said that the Revolution of 1949:

“… marked the end of more than one hundred years of national humiliation and misery the country had suffered since modern times. The Chinese people managed to stand up on their feet and embark upon a great journey of national rejuvenation. Over 70 years the Chinese have been united as one people. Through hard work and perseverance we have scored unparalleled achievements.”

Xi also played upon nationalist sentiment stirred up by the current trade war with the United States when he declared:

“Today a socialist China is standing in the east of the world and there is no force that can shake the foundation of this great nation. No force can stop the Chinese people and the Chinese nation from forging ahead.”

Later in his speech Xi recognised that the stability of his regime rested on its ability to meet the material needs of China’s 1.3 billion population. He stated that one of the key tasks of his government was to, ‘meet the people’s aspirations for a better life’.

This brings us back to the current trade war with the United States as Xi’s ability to maintain current living standards is dependent upon the future success of the Made In China 2025 initiative and the Belt and Road infrastructure project. Equally critical is warding off American attempts to thwart its economic and technological development through the current trade war.

Prospects for a U.S.-China Trade Deal

The current trade war will never be fully resolved until Washington drops its key demands for China to make structural reforms to its economy that would infringe on its national sovereignty. These American demands include:

  • Reducing the state’s share in the overall economy from 38% to 20%.
  • An enforcement mechanism for any trade deal that would put power in American hands to effectively police China’s economy.

Closing state-controlled factories at American insistence is not an option that Xi could pursue. Neither could he agree to allowing the U.S. have a veto over China’s compliance with any U.S.-China trade deal without losing support from the Chinese people. If Xi agreed to such American demands it would feed into strongly held memories of the Century of Humiliation when Western powers dominated and controlled its economy through the unequal treaty system. Xi is never going to agree to American demands that would undermine the CCP’s grip on power.

Having said this, Trump is beginning to realise that China cannot be bullied into submission on the key issues that led him to launch the trade war in the first place. As 2020 looms with a re-election campaign only a year away it would be no surprise to see Trump come to a compromise deal with China where a limited trade deal is agreed upon.

This could involve the removal of certain tariffs or all tariffs, China agreeing to purchase more U.S. agricultural products and allowing greater access for U.S. investors into China’s domestic market. Meanwhile, the U.S. would continue letting its chip makers and soft ware companies sell to strategically important Chinese companies such as Huawei.

Lance Roberts , chief editor of the Real Investment Report, sums this possibility up nicely with the observation:

“For Trump, he can spin a limited deal as a ‘win’ saying ‘China is caving to his tariffs’ and that he ‘will continue working to get the rest of the deal done.’ He will then quietly move on to another fight, which is the upcoming election, and never mention China again. His base will quickly forget the ‘trade war’ ever existed.

Kind of like that ‘Denuclearization deal’ with North Korea.”

A short-term trade deal concluded in the autumn that would remove some or all tariffs and give U.S. companies some certainty over the future direction of trade policies. It would give stock markets an undoubted boost.

J.P. Morgan’s chief equities strategist Lakos Bujas has estimated that a short term trade deal could boost the S&P500 Index to new highs for the year of 3,200-3,300.

Whereas, a failure to get any kind of limited deal or an escalation from current levels of hostility would impact very negatively upon financial markets sending the S&P500 Index to 2,500.

This would be disastrous for a president facing re-election, who claims credit for the current highs in financial markets which he boasts are indicative of how strong the underlying U.S. economy is.

The future of U.S.-China relations in the 21st century

If the U.S. and China come to a limited trade deal over the next period it won’t change the fundamentals of their adversarial relationship. The United States has been the world’s hegemonic economic power since the Bretton Woods agreement of 1944. It has dominated global trade through the dollars use as the world’s reserve currency and been an economic powerhouse in the field of advanced technologies.

Now China has come along and upset the apple-cart by challenging American dominance of the global economy. This kind of existential struggle has been played out many times throughout history when dominant powers face competition from rising nations. The Greek historian Thucydides explained this simply, “It was the rise of Athens and the fear that this instilled in Sparta that made war inevitable.”

Over the last 500 years alone there have been 16 cases where a hegemonic power has been challenged by a rising power. In 12 cases the irreconcilable contradictions between the hegemony and challenger led to war breaking out.

The last century witnessed the titanic struggle between the Soviet Union and the United States that came desperately close to nuclear war and led to a series of highly destructive proxy wars being fought all around the planet.

The United States like so many other hegemonic empires in the past from the Romans to the British Empire have bankrupted themselves fighting wars to cling onto their position as top dog.

The U.S. sees China as an existential long-term threat to its economic and military dominance which won’t be resolved up by any limited trade deal that maybe concluded this autumn.

Randall Schriver, the assistant defence secretary for Indo-Pacific security affairs, made this point clearly when speaking on the 70 anniversary of the Chinese Revolution at the Brooking s Institute:

“We feel we are in competition because fundamentally we have different visions, different aspirations and different views of what regional security architecture should look like. Globally, China seeks to shape a world consistent with its authoritarian model and national goals.”

He expressed American unease at China’s rapidly expanding economic and military capabilities:

“The department views military developments in China as seeking to erode U.S. military advantages. They are working to become the pre-eminent power in the Indo-Pacific while simultaneously making plans to expand its presence and sustain its capabilities farther from Chinese shores.”

Scriver acknowledged that the American empire can no longer assume its vast military will intimidate rising states away from a clash with the U.S. It now finds itself back in the same position it had during the Cold War where it now has to expect a fight from a powerful opponent:

“Instead of expecting to dominate an opponent, our armed forces are learning to expect to be contested throughout a fight, while achieving the political objectives set for them.”

At the end of World War Two the U.S. dominated the global economy in a way that no other nation has ever done in human history. The many advantages it had, such as the dollars dominance of global trade, are being challenged by China as it seeks to secure markets, raw materials and energy sources to secure the living standards of its 1.3 billion people.

Scenarios facing the American Empire

The United States ruling class faces several choices at this crucial juncture in history. Having dominated the 20th century the U.S. now faces a powerful rising challenger in the 21st century that is relentlessly pursuing an economic strategy that will leave the United States in its shadow unless it takes decisive action now.

Several possible courses of action are outlined below.

It can try to come to a comprehensive long term resolution of its differences with China that would effectively divide the world into two zones of economic influence the Western zone led by the U.S. and supported by its NATO allies and an eastern zone led by China and supported by Russia.

The other option it faces is to try and combat the rising economic power of China through increased economic warfare such as comprehensive sanctions on key sectors of China’s hi-tech industry, blocking China from the SWIFT system of global payments, forcing U.S. companies to divest from China. Such measures, of course, would push political tensions between the two powers to dangerously high levels. These could result in proxy wars being fought or at worst a conventional conflict that would rapidly escalate to nuclear war.

Of course, none of this may come to pass and we may just see a drift in American policy as its political class struggle to resolve pressing domestic problems. As Ray Dalio has commented unless the U.S. deals with its huge wealth inequalities over the next period then it faces a period of intense class conflict that may threaten the capitalist system itself with overthrow. Domestic turbulence in the United States, crippling its ability to act in checking Beijing, would de facto let China emerge as the world’s largest economy that would dominate global trade.

The economic and geo-political conflict between China and the United States will increasingly dominate global affairs over the next few decades. The American Empire faces difficult choices either to confront, acquiesce or accommodate the rising power of its Chinese rival.

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