Trade War May Hurt US More Than China

In ancient Greece and Rome, the eagle was a symbol of the Gods’ power, a personification of victory, inspiration and valor. In Chinese culture the dragon is a creature of power, of wisdom and of prophecy.

During the Cold War, the Eagle and the Bear had a face-off. And now, it’s the Eagle and the Dragon. Does the Eagle really want to awaken the sleeping Dragon?

Some historians may regard this looming trade war broadly as the third conflict between China and the U.S. over the last 70 years. The first two were proxy wars that were fought conventionally — the Korean War in 1950 and the Sino-Vietnam conflict in 1979. Interestingly, both these wars, despite being bloody and long-drawn conflicts, had no clear victor as both sides had to eventually pull back. The cost was enormous on all sides, both in terms of casualties and economic losses. The net result being the Korean peninsula was a divided nation at the 38th Parallel North and in the case of Vietnam, despite it appearing a “communist” victory, it was clearly not a Chinese one. The wars were, in a sense, self-defeating.

Today’s wars are economic, and a U.S.-China trade war reverberates at many different levels. China holds in excess of $1 trillion in U.S. Treasury bonds. Chinese tourists spent a total of $33 billion in 2016 in the U.S., the highest by any country that year. There are approximately 350,000 Chinese students in various American schools and universities. Not to mention the significant private Chinese investments in U.S. property, stocks, bonds and startups.

If China wanted to declare economic war on the U.S., all it really has to do is to unload a significant amount of these bonds to send the dollar tumbling. This would have drastic impact on the U.S. economy. Of course, such a step would be counterproductive to China since it would also destroy the value of Chinese investment. We can only hope that “face saving” options do not come to pass here for the Chinese to act in this way.

Within the philosophy of Confucianism, Chinese negotiators prefer to avoid conflict and save face. This concept of “face” is perhaps the most difficult for Westerners to fully grasp, and because “saving face” is such a strong motivating force in China, it’s also one of the most important concepts in understanding the Chinese mind. The closest translation of “face” is pride, dignity or prestige . China will go to great lengths to preserve face. Donald Trump and his cohorts need to worry about this.

Grandstanding is more of an American trait, and very much up Trump’s alley. The question is, whether Trump would be wise to treat Beijing in the same fashion as Pyongyang. Clearly, his Pyongyang episode in Singapore cannot by any measure be considered successful since nothing has actually emerged out of it.

So, what we have in reality is a far more serious concern, that of Trump taking China too lightly. China is, not by any length of chalk, like its neighbor. It will bring all of its resources to bear. History has shown that China does a lot better in a long-drawn out position as opposed to a full broadside.

Xi Jinping has had a lot more experience being at the helm of China and is going to take a long view of this “war” considering he has entrenched his leadership for the next decade or so. In essence, he has just become the fourth emperor of modern China, which began with Sun Yat-sen who started this new dynasty, leading to Mao Zedong who held the longest reign, and then onto Deng Xiaoping who opened China to the West, with a few regents in between.

Between Trump and Xi, the U.S. president has a much shorter span, both attention-wise and in terms of his presidency, and this will show in the negotiation process. With his background as a property tycoon, Trump will try to swoop in for a quick kill. I believe this will not be Xi’s approach, their styles are radically different. China will be more measured in its response and slower to retreat once an advance has been made, a case in point being its expansion into the South China Sea.

China also plays its charm offensive well, both in the media as much as with adept politics. Trump, on the other hand, has already made “U-Turns”, flip-flops, and “off-the-cuffs” a trademark of his presidency. So the question here is, will there be some really complex heavily weighted negotiations that should logically happen at this stage? The answer is no. Initially, there will be the brandishing of swords, and a lot of shadow play. Hopefully, there will be technocrats on both sides who will continue the real discussions on the sidelines while all of the drama plays out on the world stage.

Neither side has anything to gain from a full-blown trade war. China, with a more long-term strategy, will be more pragmatic in recognizing its primary advantage, which is simply, “Will Trump survive another electoral process?” If Trump doesn’t make it to another term, which may be what China is hedging on, then this possibly becomes a short-term play for China.

All they would really do is to hunker down and wait it out with the expectation that the next regime will come to the table with more foresight and forbearance. The brandishing of swords can reverse itself just as fast as it appears. Worst case scenario, it will continue with a heavy cost to both sides but maybe more so to the U.S. simply because China has already been preparing its Silk Road Economic Belt initiative to take its products and services to the world. Is that something the U.S. can afford? Because the U.S. has already opened itself to numerous disputes on several fronts, from sandwiching itself between Canada and Mexico, all the way to NATO. If China decides to take a long-term view, then the U.S. seems to have more to lose.

Statistics show both China and India are poised to leap forward in the next decade. China is counting on this. Both India and the African continent are major markets that it is targeting to replace the U.S. market. This is not withstanding China’s recent forays into the Caribbean and South America. The EU and Russia are already growing markets, thus leaving China with options to play. It will be interesting to see what the U.S. has.

China is still very much the supermarket to the world. The U.S. has somewhat of a diminishing range of products which have equal global reach and demand. Obviously, Apple and Hollywood come to mind, and to a lesser extent even Harley Davidsons! China, however, has always ensured its independence with its own brand of products within its own territory, giving it a home ground advantage. So tit for tat is not going to work very effectively in this showdown.

The way to bring pressure onto China cannot be merely economic. It has to include a show of strength and force that threatens China’s global ambitions. Any level of pressure on the Silk and Belt initiative will bring pause to China, for China does not distinguish between economic and conventional warfare in its strategizing, making the South China Sea an important chess piece that the US has to simply learn to play.

But in terms of the trade war, my pronouncement remains the same. Let the soaring Eagle leave the sleeping Dragon to lie. Particularly now.

Vijay Eswaran is an entrepreneur, speaker, and philanthropist. He is the founder and executive chairman of the QI Group of Companies, and also the chairman of Quest International University in Malaysia.