The door for compromise and restoring a functional relationship between the United States and China appears to have closed. The 10 per cent tariffs on US$200 billion of Chinese goods, rising to 25 per cent from January 1, is the final straw. There will be more negotiations to come. At some point, there may be announcements of compromises and a positive outlook. But, for now, the reality is that China and the US have gone into rivalry mode – a rivalry that will define the 21st century.
The dispute began with US President Donald Trump’s complaints about the bilateral trade balance and access to China’s market. It then morphed into a dispute on intellectual property rights violations and China’s economic model of subsidising technology development. Now, it is about global strategic rivalry.
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The US’ contention is that China makes money from the US and is using it to push America out of Asia and elsewhere. It is difficult to see how the US could climb down from this position. To follow its rhetoric, it will try to cut off China from its market and block technology exchanges.
This rivalry may bring short-term pain to both nations, and to the world, but it may prove beneficial to all in the long run.
The lack of external checks has led to rising internal imbalances in both countries. Since the end of the cold war, the US has been marred by surging inequality, while bubbles and ignorant hubris have come to occupy the central ground in China’s economic management and political thinking.
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