New U.S.-China rivalry risks lethal confrontation

Provocations by President-elect Trump over trade and territory could escalate into armed conflict

China didn’t invent the brand of mercantilism that Donald Trump rails against; it copied the playbook from its neighbors.

Japan grew rich by promoting exports while protecting its own industries. So did South Korea. They both manipulated their currencies and showered favors on politically connected business cartels, skewing domestic competition.

But here’s one major difference: these trading powerhouses together with Taiwan, Singapore and others in Asia who aggressively pursued export and investment-led growth were friends and allies of the U.S., whereas China is a strategic competitor and military rival. That’s what raises the stakes in a looming trade showdown between the U.S. and China.

On the eve of Mr. Trump’s inauguration, the unsettling question that hangs over the region is whether the provocations he has lobbed—over trade and territory—could trigger military conflict.

Wall Street investors seem to be discounting the danger. They should think again.

This won’t be a rerun of the epic Reagan-era trade spats with Japan over autos, semiconductors, computers and satellites, fueled as they were by U.S. paranoia about an unstoppable Japanese juggernaut taking over American industry.

Diplomacy managed to limit the damage to the relationship. Japan was a Cold War bulwark against the Soviet Union, hosting U.S. military bases. Furthermore, it’s a democracy.

Washington similarly had an interest in mitigating trade tensions with South Korea, where thousands of U.S. troops face a hostile North Korea.

With these countries, as others around the world, Washington viewed trade as tool of foreign policy; U.S. jobs lost to imports in Detroit or Cleveland were the price to be paid for maintaining Pax Americana.

Mr. Trump has signaled, in brutally undiplomatic terms, an end to this tradeoff when it comes to China. In an interview with The Wall Street Journal last week he effectively threatened to blow up the entire U.S.-China relationship by making continued American support for the “One China Policy” conditional on progress toward ending what he described as currency manipulation and other predatory Chinese trade and investment practices.

The gambit has profound security and military implications. Taiwan is a regional flashpoint. Beijing regards the island as an inalienable part of Chinese territory; “One China” expresses not just its political desire for unification but a core part of Chinese identity. Chinese leaders will fight for it. They can’t lose Taiwan.

A similar mix of Chinese national resolve and pride is at play in the South China Sea.

Hence, to countries in the region alarmed by Mr. Trump’s combative tone, a proposal by Secretary of State nominee Rex Tillerson to deny China access to the artificial islands it has built along the sea lanes came across as equally shocking. In practical terms, that would mean a naval blockade of what Beijing regards as its sovereign territory—an act of war.

It is unclear whether Mr. Tillerson misspoke at his grueling Senate Foreign Relations Committee confirmation hearing last week. But he hasn’t retracted or clarified his statement, either. Regardless, it has raised anxiety levels around the region.

Mr. Trump seems to be listening to the anti-China hawks on his team. These include the appointed head of a new White House National Trade Council, Peter Navarro, famous for books including “The Coming China Wars” and “Crouching Tiger” that advocate trade sanctions against China not just to level the playing field but to blunt a military adversary.

Japan took some of the heat out of trade tensions by appreciating its currency, adopting voluntary export restraints on cars and building factories in the U.S. that created jobs. Today, few in America view Japan as a threat in any way: China has now eclipsed it.

The consequences of China’s neo-mercantilist practices are amplified by the sheer size of its economy.

Monumental Chinese industrial surpluses—steel and aluminum in particular—are flooding global markets. Moreover, economic protectionism has become an integral, though unacknowledged, component of President Xi Jinping’s political platform. He’s fused it to a national security agenda that’s squeezing out foreign suppliers of technology to critical infrastructure. And he’s harnessed all this to a militant nationalism that increasingly targets the U.S. as the enemy.

Trying to unravel these arrangements will make U.S. efforts to counter “Japan Inc.” in the 1980s look straightforward.

Mr. Trump’s hawkish advisers argue—with some justification—that the U.S. is already in a trade war with China.

Their Chinese counterparts see little reason to call a truce. On the contrary, they view the election of Mr. Trump as evidence that America’s deeply divided society is in crisis, and its days of global dominance are numbered. With Europe unraveling, they see a historic opportunity to reshape the U.S.-led global order.

Being forced to choose sides in a conflict between the world’s two largest economies is the recurring nightmare of Asia-Pacific countries. They can only hope that a trade war, which is surely on the way, won’t turn into a shooting war.
Source: The Wall Street Journal