It is appropriate that Donald Trump and Xi Jinping are flying to Buenos Aires for their showdown summit at the close of a month that began with the centennial of the end of the First World War. America’s economic tussles with China are all too reminiscent of the rivalry at the beginning of the last century between Britain, the superpower, and the rising power, Germany.
This is not as bleak a comparison as it sounds, for two reasons. First, nobody now seems to be planning on imminent armed conflict — partly because of the awfulness of nuclear weapons and partly because of the terrible lessons of the 20th century. Instead the main threat is of an economic iron curtain dividing the world’s two biggest economies.
Second, history also shows how you can get out of trouble. For all the worries about “Thucydides’s trap” (the phrase coined by Harvard’s Graham Allison to describe the depressingly frequent record of conflict whenever an established superpower is challenged by a rising one), some historians think one feature of the First World War was its avoidability. There was no set course that led inevitably from an Austrian archduke being assassinated in Sarajevo on June 28, 1914, to millions dying in the trenches. After all, Britain and Germany (and, of course, France, Russia and the Austro-Hungarian empire) had dealt with nationalist crises before — and hung onto peace. They just failed to deal with this particular outburst.
No country can learn more from looking back than China. That is partly a matter of temperament. The Chinese are fixated by history, and they read books. For instance, Wang Qishan, China’s vice president, will happily discuss Alexis de Tocqueville, Stefan Zweig and the Hundred Years’ War. Confronted with that list, Trump would guess you were referring to the character Joan Collins played in “Dynasty,” a young German golfer and the Mueller investigation.
But there is also a practical reason for China especially to look back. In the lead-up to World War I, every European power made mistakes, but if any one country was a little more culpable than the others, it was possibly Germany. The rising power never understood the consequences of its militarism, never grasped the resentment its economic rise was causing, and found itself short of friends.
Many would say China and Germany have been too alike for comfort. But there is a way out. To escape Thucydides’s trap, patience and popularity count for a lot. Had the Kaiser played a subtler game, Germany might simply have overtaken Britain — just as China today might expect at some time to have a bigger economy than America’s. And friends also count. China stands a much better chance of rising peacefully if it has the world by its side.
How is it doing? The answer is that China still makes mistakes, but there are signs it is beginning to learn quickly.
China’s biggest handicap is its public inability to admit that it has done anything wrong, when on issues like intellectual property it obviously has. This not only makes other countries and businesspeople cross, it leaves the Chinese mystified with what the famous British philosopher Monty Python might call the bleedin’ obvious.
For instance, Chinese officials seem perplexed: Why haven’t American companies rushed to defend the multilateral trading system against Trump’s rampages? The answer is fairly simple: Western CEOs are privately fed up with the way China treats them — the artificial barriers, the ownership restrictions, the intellectual property theft and the repeated delays in opening up markets. Anything Trump can do to prize open China is welcome — as long as he does not go too far.
However, there are two promising signs that China is becoming more skillful. First, China’s rhetorical defence is increasingly anchored in the multilateral system. Even a year ago, China seemed bent on replacing the “Western” Bretton Woods institutions set up at the end of World War II with regional bodies of its own creation. But at this month’s Asia-Pacific Economic Cooperation summit, Xi specifically called for countries to uphold a rules-based order led by the World Trade Organization. And in recent weeks he has condemned the law of the jungle and beggar-thy-neighbor policies — and warned about globalization being at a crossroads.
Second, China increasingly stresses that opening up its economy is in its own interest. Earlier this month Xi promised to import $30 trillion worth of goods. And China has promised to push ahead much more quickly with opening up industries, including financial services.
Of course, China has muttered about opening up before and done very little, but there is a difference now. China’s economy is in transition. The next phase of its growth, officials say, will come from services and personal consumption. It would much rather suck in foreign capital than add yet more debt and government stimulus. And talking about the benefits of opening up China gives Xi more room to retreat gracefully. Domestically, he can portray “concessions” to Trump as long-promised reforms that will make China stronger (which is probably true anyway).
There is a useful prompt for this — with another historical echo. Dec. 18 is the 40th anniversary of the third plenary session of the 11th Central Committee of the Communist Party of China, which was the moment in 1978 Deng Xiaoping started opening up China’s economy. Xi is likely to unveil a series of commemorative reforms; foreign banks that have been waiting to take bigger stakes in their Chinese joint ventures may well find the approval process is speeded up.
So China is inching in the right direction. Its task is made harder by Trump’s enormous unpredictability. His tweets do not just move markets, but also the heart rates of Chinese civil servants who have to interpret his intentions to President Xi.
In Beijing, debate rages about what the U.S. president actually wants.
One school of thought is that the self-styled artist of the deal will settle for any agreement where he can proclaim victory. Some Chinese see the renegotiation of Nafta as an example of that: Trump made a lot of noise, but not much changed. They hope that Trump can be assuaged by personal flattery — not least from his very good friend, Xi Jinping — and that he can be persuaded to sign a deal quickly.
The alternative view, which this columnist subscribes to, is that China is one of the relatively few areas where Trump has strong and consistent views. An America-Firster to his core, he has no intention of letting China become the world’s biggest economy. He is surrounded by people who think China has cheated America — notably his vice president, Mike Pence; his economic advisers Robert Lighthizer and Peter Navarro; and his national security adviser, John Bolton. And he thinks he has American public opinion behind him, especially on the issue of intellectual property at the heart of the current dispute.
Under this scenario, Trump may give Xi a small concession in Buenos Aires — perhaps delaying some planned tariffs for now — but he is likely to keep bashing China until it gives in. And even if Trump retreats a bit, other Americans will demand more.
So the Chinese will need to be very patient. History never repeats itself exactly. Back in 1914, one reason why leaders found it impossible to envisage conflict was that this was a time when the ruling families of Europe were related to each other. That is not true today; Xi cannot deal with a Trump tantrum across the dinner table in Buenos Aires by suggesting a rapid betrothal between his daughter and the freshly divorced Donald Trump Jr. But the Chinese can look back and learn. The rising power that waits is the one that probably wins.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Source: Bloomberg