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(August 24, 2018) A trade war that is about more than trade - Thitinan Pongsudhirak

The most dangerous risk from the ongoing "trade war" between the United States and China is that it is not fundamentally about trade. With each tit-for-tat escalation and retaliation from both sides, what the world is witnessing is a larger struggle between two grand competitors of the 21st century, underpinned by opposing systems of socioeconomic organisation, values and ideas about global order.

China is essentially carrying on this battle of ideas and organisational systems in place of the defunct Union of Soviet Socialist Republics (USSR). If the second half of the 20th century was about the US versus the USSR, between liberal democracy and market capitalism on the one hand and communist party-rule and central planning on the other, then the first half of the 21st century is about the US versus China. The key difference is that China has adopted and blended communism with market capitalism. This Chinese adaptation and optimisation of centralised control with a dynamic capitalist system makes it a more formidable foe.

Despite being ahead for a time in the 1950s, the USSR eventually lost, imploding from within and disintegrating into states that we now see today in Eastern Europe and Central Asia. The USSR was so powerful and fierce, equipped with immense natural resources and human talent, that even its successor state -- Russia -- is a force to be reckoned with and a major power in its own right. But Russia does not have China's wherewithal to match up to the size, reach and depth of the US.

This is the broader context of the US-China trade war. Trade disputes are not uncommon. The US and the European Union (and its forerunner the European Community) have had trade frictions for years, revolving around thorny issues such as agricultural subsidies. In past multilateral trade negotiations, particularly the Uruguay Round in the late 1980s and early 1990s, the US and EU locked horns into a stalemate. Once they resolved their differences, the round was concluded, as smaller economies readily went along as they reaped gains from the deal.

The US and Japan also experienced trade disputes, especially in the 1980s. Anti-Japan books in the US, such as Who's Bashing Whom: Trade Conflict in High-Technology Industries and Trade Places: How We Are Giving Our Future to Japan & How To Reclaim It, headlined that era of Japan-bashing in America.

The major difference between then and now is that the US always found settlements with the Europeans and Japanese because they were allies. The US instrumentally rebuilt both Europe and Japan after the Second World War. Washington also provided nuclear deterrence and underwrote security alliance by way of the North Atlantic Treaty Organisation for Western Europe when the USSR and its Warsaw Pact of military allies were an existential menace. Japan also has benefited from the US nuclear umbrella up to this day.

So when push came to shove, the Europeans and Japanese buckled and budged, and the Americans did not go too far in their demands on trade fairness. For example, after almost two decades of trade surpluses with the US, Japan agreed to revalue its currency vis-a-vis the US dollar. US trade deficits with Japan narrowed but the resulting asset price inflation in Japan worsened what was a bubble economy into bursting in the early 1990s. Nevertheless the US-Japan security alliance is still going strong.

All of this does not apply to China. In its National Security Strategy and National Defence Strategy over the past year, the US has officially labelled China a geostrategic "rival" along with Russia. But the US administration under President Donald Trump has not really treated Russia as a rival the way it has faced off against China. In fact, the US appears to be treating China now not just as a rival, but a full-fledged adversary.

These trends were laid out in a first-hand account to me two months ago. A senior White House official stopped by Bangkok after the Trump-Kim Summit in June and described Washington's view of China on trade as exploitative and hypocritical. When China joined the World Trade Organisation in 2001, the implicit deal was that its membership in the world trade body would lead to economic liberalisation and reform. In return for benefiting from global trade, China was supposed to "open up". It has not.

This is a fair observation even if we disagree with its policy outcome of trade protectionism.

A month later, at China's premier think-tank outing called the "World Peace Forum", a senior Chinese government official gave a keynote address over lunch, when he conceded that China "cannot be as open" because it is still a developing country. It was a telling statement of how China sees itself. Outsiders may see China as aggressive and ambitious but the collective view at home may be that China is modest and proud, still trying to find its way in the world.

These two first-hand accounts, reinforced by the bilateral trade war, suggested to me that the global economy is likely to see more headwinds. The US sees itself as victim, the aggrieved party for having constructed the post-war order only to see formerly minions, outliers, and minor and junior partners develop into strong competitors nearly on par. The development and income gap between the US and the rest has never been so slim. That's why, in view of Mr Trump's administration preference for interests over values, the US is behaving like it is "payback" time, demanding trade concessions and burden sharing in ways it has never done.

For Southeast Asia, this is a time to hedge, find cushion, and seek insurance policies unilaterally and together with friends and allies. It means more serious attention must be paid to make the Asean Economic Community work as intended. For Thailand, it is time to rethink and reconsider bilateral free-trade agreements.

When the two biggest economies and mightiest geopolitical giants go at it, the rest must do all they can to save the hitherto rules-based system from collapsing and falling into unknown and uncharted territory. This effort might end up being futile but it must be tried. For individual countries, Plan B is also advisable in the long run, which means straddling and balancing adeptly among the giants and other major powers.