Plan for Long-term Victory
In the long run, China’s Belt and Road initiative (BRI) will bring economic growth to developing countries and expand China’s market there. It will enable China to switch lots of its exports from the US to those countries. Moreover, BRI will enable China to move the industries that produce goods for export to the US to the industrial parks built by BRI in those countries to avoid US tariff hikes and reduce labor costs. China will thus establish its invincible position in its trade war with the US.
According to Sun Tzu, in a war one has to establish one’s invincible position and do not miss the opportunity to defeat one’s enemy (立於不敗之地而不失敵之敗也）。.
Regarding to trade war, China is an entirely different country. Its government has centralized power to ban the import of enemy’s goods without tariff hikes. Its reduction in purchase of US agricultural products can do much greater damages than US tariff hikes on Chinese exports.
Trump’s Ingenious Move without Surprise
Seeing that tariff hikes are unable to subdue China, US President Trump tries another way to attack China. He remembers well that China’s telecom giant ZTE would have been killed by US Congress if he had not interfered in its favor. He saw his opportunity to subdue China through attacking Huawei, another Chinese telecom giant.
Americans have already been jealous at Huawei’ leading position in 5G in the world. Trump took the lead in banning Huawei’s 5G in the US and has been telling other countries also to boycott Huawei’s 5G with the lie about Huawei’s espionage on behalf of the Chinese government. Failing to make all other countries ban Huawei’s 5G, Trump invents a much more evil way to kill Huawei by placing Huawei in US trade blacklist to cut US supplies of components and technology that Huawei needs for its survival.
Now tariff hikes are the frontal engagement in Trump’s trade war with China, but banning and placing Huawei in US trade blacklist are indeed an ingenious move that may do real harm to China..
US government’s large amount of tariff revenue from the hikes proves that the tariff hikes have failed to reduce Chinese exports to the US. It proves that the harm caused by tariff hikes to China is limited. Killing Huawei and threatening further killing of other major Chinese tech companies might have really made China suffer.
China has been prepared for Trump’s Ingenious Move
However, the Huawei move though Ingenious lacks surprise. At the very beginning of Trump’s trade war last year, Xi Jinping told Chinese firms to rely on themselves. He made Chinese firms realize the danger of dependence on US supplies of technology and components. Since then Chinese enterprises have been working hard to free from their dependence on US supplies.
It has especially been the case for Huawei. Trump’s banning and telling others to ban Huawei and US efforts to extradite Huawei CFO Meng Wanzhou have caused Huawei to develop substitutes for US supplies since long ago. When Trump placed Huawei on the blacklist, Huawei had already developed substitutes for US supply of components and been developing its own operation systems so that Trump is unable to win with that ingenious move.
China’s Ingenious Surprise Move
Banning supply of rare earth materials for the US may be China’s ingenious move but it also lacks surprise. There has now been too much media report on that now to warn the US about that. China bought rare earth technology from the US so that I do not think it is difficult for the US to develop the technology to produce substitutes.
In his recent visit to Russia, Chinese President Xi Jinping and his Russian counterpart President Putin concluded an agreement to develop bilateral trade and cross-border payments using ruble and yuan in order to bypass US dollar. That is an ingenious surprise move that hits the US where it is most vulnerable.
US economy will soon be surpassed by China. Its military is being caught up by China and Russia. The financial dominance of US dollar is the only strong point that still maintains. If the US has lost that dominance, there will be no US hegemony at all.
The agreement between China and Russia may set an example for other countries so that trade balance settlement everywhere may gradually be conducted through other currencies not only Russian and Chinese currencies. As a result, US dollar will no longer be the major currencies for trade and financial reserve.
In fact, most countries in the world want to put an end to US dollar’s dominance now. EU has developed Euro for trade settlement in EU. Malaysian PM Mahathir has suggested the use of gold as substitute for US dollar.
The US is hard up now. It does not have enough revenue to make ends meet so that it has to borrow lots of funds from other countries. However, it has no financial problem as it can issue as much US dollars as it needs due to the financial dominance of US dollars.
If US dollar is no longer the dominant trade and reserve currency in the world, the US will not be able to borrow as much as it wants for its excessive military spending to maintain its military hegemony.