Dr. Rebecca Harding

CEO, Coriolis Technologies

7th October 2019

Make no mistake, the trade war is a real thing. But it is being used as a proxy by China and the US to fight a bigger battle – one that transcends the orthodox definitions of hard and soft power, to one that incorporates sharp power – influence over finance, information, ideas, and even thoughts and behaviours. It is a fight for control of the new digital paradigm.

Take last week as an example. President Trump asked China to investigate the Biden family’s business dealings. However, China’s foreign policy principles, insofar as they are transparent, explicitly state that they will not interfere in the affairs of another country. There are many interpretations of such a mantra and it may be the case that China will never explicitly act on the request. It may equally well be, as Mr Trump says, that the request has nothing to do with the trade talks.

However, it clearly provides the strategic context for the ongoing discussions. China’s Vice President Liu He and the US Trade Representative Robert Lighthizer in this coming week will be attempting to avoid any further escalation of tensions. If they fail, then the US will increase the tariffs imposed on US$250bn of Chinese goods from 25% to 30%.

For the last 18 months, the two countries have escalated the crisis by embroiling themselves in the tit-for-tat attritional tactics that are endemic to this type of conflict. On the face of it, neither side is winning and the knock-on effects on the global economy are potentially catastrophic.

Last week’s move, however, exposed President Trump’s strategic game very clearly. He is playing to win – to ‘make America great again’. The strategy is to use rhetorical dominance over foreign and trade policy as a show of strength to domestic voters. He is playing to a domestic audience at a time when impeachment proceedings against him need both a strong rebuttal and a win against China. Trade has always been his preferred tool in the zero-sum game that he plays – “The US exports more, China exports less – we win, they lose.” It may seem rather unsubtle, but he would think nothing of embroiling his trade adversary into his domestic challenges and offering them a concession on the tariffs in return.

China is likely to see this for what it is: a move with a short-term political objective rather than a longer-term economic one. China does not play chess in foreign or economic policy terms. Its foreign policy, if it has one, is not transparent and is most explicitly delivered through economic power and influence. China’s “socialism with Chinese characteristics” can allow conflict and peace to exist at the same time: it can be at war with the US for control of the digital paradigm at the same time as peacefully expanding its reach and influence across the belt and road initiative-based sphere of influence. It can escalate a trade war, and peacefully co-exist alongside the US at the same time. Despite its huge display of military prowess as it celebrated its 70th anniversary, the People’s Republic of China has no need to use the weaponry on show.

Therefore, China’s strategy in the coming week will be equally clear to observe. It will engage in the talks, but will equally maintain its firm position on the key sticking points: cyber-security, intellectual property theft, access to Chinese markets and dispute resolution mechanisms outside of WTO frameworks. It does not need to shift its position on tariffs; while China’s growth slows, so does that of the rest of the world. China can afford to risk a breakdown of talks this week as a result.

What is really interesting here is that both sides are in a similar position. While the problems that Trump’s administration face may seem to be centred around the man himself given the impeachment hearings, the real concern is about the threat posed to US hegemony from China’s control of the digital space. Equally, President Xi is all-powerful, but has to acknowledge the challenges he faces from the protests in Hong Kong even if China’s emerging digital and sharp power influence is regarded as an existential threat to the US.

Expect Trump to play more trade games in the coming months. While he is under the threat of impeachment, and also seeking a second term in the White House, the trade war will be the best way of diverting attention away from his own actions domestically. For its part, China is playing the long strategic game of Weiqi, or Go, and will see the current noise in the discussions as a façade hiding the intrinsic weakness of the US position. The US may think it can leverage concessions from China, and this may lead to the conclusion that China has the upper hand at present. But for neither side is trade the real issue – for both, control of the  domestic agenda, and ultimately control of the digital paradigm are far more important.

Trade is a proxy war and both sides can afford it to be attritional. We ignore that at our peril.

Rebecca Harding is co-author with Jack Harding of the “Weaponisation of Trade: The Great Unbalancing of Politics and Economics” (2017) and “Gaming Trade: Win-Win Strategies for the Digital Era” (2019) both published in the London Publishing Partnership Perspectives series. http://londonpublishingpartnership.co.uk/gaming-trade/