Trade war is basically a war of tariffs, escalated with the goal to make the other side bend. Perhaps literally. But trade wars can be understood without any strict reference to the items and tariffs that are subject to the war of mutual recriminations too. If anything, the trade war is sheer coercion.
Prime Minister Dr Mahathir Mohamad may not have used the word “crowbar diplomacy”, but that is essentially what he meant when he rooted for Huawei in Japan.
At the Nikkei Asia Conference, Mahathir affirmed that “Asia was no longer an imitator. And if the other side bans (Huawei) and sends warships to (South China Sea), that is a threat.” Mahathir was referring not merely to the US, but also the West that has increased the number of warships in the waters in the guise of freedom of navigation.
To be sure, not everyone in the audience at the conference will take kindly to everything Mahathir said in Japan.
Not even the fact that he called “war, a primitive and barbaric idea”, which is an acknowledgement of the sense of threat and insecurity felt by Japan from North Korea, and to some degree, even from China.
But there are three reasons why Malaysia should not fear the trade war. Rather, Malaysia should use it as a metric to guide its national policy, for the trade war is revealing an interesting global pattern of how the global economy is evolving.
First of all, unlike the trade war between US and Japan in the 1980s and 1990s, over the currency value of the yen against the US dollar, and American car imports, the current trade war between China and US is about China’s intention to be the leading IT superpower in the world by 2045.
By 2045, China seeks to supplant and lead the world in all 10 strategic sectors such as artificial intelligence, robotics and the likes.
In fact, by 2025 alone, part of the “China Dream” of President Xi Jin Ping (photo) is to be dominant in at least some of these sectors first, according to sources revealed by South China Morning Post in Hong Kong, which is incidentally owned by Jack Ma of Alibaba Group. In this sense, this trade war is triggered by something very simple: systemic preponderance or domination over the global economy that is to come by 2025 if not all the way to 2045.
The world will be driven by apps
Like it or not, the world will be driven by apps, algorithm, artificial intelligence and automation. The sooner Malaysia realises, the stronger Malaysia becomes. Science and technological breakthrough, albeit at the digital front, is what economists called the 4th Industrial Revolution (4IR). The Sino-US war is the first of many, many volleys to come shaped and based on the tendency of the two major powers to lock in their gains on the 4IR.
Secondly, the US has not declared China as a currency manipulator of its renminbi too. By not targeting renminbi, the US is essentially admitting that China’s economy has become extremely sophisticated; compliant with the requirements of a future apps-driven economy. If the rest of the world uses Huawei or ZTE or Ten Cents or JD.com or Alibaba, then the world has truly become Sino-centric. The US and the West cannot allow that; even though for the first time in 400 years, the total size of the Asian Gross Domestic Product is now larger than the US and the West, especially the European Union.
As things are, the US cannot just accuse China of fiddling with its currency or its convertibility but the extent to which China has enjoyed a trade surplus of close to one-third of a trillion US dollars too, all in China’s favour.
In comparison, at the height of the US-Japan trade war, Japan’s trade surplus was a mere US$50 billion. China now enjoys a trade surplus versus the United States that is 60 times more than Japan. The US knows China has become a major exporting juggernaut; displacing even other Asian countries’ exports to the US.
If anything, this trade war shows that the US will not continue to absorb foreign exports, unless products made in the US are allowed to go global too; as it does when the US switches to Amazon.com, Netflix, Facebook, Google Plus, IPhones and the likes, all of which take the world as their global markets.
Thirdly, this is a trade war not between the egos of President Donald Trump and President Xi Jin Ping alone. This is the display of the egos of the two countries.
After more than 40 years of economic opening since 1976, China knows itself, as well as the market of the world, literally like the back of its palm.
Be it Africa or Latin America, Chinese businessmen and women have seen it all. In contrast, while the US military presence has set foot in many continents of the world, the US does not have the road map akin to China’s ambitious Belt and Road Initiative, which traverses through 64 countries.
The Chinese public and private sectors have spent close to US$1 trillion between 2013-2019 alone, so why should China back down at all? In contrast, the US has also built up the multilateral global trading system since 1945, to the degree of serving as the advocate of China to be a member of the World Trade Organisation in 2002. If the US feels it has been undone by the system with which it creates, why too should it back down?
The above are three, among other reasons, why “the winter is coming” when two major trading powers resort to crowbar diplomacy. Other countries cannot avoid the negative implications of the trade wars. These two juggernauts lay bestride the top of the food chain.
If they want to tax each other in a war of a thousand cuts, bleeding their economies to death, the rest of the world can only shake their heads in disbelief.
Beyond conceding the futility of the situation, the key is to transform the national economy into one where more and more people can gain from the global digital transformation.
Dr. Rais Hussin is President & CEO of EMIR Research, a think tank focused on data-driven policy research, centered around principles of Engagement, Moderation, Innovation and Rigour.