Lost in the Trump-Russia Tango? China

European and US experts have been actively discussing China for over the last two Obama years due to  Xi Jinping’s presidency and its focus on politics turning away from the liberalizing trend of the previous three decades. Jinping’s emphasis towards a hard-edged nationalism has been warily unsettling China’s immediate neighbors and their western allies.

China has been getting more powerful but less friendly, squeezing foreign competition out of its internal markets, throwing its weight around the South China Sea, crushing internal dissent and enforcing loyalty to the regime.

Mostly liberal-minded scholars had hoped that the spectacular success of China’s economic opening and partial political relaxation would lead to a more open society, greater rule of law and more political inclusion. That hope turned to dismay when they began to discover that Xi’s mission was not to steer China towards political pluralism and tolerance, but to shore up the ruling Communist party, in defiance of what the scholars had assumed was an inexorable trend: that an emerging middle class would always force a political opening.

Given China’s vastly increased influence in the world, a global conflict between the systems, values and norms of the pluralist, democratic United States and China’s Communist party seemed inevitable. It would be unpleasant, but nobody doubted that US values would prevail…until Donald Trump became President.

The group discussed whether China could succeed. What might go wrong? Would China reset the world’s economic and security arrangements in its favor? What could the US do to defend its norms and values— even if the Trans Pacific Partnership (TPP) survived (it didn’t), the huge US-led Pacific trade initiative, and shoring up political security guarantees to its close regional allies, Japan, South Korea and Vietnam—to limit the growth of China’s influence?

Although Trump had taken a widely held tough stance on China, his lack of credibility, his ongoing business dealings, (manufacturing interests in China proper) and his propensity to say things during his campaign that he had no intention of pursuing, led to obvious doubts of his sincerity and determination. His ability to play chess with China due to his obvious lack of both political and economic knowledge of macroeconomics seemed an even larger stretch.

We’re now more than a month into his term and all focus has been on Russia between his and his Cabinet’s ties to Russia while China has quietly gone about pursuing their own agenda in relative global obscurity.

Their primary goal has been to wrestle the World Reserve Currency status from the U.S. dollar. They’ve practically given away over a trillion dollars in raw material manufacturing in the form of steel, concrete, copper, and various other metals, while hoarding many rare earth metal rights and currently possess 95% of said metals. This may not seem like a big deal, but these metals are key in producing a huge variety of electronic technologies including lithium car batteries, solar panels, wind turbines, flat-screen televisions, compact fluorescent light bulbs, petroleum-to-gasoline catalytic cracking, and military defense components such as missile guidance systems.

If China succeeds in prying the World Reserve Currency status from the U.S. dollar, they would not only reap the benefit of the billions of dollars the U.S. makes each year from being the currency with which any country trading in oil must use, to possibly using that leverage to control the price of oil to their benefit and the demise of the U.S. which has enjoyed the longest stretch of inexpensive gasoline in history. The huge shift back to SUVs and trucks in the U.S. market has been seismic. Were we to see an extended return to $4.00 gasoline again in the U.S., it might not be catastrophic, but it would throttle the slow but steady recovery the U.S. has been able to squeeze out of a limited-demand global consumer market and send markets into a tailspin.

Already, they all but control the ability to attract product manufacturers and forces them to operate there as a condition of doing business. They have been rationing exports to maximize prices, and penalize nations that don’t go along with its policy interests through supply embargoes. Beijing reduced rare earth shipments by 9% in 2010 over 2009, continued to reduce its exports each year since, and has recently announced plans to reduce exports by another 35%.

China produces the vast majority of two particularly important rare earth metals, dysprosium (99 percent) and neodymium (95 percent) from which each motor of a Prius and other hybrid automobiles requires about 3 pounds of the latter. While other countries, including the U.S., have significant amounts of these, China’s low-cost labor and lax environmental restrictions has afforded it a big advantage in this mining-intensive industry.

The one scenario not discussed was that the US would tear up its own rules, leaving the field open to China to consolidate its dominance of the Asia Pacific and extend its global influence. Nobody even imagined such a far-fetched possibility. Donald Trump’s actions seem to have surprised Beijing as much as they have dismayed America’s allies. China now has the enviable predicament to decide how it chooses to reap the benefits.

In terms of international diplomacy, things are going well. It’s hard to imagine Trump’s reaction to such a crisis as anything but another opportunity to hold a rally and boast of his tremendous Electoral College victory over Hillary Clinton. He certainly doesn’t show a propensity to promote peace and international cooperation.

Xi gave a convincing speech to the U.S. expressing their willingness and ability to take the lead in global difficulties given Trump’s stated objective and subsequent actions supporting Russia’s desire to split apart the European Union, and the apparent intent of Britain and the U.S. to follow down the same path of isolationism that led to the Great Depression.

Since the mid-1940s, such a carefully crafted speech might have been delivered by previous US presidents, extolling the core values the US has promoted . But with Trump’s isolationism, xenophobia, erratic and unprofessional behavior taking center stage, this speech was delivered by the general secretary of the Chinese Communist party and president of the China, to an audience at the United Nations in Geneva in January. China’s proposition to the world, Xi said, was to “build a community of shared future for mankind and achieve shared and win-win development”.

Such a claim might previously have encountered polite skepticism. Today, it receives an almost universal sigh of gratitude while the U.S. implodes its standing on the world stage.

Trump has charged China with “raping” the US, a word he might have avoided for other, more sensible reasons. Xi reminded his audience of China’s contribution to global economic stability since the Bush-era financial crisis, of an average of 30% of global growth each year. “In the coming five years,” he predicted, “China will import $8trln of goods, attract $600bn of foreign investment, make $750bn in outbound investments, while Chinese tourists will make 700 million outbound visits, spreading China’s good fortunes to a wide swath of the western nations.”

China’s lies, and economic manipulations seem modest in comparison with those of a man who can barely get through a sentence without a telling an obvious lie, taking every weekend off, and tweeting some insanely immature and baseless claim while sitting on his bed and becoming the spitting image of the 400 lb., basement dwelling fictional character he claimed might be doing the DNC hacking while the entire U.S. intelligence community was stating that it was his masters in Russia.

Xi’s commitment to global capitalism was convincing, given China’s dependence on exports. More audacious, however, was his contention that “we always put people’s rights and interests above everything else and have worked hard to advance and uphold human rights”. Human rights organizations were excluded from the occasion the way Trump excludes “unfriendly” publications from the U.S. public’s right-to-know what their highest elected official is up to at any given moment.

But if Xi’s claim is disputable, it pales in comparison with the exaggerations, false claims and threats by Trump and his circle.

There will be many losers in a world of escalating tensions and disruption, but the U.S. stands to be the biggest loser given China’s new found preeminence as the “sane” option in the U.S.-China-Russia-EU tumult. China would not have picked this moment for a fight with the US. But if it can merge its own economic arrangements in the region and beyond, using its economic muscle—and now, remarkably, its superior global political savvy and sense of “normality and stability”— muscle to its diplomatic and political advantage while escaping the burden of censure that its internal repression used to provoke, it will be a huge win for China.

Trump’s only accomplishment in his short time as president has been to trash US soft power assets and make China’s regime look less distasteful. Before Trump, even as western countries scrambled to access the Chinese market, they regarded Beijing with skepticism. Now the rest of the civilized world looks at the U.S. and whispers, WTF Americans?

For Beijing, the question now is how best to replace US influence, not if it is possible. For US allies, the question is how stridently should they wish Beijing success—ironically as the “lesser of two evils”?

Harvey Gold