US-China Trade War and the Clausewitzian Trinity

7/26/2018

 

After months of Twitter salvos and internal debates, on July 6th the Trump Administration made good on its threats to raise tariffs on certain Chinese goods. The Chinese government immediately followed suit, setting the stage for a major trade showdown. While stories of turned away soybean ships and prospects of stacked and rotting meat carcasses have made trade a blockbuster issue in an already busy summer of international drama, China’s strategic thinking has been a distant afterthought. China is presumed to be merely responding to US moves, with little attention paid to Chinese trade war strategy aimed at besting Washington.

 

This article looks at both official commentaries from state outlets and those of influential economists and political pundits widely shared on Chinese social media. Strictly from an economic perspective, most of the commentators agree that China is at a fairly disadvantageous position. Nevertheless, irreconcilable political disagreements over tariffs in the US, coupled with resolve on the part of Beijing, tip the scales in favor of China. To better explain why Chinese commentators are relatively confident in their chances despite having clearly the weaker hand, it is useful to look at how the US-Sino trade war fits into the Clausewitzian trinity, a namesake of the Prussian military strategist.

 

Clausewitz on Trade

 

At first glance, Carl von Clausewitz’s military theories have little to do with trade. Clausewitz argued that wars are won or lost depending on the relative ability and motivation of the soldiers who do the fighting (people), their commanders (officers), and the political class (government). In other words, a country may possess a world-class professional military, but if the government is divided and the war is unpopular, an adversary with an inferior force may very well prevail.

 

If business interests are substituted for the officer class, the Clausewitzian trinity[1] demonstrates how Chinese strategists are weighing the role of public opinion, business interests, and the political establishment in determining who might win the trade war between the United States and China; showing in the process that Chinese views cannot be dismissed as mere propaganda.

 

A major theme in Chinese official and semi-official commentary on the trade war is that the tariffs levied by Trump isolate the US and are ultimately self-defeating. According to Chen Wenling (陈文玲), an economist at the China Center for International Economic Exchanges (中国国际经济交流中心), US measures threaten the overall health of the global economy and could cause disruptions in the global supply chain—leading to more pain for US consumers.

 

Another talking point repeated by numerous authors is that unilateral moves by the US are upending global trade norms. Chen believes that the WTO is currently undergoing the most perilous episode in its entire existence, and requires multilateralism. Lastly, there is unanimity in stressing that the US will lose access to the Chinese market, which is seen as the biggest downside to the United States. Unsurprisingly, there is no introspection about any Chinese trade practices, the role of intellectual property theft, or economic state intervention that may have strained US-China economic relations.

 

Another Chinese economist, Shen Jianguang (沈建光) from the Center for China & Globalization (CCG), wrote in a well-received op-ed that the US has six major weaknesses vis-à-vis China: Washington is isolated from the EU on trade; a trade war will hurt US companies; US consumers will also be hurt; US business lobby is largely opposed; a Trade War will lead to more market panic; and lastly, there is strong domestic political opposition, including from the President’s own party. By Shen’s tally, the Trump Administration loses in all three categories of the Clausewitzian trinity, with hurt consumers, alienated business interests, and scant political support. 

 

Can Beijing Win the US-China Trade War?

 

Zheng Yongnian (郑永年), an influential commentator in Chinese media, has provided the most nuanced argument in favor of the above premise. Zheng sees the White House and Wall Street as irreconcilably divided over trade policy, and in his view the business community always eventually prevails over the White House. The opposition also extends beyond just the financial elite; many vested interest groups such as soybean farmers are worried about a long-term trade war.

 

Most importantly, Washington cannot rely on its traditional allies because no one wants to risk hurting their standing with the Chinese market. Although Zheng does not explicitly say this, it is undeniable that the broadside attacks on important Western trade partners such as Canada and Germany have all but precluded the Trump Administration from taking on unfair Chinese trade practices in a multilateral fashion.

 

As far as China is concerned, the key to victory for Zheng is not getting tough and mirroring US steps, but pursuing badly needed reforms. Being the weaker side in this fight, Beijing will be left isolated if it tries to respond in kind. Instead, it should opt for further opening up and sectoral reform. According to Zheng, China has become a victim of its own PR which exaggerates China’s technological prowess. China lacks its own internet infrastructure, its poor record on intellectual property prevents real innovation, and too much government interference stifles the role of the market and society. To be truly competitive, China needs entrepreneurs and visionaries like Bill Gates and not robber baron capitalists that have no concept of social good. Lastly, Zheng is staunchly critical of the pervasive nationalism in Chinese politics. China needs to shoulder more international responsibilities, and part of that is dialing down nationalist rhetoric.

