The severe and heating up great power competition behind the sanctions and trade wars

With friends like these who needs enemies?

  • Donald Tusk

In geopolitics, events are rarely inside what they seem to be outside.

This is especially true regarding the trade war between the US and China. Similar features are found in the US – Russia tensions too.

The true drivers behind Washington’s offensive tariff attacks on especially China makes sense, when viewing measures of Trump Administration through the prism of a new report on the defense industrial base of the United States and also China’s National Economic Strategy Plan “Made in China 2025”.

In September 2018, the Interagency Task Force document was published: “Report Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States”. This report was closely studied in the chapter of “Possession of strategic know-how”. The main conclusion of the report is that, “China represents a significant and growing risk to the supply of materials deemed strategic and critical to US national security.” Russia is mentioned also in a crucial paragraph: as a “threat,” alongside China, for the US defense industry.

The other real reason behind the US-China “trade war” has also little to do with actual trade. Behind the dispute, which has begun to resemble a Huntingtonian civilizational conflict between the countries, are China’s ambitions to be a leader in the next-generation technology, such as artificial intelligence, which rest on whether or not it can design and manufacture cutting-edge chips. Therefore, China’s leadership, including Xi, has pledged at least $150 billion to build up the sector. But China’s plan has alarmed the US and chips, or semiconductors, have become the central battlefield in the trade war between the two countries and it is a battle, in which China has today a very visible Achilles heel.

Washington is going to ramp up export controls over next year on so-called foundational technologies and the equipment for manufacturing chips is one of the key target areas under discussion. China has developed and supported domestic Chinese chip companies, which have made enormous gains in semiconductor design as well as chip testing and packaging, in an attempt to catch up to the US. Several private and state-owned Chinese companies have already begun to venture into designing the leading-edge chips capable of AI applications.

But the real difficulty is not in designing the chips, but in making them. From a design perspective, Chinese companies are at least on par with anyone else in the world but where they have a challenge is to manufacture a very cutting-edge chip. China is facing practical difficulties due to limited number of potential foreign manufacturers, which have over 40 years of experience, know-how and development work at the base. The key question here is not the money but the knowledge.

This explains why the focus of the ongoing Trump Administration trade war against China in fact concentrates on pressuring China to abandon its Made in China 2025, National Economic Strategy (accepted and promoted by Xi Jinping) with focus on making China globally dominant in advanced technologies over the coming decade. The Chinese have apparently concluded this as well. It is about an all-out assault on China’s strategy to become an advanced, self-reliant leading economy, technologically on a par with the West, perhaps even more advanced. The United States as the unipolar great power will in no way allow this

This harsh reality is clearly seen in the recent cases of two Chinese electronics companies under the US punitive measures: ZTE and Huawei. China’s media has begun to use exceptionally sharp and stark language in describing the US trade policy like “the US protectionism, symptom of paranoid delusions”. All this tells the growing anxiety of the leading Chinese political circles.

There was in Global Times, in mid-December 2018, a large interview of professor Graham Allison, the author of Thucydides Trap dynamics.

Graham Allison explained that

“The first thing to understand about what’s happening in the relationship between the US and China is that the overall relationship is driven by a Thucydidean dynamic, in which a rising China is impacting a ruling US, with all of the natural and predictable consequences of that. Especially now that the American government has concluded that China is no longer a strategic partner, but a strategic adversary, it is pushing back against China in every space.”

Allison cited Lee Kuan Yew, the late PM of Singapore, who said

“As China gets bigger and stronger, China will want to be China and accepted as such, not as an honorary member of the West.”

China-the US dispute seems to be the biggest Thucydides Trap ever witnessed in the human history.

  • If the trade war escalates, it will slow down China’s hi-tech development and Chinese-owned plants could simply continue producing lower-end semiconductors.
  • Aggressive US posture would backfire and force China to become entirely self-sufficient in the semiconductor industry.  Finally, if China is willing to throw big enough money at the problem, the solution will come. 
  • China has every intention of not only matching but surpassing total US military spending. In light of the importance of an autonomous, self-reliant semiconductor industry, one can assume that much of this spending will go toward beating the US where it truly matters, in AI.
  • The Mother of All Thucydides Traps has been created.

Bank of America’s CEO Michael Hartnett said in summer 2018 that the escalating confrontation between the US and China, should be recognized for what it really is:

“the first stage of a new arms race between the US and China to reach national superiority in technology over the longer-term via Quantum Computing, Artificial Intelligence, Hypersonic Warplanes, Electronic Vehicles, Robotics, and Cyber-Security.”

In the context of structural realism, delaying China of getting access to leading edge chips may be the best option today for the US, which is slowly but surely losing its one insurmountable technological advantage. But while this may bring the win in the short-term battle, will it possibly lead to an even faster victory for China in the war, first in trade and later eventually in real.

Regarding the recent US sanctions politics, it may be interesting to recall the statement of late Zbigniew Brzezinski who declared that,

“if USA loses control over Eurasia, the game is over for the sole superpower. China must be broken to prevent that.”

From any point of view, it is a dubious undertaking and the war may be a consequence in its full potential range.

The temptation of Thucydides’s Trap seems to be irresistible.