Better Sino-US Ties Boost Law-based Order

A nation’s need for trade is to balance the sale of surplus products and overcome the scarcity of goods. The US tariffs against all nations for the reason of treating the nation unfairly have rattled the world economy, forcing many nations to look for alternatives and mutually adjust. US President Donald J. Trump is driven by scores of considerations in the process of imposing tariffs with allies and competitors even those having free trade agreements and member of World Trade Organisation: protect domestic market from international competition, boost American manufacturing capacity, reduce huge trade deficits and debt, create room for tax cuts, use tariffs as leverage in trade negotiation and slow down the relentless rise of its strategic competitor China in global economy. 

Recently, the USA has realised the trade war with China is not winnable, thus seeking a way to de-escalate tension and making overtures for diplomatic talks very soon. President Trump expressed a reconciliatory tone: “We are going to live together very happily and ideally and work together.” He expressed readiness to reduce tariffs with China “substantially.” So far, the USA has imposed 145 per cent tariffs on Chinese goods and, China has reciprocated with a tariff of 125 per cent on US goods. Trade is fused with geopolitics of security and peace. Both sides know that decoupling trade, science and technology is unrealistic. China has suggested the US scrap tariffs before any meaningful talks and waive retaliatory tariffs on the import of chips.

Comparison 

The US is the largest economy in the world with a GDP of over $ 30 trillion. China ranks second with a GDP of $19. 530 trillion but has the highest foreign currency reserve of $3.5 trillion. The USA accounts for about 26 per cent of global GDP, while China’s share is 19.6 per cent. China is a powerhouse of the world's factories, a leader of exports with a surplus of $ 1 trillion, while the US has a negative trade balance. China is the largest producer and supplier of rare earth minerals, of about 70 per cent, 68 per cent of electric cars, 83 per cent of solar panels and 73 per cent of batteries. The technology gap between the two is also closing. The US has a lead in state-of-the-art advanced AI and semiconductors, while China leads in high-tech manufacturing, green technologies, AI, computing, energy, etc. 

The US trade deficit with China is $295 billion, while with India it is $45.7 billion. China also holds $700 billion in US government bonds, which it can sell or use as bargaining chips. The US debt stands at about $37 trillion. China’s outstanding debt is $1.66 trillion. The strategic milieu of the trade war between the USA and China stems from the latter’s growing size of economy and seaborne energy imports and exports of goods. Russian and American economies are decoupled, while those of China and the USA are well integrated.

 The former Soviet Union was confined to its economic bloc. Russia is a member of the Eurasian Economic Union based on a free trade agreement to increase economic cooperation and raise the standards of living of its member nations, such as Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan.  Its economy is fairly small, $ 3 trillion but it is rich in land, resources and nuclear capability. The explicit goal of the former Soviet Union and the USA was world domination but both were happy with their sphere of influence and deterrence. 

The Western economic sanctions prompted Russia to gradually pivot to the Indo-Pacific with defense and economic cooperation with China, North Korea, Iran, Bangladesh, India, Myanmar, Sri Lanka and Indonesia while spiking ties with the African and Latin American nations. China occupies a central role as a supplier of capital, technology and skills for the progress of South and Southeast Asian nations, Africa and Latin America.

As China’s economic muscle grew, its global outreach demanded matching initiatives on civilisation, security and development for a well-integrated and regulated global governance with win-win outcomes for all nations, big and small. They are important at a time when post-war edifices such as the UN, Bretton Woods institutions and recently the WTO were created to secure law-based order, security, economy and coexistence, are waning. China and India benefited from globalisation and now both want to revive their glorious past as great power

 The growing US-China rivalry has fragmented the world order into multi-polarity, more competitive and less coordinated, with multiple choices for nations of different power potentials. Assuming that the trade war is mutually hurting, both claim that they do not force other nations to choose sides. Perceiving China as its strategic competitor and security threat, the US wants to contain its power and influence through regional and bilateral security alliances, pivoting its policy to the Indo-Pacific region and arming allies. China worked hard to reduce its export dependence on the US, built its economy strong, expanded the internal market, and forged economic partnerships with the nations of the Global South, Europe and Russia. 

Corresponding its trade expansion, China has modernised the sea ports of various regions and built pipelines in proximity to energy sources of Central Asia, Pakistan, Myanmar and the Persian Gulf. China-UAE liquid natural gas and China-Iran railway projects help it escape from US-dominated sea routes for the flow of oil. ASEAN is its largest trading partner, worth 797.63 billion. It precedes the trade of China with European nations with Euro 470 billion.  The volume of US-ASEAN trade is $326. 5billion. It has also diversified its trade through BRICS and constructed bridges across the nations through the Belt and Road Initiative (BRI).

