Opinion: Beyond the trade war, US and China fight for economic supremacy | Business| Economy and finance news from a German perspective | DW | 06.07.2018
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Opinion: Beyond the trade war, US and China fight for economic supremacy

Trade frictions between the US and China are getting worse again with a fresh round of tariffs. Yet it's not just about trade, but something more fundamental, says economist Thomas Straubhaar.

Forget about the term "trade war." After all, we're not talking about electrical appliances or soybean deliveries. US tariffs on imports from China and retaliatory Chinese tariffs on agricultural products from the US are symbolic acts — good to attract media attention, and bad for the populations concerned.

The current trade conflict is only the most visible sign of a much bigger battle in the epochal race for power, domination and supremacy in the 21st century. What we're witnessing is the clash of two geopolitical giants, a clash between "America First" and "Made in China."

Will the United States remain the measure of all things like it has been over the past 150 years, and will the American way of life remain modernity's gold standard? Or will China be back as the strongest economic power, with Beijing believing that's the way it should be? For centuries on end, until less than 200 years ago, China was indeed way ahead of the rest economically.

G7? G20? G2!

US President Donald Trump has never concealed his "America First" ambitions. Everything else has been of secondary importance to him and may only be a means to support his main goal — to pursue US interests. And for Trump, there's only one adversary standing in the way: China. All other nations are small fish in this geopolitical battle. It doesn't matter to him whether or not G7, G8 or G20 heads of state and government meet for summits that get a lot of media attention. For Trump, it's always been just G2 — the US and China.

The G2 doctrine is no psychopathic spleen of Trump, to be true. His assessment of things is not much different from what you can find in many geopolitical analysis papers from large parts of the country's think tanks. The latter have maintained long before Trump came to power that the US and China are the two nations fighting for economic supremacy, with Europe not playing a role in this at all.

Thomas Straubhaar is a professor of economics at Hamburg University (picture-alliance /dpa/J. Kalaene)

Thomas Straubhaar is a professor of economics at Hamburg University

Not expected to play a big role either in this fight of the two giants is the World Trade Organization (WTO). That's sad, as the United States was the driving force behind the post-WWII world trade order. Global trade and the international division of labor picked up markedly when China joined the WTO in 2001.

But neither the US nor China will allow the trade body to stand in their way. And when yet another round of punitive tariffs doesn't do the trick, the two will use the big guns, such as the manipulation of exchange rates.

From trade war to currency war

It's not by chance but a very logical thing economically that the Chinese currency, the yuan or renminbi, has lost 7 percent of its value against the dollar within only a couple of weeks. Devaluation is a mighty protectionist tool as it renders punitive tariffs virtually harmless. The yuan's recent depreciation is nothing less than an import tariff of 7 percent across the board, not just a retaliatory tariff on selected US goods.

At the same time, this depreciation strongly supports Chinese exports to all of the world's markets as Chinese products there are now 7 percent cheaper. Again, using depreciation means offsetting the impact of Trump's punitive duties.

A currency war is the continuation of a trade war with heavy-calibered weapons, turning the WTO into a toothless tiger as it does not have any instruments to counter depreciation schemes. Back in 1948, currency wars simply weren't on the radar of the trade body's founding members. Back then, the Bretton Woods system of 1944 was still in place with its dollar-pegged fixed exchange rates, and that system was adhered to for another three decades.

Regionalism no way out

The de facto end of the multilateral economic order results in European interests becoming a plaything for the G2 protagonists. When multilateralism was still around, the US and China had a voice, but so did every single country in Europe. Hence Europe's voting power exceeded that of China and the US by far. In bilateral talks, the law of the strongest will prevail again, and Europe is well-advised not to have any illusions about being spared.

It's high time to look for new approaches beyond a global free trade system, non-discrimination or the principle of reciprocity. What Europe needs to understand first of all is that regionalism is highly counterproductive. None of the individual countries in the EU including Germany and France has any significant clout on its own in a world of G2 power supremacy. Only by sticking together will Europe have a chance to make its voice heard and protect its own interests against an "America First" strategy and an economic and military heavyweight in Asia.

Thomas Straubhaar is a Swiss economist and migration researcher. He's a professor for International Economics at the University of Hamburg.

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