 

Zheng’s vision for China’s economy is highly aspirational, but recent moves by Li Keqiang to specifically woo skeptical EU business leaders and officials, combined with a quiet paring down of the “Made in China 2025” initiative suggests that China understands it has an image problem. Zheng is also intuitively focusing on the same three categories of leadership, business strength, and popular support. By his analysis, China currently bests the US on leadership and popular support, and has the potential to catch up on the enterprise front as well.  

 

Tariffs as Containment by Other Means

 

Peng Nian (彭念) from the National Institute for South China Sea Studies (中国南海研究院), a frequent commentator on Trump for various Chinese online media, wrote in a widely shared op-ed that the main objective of US tariffs is to restrict China’s technological growth. Peng however believes that the Trump Administration is unlikely to give up anytime soon, and that China needs to be ready for the possibility of additional economic “sanctions” directed at Beijing (美国也有可能会升级对华贸易制裁规模).

 

According to Peng, Beijing's top priority should be to prepare for a “long war” (持久战). China needs to “counterattack” on many fronts, by leading public opinion, appealing to rules and norms, and pursuing international diplomacy. Peng’s prescriptions not only line up well with Clausewitzian analysis, they suggest that China has confidence that it will not just be forced to react and adapt to US moves but can actually take advantage of Trump’s low popularity globally and western fractures over trade writ large. 

 

Caixin, China’s most reliable financial news media, published expert commentary earlier this year refuting the above arguments, attributing the trade disputes between Beijing and Washington to structural differences between the two respective economies: the US is mostly a “bottom up” free market system, while China’s economy is state dominated and “top down.” Even private entities are closely intertwined with government, with the latter frequently intervening on the former’s behalf in ways that would be unacceptable in the United States. Moreover, the author argues that what concerns the US is not China’s relative technological gains, but the authoritarian system that stands to gain from these advances in science and technology.

 

What China’s Official Party Organs Are Saying

 

Seeking Truth (求是), the CCP’s theoretical journal, has taken a predictably harsh line on the trade war. Not only did China not break any international norms, the US is about to “hoist itself on its own petard” (搬起石头砸自己的脚). Seeking Truth endorses the explanation that the US is pursuing a trade war to pressure China and to slow its technological advancement. In response, the magazine has repeated Xi Jinping’s call for an increase in the overall “toughness” of the Chinese economy.

 

A much more curious piece ran in early June with the headline “Don't read too much into RMB devaluation.” The article argued that the recent 5% depreciation of the RMB was due to “a normal market response plus the pricing in of future forecasts.” The article mentioned US-China “trade friction” but was careful to convey to its readers— without explicitly stating it— that the two phenomena are completely unrelated. This is not by accident, since a public linking of the depreciation of the RMB to US tariffs would open up China to accusations of putting in place non-tariff barriers to entry, which are almost always against WTO rules. 

 

Conclusion

 

As the dust settles after the first round of the U.S.-Sino trade war, Chinese analysts have intuitively taken a Clausewitzian approach to looking at the dispute. According to them, China’s comparative economic weakness can be made up for by political unity at the elite level and determination by the average Chinese to ride out the storm. The trade war is presented as a strategic struggle over China’s economic future, with the U.S. seen as an internally preoccupied adversary. As long as that is the case, tariffs alone will not bring about the desired changes in China’s trade behavior.    

 

[1] Clausewitz described war as an inherently uncertain event, which is neither raw violence or the manifestation of political competition: "[war] a fascinating trinity—composed of primordial violence, hatred, and enmity, which are to be regarded as a blind natural force; the play of chance and probability, within which the creative spirit is free to roam; and its element of subordination, as an instrument of policy, which makes it subject to pure reason." The trinity is most often interpreted as consisting of the people, the army, and the government.

 

Yevgen Sautin is a Ph.D. candidate in modern Chinese history at the University of Cambridge where he is a Gates Scholar. His dissertation focuses on Manchuria in the early years of the PRC. He is interested in the political history of China and Taiwan, U.S.-Sino relations, and Sino-Russian relations. Prior to Cambridge, Yevgen worked at U.S. Bancorp as a strategic risk analyst. He was also a Boren Fellow at the National Taiwan University and a Junior Fellow at the Carnegie Endowment for International Peace. Yevgen speaks and reads Chinese and Russian and has published commentary in Chinese for Taiwanese media.

 

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