08 March 2021
Lance Davis and Lingling Wei
2020, HarperCollins, 480 pages,
Reviewer: William Allen, National Institute of Economic and Social Research
There is no international relationship more important than that between China and the United States. The astonishing rise of China has created a new political and military power that has changed the world economy and world politics, and which the world’s security system must accommodate.
The economic growth of the past four decades has liberated billions of people, in China, India and elsewhere from poverty, and represents perhaps the greatest movement in history towards equalisation of incomes. It can reasonably be ascribed to the free-trade doctrines which the United States promoted after 1945, and to the resolute pragmatism of Chinese leaders from Deng Xiao-ping onwards. It has, however, created problems. Pollution is one of them, as anyone who has been to China recently can testify. Another is geo-politics: a richer China is a more powerful China.
Superpower showdown is a detailed account by two journalists of the Trump administration’s dealings with China, based, they say, on extensive interviews with the participants. Donald Trump was elected in 2016 with, and perhaps because of, the support of those whose livelihoods had been destroyed or threatened by competition from China: a backlash against free trade. It was not easy to discern from the administration’s statements what it thought were the main issues, and there seems to have been no coherent strategy for dealing with China. For example, Trump sent a team of three negotiators to Beijing in May 2018 in spite of (or perhaps because of) profound disagreements among them as to what their objectives should be.
In assessing China’s behaviour in the international monetary system, it is worth looking back a little way into history. In 1998, it was feared that the Asian crisis – which afflicted Thailand, Indonesia and South Korea in particular – would cause a serious downturn in the world economy. All of the affected countries experienced heavy currency depreciations. The global problems would have been far more serious had China devalued the yuan; but it did not. That was an important act of international co-operation for which China has received less credit than it perhaps deserved.
Between 2001 and 2007, China’s current account balance of payments surplus soared to 10% of GDP. The explosive growth of production in China was not matched by consumption and investment. In that period, the rest of the world could, and did, complain that China was behaving in a destabilising manner – though China could reply that its excess savings were helping to moderate the boom that was in progress elsewhere. But since then, China’s current account surplus has fallen away, and in 2016, the year of Trump’s election, it was down to 1.8% of GDP. From the macro-economic point of view, economists committed to free trade doctrines that the United States had earlier pressed on the rest of the world had little to complain about, objectively speaking.
From the micro-economic point of view, things have come to look a bit different. As the book recounts, at the beginning of the Trump period, American businesses, having invested heavily in production facilities in China, were dovish – above all, they opposed tariffs and trade restrictions. Later, though, their attitude changed, above all because of intellectual property theft. They complained that their Chinese partners in joint ventures put pressure on them to disclose industrial secrets, and that they were threatened with commercial reprisals if they did not comply. Chinese courts gave them no protection against patent infringement.
Intellectual property issues dominated U.S. – Chinese negotiations in 2019. The United States pressed China both to increase its purchases of American products and to reform its economy, e.g. by protecting intellectual property more effectively and by reducing subsidies to state-owned industries. These negotiations broke down in May when Xi Jin-ping vetoed the offer that his negotiators had made. Trump raised tariffs against China and ordered American companies not to sell components and software to Huawei Technologies without a licence. Very significantly, he declared that ‘we don’t want to do business with Huawei for national security reasons’, and subsequently recruited U.S. allies elsewhere, including the United Kingdom, to his anti-Huawei campaign.
In December 2019, which is roughly where Davis and Wei’s account ends, the Americans and Chinese reached a limited agreement, which included Chinese promises to buy more American agricultural products, but subject to important conditions, and promises to do more to protect intellectual property, but without accompanying detail. Of course, the main events of 2020 were coronavirus, which provided opportunities for endless finger-pointing, and Trump’s defeat in the presidential election. The upshot is that tariffs and management of trade are again a major feature of world trade, and acceptable tools of negotiation. That is bad news for the world’s prosperity.
Politics have been less spectacular in China than in America, but perhaps just as significant. One of China’s weaknesses has been the absence of a reliable procedure for choosing leaders. In the past, the General Secretary of the Chinese Communist Party and President of the Peoples’ Republic of China served for ten years and was then succeeded by someone who had been chosen by a process not revealed to the world. Ominously, Xi abolished Presidential term limits in 2018, thus removing one of the few elements of predictability.
Moreover, Xi has emphatically rejected the model of government adopted in the west since the Enlightenment: as Davis and Wei report, he declared that ‘We must never follow the Western path of constitutionalism, separation of powers and judicial independence’. That stance is certain to limit severely the extent of economic integration between China and the rest of the world. For example, no responsible asset manager could invest large sums in a country where the law is subject to the overriding power of the government.
China and the world benefited from free trade when China’s value added consisted mainly of low-cost physical labour. China had more to offer than physical labour, however, and it moved up market, with considerable success, when it began producing products embodying intellectual property. Its move has created serious tensions with the west, above all because of its implications for security. What exactly are China’s geo-political ambitions? Can it reach some kind of accord for peaceful co-existence with the rest of the world? President Biden had nothing nice to say about China during the election campaign, but as Trump’s former adviser Steve Bannon said, ‘If you want to run for President, you can’t be soft on China’. Now that he is in office, President Biden has no more important problem to address.
Superpower showdown is a thorough and competent account of the conduct of the U.S. - China relationship in the momentous years 2016 – 2020. Its particular strength is its ability to explain the motivation of the participants in the negotiations, many of whom appear to have talked candidly to the authors. But the motivations and objectives of the ultimate leaders remain unknown.