Both China and America are dissatisfied with the current world order. The nature of their unhappiness is very different. But the two countries’ rival ambitions have produced a trade war that now threatens globalisation.

The problem as conceived by Donald Trump is that the world economic system is operating hugely to America’s disadvantage. The US president complains that “globalism” has helped China to rise at America’s expense — undermining US prosperity and global pre-eminence. It is that view that underpins Mr Trump’s dramatic decision last week to raise tariffs on $200bn worth of Chinese exports to America, from 10 per cent to 25 per cent.

For Xi Jinping, the problem with the current world order is America’s political and strategic dominance. The Chinese president has made it clear that he wants his country to displace the US as the dominant power in the Asia-Pacific region. Many Xi-supporting nationalists go further, speaking openly of their hope that China will become the dominant global power. Mr Xi is well aware that globalisation has been critical to China’s rise over the past 40 years. So he is determined to preserve the current trade model.

The two presidents’ complaints about the world system are thus mirror images of each other. Mr Xi wants to change the world’s strategic order, and to do that he needs to maintain its economic order. Mr Trump wants to preserve the strategic order, and to do that he needs to change the economic order.

America and China are therefore both revisionist powers. And they are also both status quo powers. America is the status quo power on geopolitics, so it has become the revisionist power on economics. China is the revisionist power on geopolitics, so it has become the status quo power on trade.


But the mirror-image positions of Beijing and Washington also imply a convergence of view on globalisation. The actions of both countries suggest that they basically agree that the current system works better for China than for the US. While many economists would dissent from that view, it now seems to be the consensus political position in America. Chuck Schumer, the leader of the Democrats in the US Senate, has tweeted his support for the Trump administration’s confrontational policies on trade with China.

In both Washington and Beijing, however, there are divisions between moderates who want the current trade row to end with a deal and radicals who would welcome a lasting breakdown in trading relations.

Protectionist radicals in the Trump administration believe that the Chinese political and economic model is fundamentally hostile to the interests of the US. And they want to “rebuild” the American economy behind high-tariff walls. For those who hold this view, a compromise deal that preserves the essence of the current globalised world trading system would be a defeat.

On the Chinese side, the hawks see the trade dispute as a chance to make China less dependent on foreign technology. Ardent nationalists also interpret the Trump administration’s position on trade as evidence of American weakness. The correct response, they believe, would be for Beijing to forge ahead with efforts to create a China-centred world order.

The increasingly bellicose attitudes of nationalists in both the US and China look like an illustration of the “Thucydides’s trap” made famous by Graham Allison, a Harvard professor. Prof Allison has pointed out that, throughout history, rising powers such as China have often gone to war with established powers such as the US.

But the current US-China conflict is a trade war, not a shooting war. And when it comes to trade, it is the US that is seeking to overturn the current system. That presents Mr Xi with a difficult tactical choice. Should China make concessions that are painful, and even humbling, in the interests of preserving the essence of the economic system that has facilitated its rise?

The Chinese are very mindful of the precedent of the Plaza Accord of 1985, in which, under intense US pressure, Japan agreed to revalue its currency. Many in China believe that, in retrospect, the Plaza Accord represented a successful American attempt to thwart the rise of Japan.

The Trump administration faces a variant of the same dilemma. Should America aim to exert maximum pressure, with the aim of eventually reaching a “great deal” that fixes flaws in the current system? Or would a partial victory in the trade war actually amount to a defeat if it failed to halt the rise of China?

By temperament and political interest, Mr Trump is probably still on the side of the dealmakers. He also continues to set great store by his friendship with Mr Xi, recently praising a “beautiful letter” he had received from the Chinese president.

Yet a close relationship between leaders is no guarantee that conflict can be avoided. In the July crisis that preceded the outbreak of the first world war in 1914, Kaiser Wilhelm of Germany and Tsar Nicholas of Russia exchanged numerous friendly notes and telegrams. But it did not prevent their two countries sliding into conflict. In a similar way, the US-China trade war now risks escalating to a point where it escapes the control of the two countries’ leaders.

gideon.rachman@ft.com

Get alerts on US-China trade dispute when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article