BRICS shares 40 per cent of the world economy and 50 per cent of the world’s population, while 44 nations are ready to join it. China firmly opposes any nation reaching a deal with the US at the expense of its interests.  China watchers forecast that within a short period, it will be able to adjust its economy. De-dollarisation set off by many nations would make the American economy expensive and further erode its influence in the international financial system while steadily raising the value of the Chinese Yuan, Indian rupees and Russian ruble. 

The Global South has already begun to build a huge gold reserve. The Beijing Consensus is attracting many nations of the Global South as an economic model. Even the West is discarding the neo-liberal model of deindustrialisation. The American policies are steered to protectionism, reindustrialisation, immigration control, resource security and urging allies to share defense and economic burdens.    

Chinese President Xi Jinping’s recent visit to Vietnam, Cambodia and Malaysia aimed to promote peripheral diplomacy by advancing development projects, investments and connectivity and diversifying trade relations away from the United States. China has blocked the supply of rare earth minerals, blamed the US for weaponising trade and took countermeasures, including cancelling the purchase of Boeing aircraft. He opposed American hegemony, protectionism and unilateralism. The US occupies only 12 per cent of China’s exports. President Xi’s visit to Southeast Asian Nations built trust and deepened cooperation through linking vital waterways, airways and land 

connecting the Indian Ocean and South China Sea. 

For China, Cambodia has the potential to become a strategic outpost for its navy in the Gulf of Thailand. China and Laos are linked by a rail link, while Indonesia, Thailand and Vietnam by a high-speed rail. The railway accord was signed between China and Cambodia. China’s pan-Pacific Railway connects Singapore with mainland ASEAN. China wants closer ties with India and invited Indian investors to invest in China, resumed air flights, allowed more Indian goods, the visit of tourists to visit Mansarovar, set aside the border conflict and issued visas to 85,000 Indians. China and India share a common perception of a multi-polar world, defend rule-based multilateralism for global peace, stability and progress and are tied by BRICS, SCO, Asian Infrastructure Investment Bank. 

Sino-India trade volume is $ 127.7 billion. It is growing with the normalization of ties. India is concerned about trade deficits with China to the tune of $99.2 billion and is bargaining for more concessions. The Trump administration’s willingness to talk with Australia, India, Japan, South Korea, the EU, Canada, Mexico and Latin American nations also indicates another sign of thaw in the trade war.  The willingness of nations to commit to a rule-based order can ensure economic stability and predictability.

 The USA is India’s largest trading partner with $ 190 billion in bilateral trade and expects to increase this volume to 500 billion by 2030, while with Russia, it is only $4.66 billion and aiming to increase to $ 100 billion by 2030. This shows India’s economic direction in the future. The US has imposed only 26 per cent tariffs on India. As a close strategic ally stitched by QUAD, it provides India leverage in supply chains in the US markets. So far, the US consumes only 18 percent of India’s imports. The visits of Tulsi Gabbard, Director of National Intelligence and Vice President J. D. Vance to India have set a backdrop for collaboration on energy, defense, strategic technologies and geopolitical issues. India is unwilling to adhere to de-dollarisation.  

Counterbalance

The US's aim to counterbalance China’s power in the Indo-Pacific through Indian support may not work. India, as a rising superpower, prefers multi-alignment. The US tariffs on Pakistan is 30 per cent, Bangladesh 37 per cent, Sri Lanka 44 per cent and Nepal 10 per cent, the lowest. The suspension of US aid to these nations has affected their sustainable development goals, while tariffs increased the cost of the economy, spiking recession and unemployment. They are, therefore, looking for China as an alternative source. The US wants reciprocal tariffs to all nations having trade surpluses, while 10 per cent to others, not Most Favored Nation treatment, affirming the spirit of the WTO. 

Smaller and weaker nations suffer from this policy, such as slow growth, slump, unemployment and poverty.  The collaboration of two economic giants on various fronts is essential to create a law-based global order, take responsibility to resolve global problems, including climate change and development and enable all nations to share the benefits of global public goods. The possibility of thaw in the USA-China trade war and the US readiness to negotiate the terms of trade with other nations have shown some positive signs in world markets, awaiting concrete conceptual frames.  

(Former Reader at the Department of Political Science, TU, Dahal writes on political and social issues.)