Why Trump’s Trade War Is Necessary

It is conventional wisdom to think of capitalism and communism as polar opposites, almost identically opposed in every way. Capitalism has always been associated with free markets, free speech, and democracy, whereas the word communism brings images of dictators, amped-up rhetoric, food rationing and so on. Even before the Cold War ended, we have been told that the global economic system, built by the West, with its interconnected webs of trade, currency, and foreign aid, would spread western concepts of democracy and freedom to any place that opens up to it. This was the thinking behind Nixon’s visit to Beijing, and as recently as 2014, Barack Obama used it as a justification to open up relations with Cuba. Yet what happens when the engine of capitalism suddenly finds itself deep inside a hostile, authoritarian regime, which doesn’t care for its supposedly attached package of free speech, courtrooms, and fair trade?

Ironically given its recent historical political leanings, China is the centre of modern capitalism. It is already the world’s second largest economy, and it powers large amounts of the growth in consumption this century through its rapidly expanding middle class. Already, Daimler, owner of Mercedes-Benz, sells more cars in the Middle Kingdom than it does in the U.S. or even in Germany. A total of 392,780 units have been sold to Chinese customers from January to July 2018. Additionally, large amounts of the world’s manufacturing and supply are concentrated in China. This doesn’t just apply to all the phones and laptops we use, but also critical products like medical devices.

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Image Credits: REUTERS/Carlos Barria

Every large corporation on Earth, be it Apple, Google or Disney, is desperate to get a foothold in China. A few years ago, Mark Zuckerberg publicly revealed he had been taking lessons in Mandarin. There was a report that he once asked Xi Jinping to name his firstborn child. Google CEO Sundar Pichai has admitted his company was willing to alter its policies around censorship to secretly build a search engine that would be allowed inside the Great Firewall. Even the Marvel movie, Doctor Strange, had to change the location of one of its main scenes from Tibet to Nepal to be allowed to play in China.

In and of itself, this isn’t unique. Google has censored itself in India and Turkey before to appease local governments. Facebook’s political blind spots have been documented at length of late anyway. This, however, is a unique situation. The size of the Chinese market and the barriers to entry represent a significant threat to democracy. A few years ago, Daimler was forced to publicly apologise for an advertisement featuring a quote from the Dalai Lama on Instagram to avoid angering Beijing. The quote itself had no mention of Tibet, and Instagram is banned in China anyway. Additionally, an employee at a Marriott hotel in the US was fired for ‘liking’ a tweet about Tibet. Effectively, the Chinese were censoring free speech far outside their own jurisdiction. Imagine what they could do if they got Facebook and Google reliant on access to their markets. The fact that a company like Alibaba can have a market capitalisation similar to Microsoft or Facebook without doing almost any business outside China shows the enormous carrot the Communist Party holds today.

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Image Credits: Cartoon Movement

In 2010, Rio Tinto, a steel company, refused to provide state-run enterprises a discount at a time of increasing prices. The Chinese government charged 4 employees with capital crimes, putting them in a courtroom until the company backed down and agreed to demands. A few months ago, there was a rumour that cellphones produced in China contained tiny chips that could be used for monitoring and surveillance. Regardless of accuracy, the fact that the story almost sounds plausible should terrify us.

From an Indian context, the largest payments app in the country, Paytm, includes Jack Ma, founder of Alibaba, as amongst its investors. This is a company with access to large amounts of data about our credit and, as we move further into digital money, more control over our economy. Prime Minister Narendra Modi has lobbied heavily to attract Chinese money into the Indian economy, and large firms like Tencent, Baidu, and Alibaba see the country as the next big market to conquer. This at the same time China is aggressively pursuing its imperial ambitions in the Himalayas, the South China Sea and through its competing investments in Africa, which have weakened Indian influence significantly.

China has been known for stealing intellectual property, be it by forcing companies that do business in the country, like Dell, to hand it over, or by literally stealing it. Companies like Huawei have been made to pay fines in Federal Courts for stealing IP. They have also been accused of undervaluing their currency to grow exports in violation of WTO rules.

In effect, freed from the constraints of rule of law and democracy, the autocratic Chinese government has gained massive leverage over the global economy, and it intends to wield it to serve its own ambitions. This is the crux of Trump’s trade war. The global economy, as it becomes more and more intertwined with the Chinese economy, poses a direct threat to our institutions. Imagine if a Himalayan border war broke out today, and the Chinese decided to block exports of insulin pumps, or if Tiananmen Square happened while both Facebook and Google were facing regulatory approval in Beijing. We may never have heard of it.

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Image Credits: NothingIsEverything/Shutterstock

While Trump’s oversized rhetoric and demeanour often colour the opinion people have of him, his policy sometimes resembles that of a common sense businessman. By inciting a trade war with his geopolitical rival, he has simultaneously sent the Chinese markets into a slump, put such pressure on the Communist Party that insiders have publicly criticised its foreign policy, and has shined a light on its unfair trade practices. Economies around the world are increasingly at the mercy of Chinese policy, and it is the responsibility of the existing bloc to ensure that they are contained and their behaviour moderated before it is too late. In a sense, the global outrage and lack of support for Trump’s reasonable policies demonstrate how we have ended up in this situation in the first place.

-Manan Bhalerao

Sources for further reading:

https://www.weforum.org/agenda/2018/04/here-are-5-facts-you-need-to-know-about-the-us-china-trade-dispute/

Open Markets Institute https://openmarketsinstitute.org/articles/the-new-china-syndrome/

Mercedes Global Sales https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwjEyt2Ev_XeAhUCk3AKHc1uCFYQFjAAegQIChAB&url=https%3A%2F%2Fwww.daimler.com%2Finvestors%2Freports-news%2Ffinancial-news%2Fmercedes-benz-sales-september-2018.html&usg=AOvVaw3V9lyLYLg3Z70dhbxlB6an

Professor Paul Goldstein, Stanford Law School-

https://law.stanford.edu/2018/04/10/intellectual-property-china-china-stealing-american-ip/

 

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