[China Macroeconomic Forum]Liu Yuanchun: Looking beyond Trade into Sino-US Conflict

Liu Yuanchun, Vice President of RUC

I'll talk about several aspects. First, we are lack of judgments on the root causes of the new global pattern today.

A book recently published outlines the ideas of trade in the past and find a very strange phenomenon. There are fatal problems existing in the global pattern and trend adopted by neo-liberalism. One scholar describes it as some kind of impossible triangle, which means that we can only choose two from democratization and liberalization of politics, independence of sovereign states and globalization, thus resulting in some changes in political sovereignty under the condition that globalization prevails and democratization and liberalization of politics is taken as the core. In any globalization, there will be winner and loser, winning group and losing group, and winning country and losing country. This will lead to changes in the world structure, and division among democratic countries and among free bodies and countries to a certain extent, which is actually the most fundamental reason for the current "climacteric symptom" of the U.S. and the frequent geopolitical conflicts in the world. Therefore, if we look into it from a long-term perspective, we will figure out why the U.S. fought with all of its trade partners, and why it waged a trade war after we have got through the global financial crisis and our economy is in the upward trend. The root cause of the problem is not simply a crisis, but a structural fission. We have not found a good solution to the problem in the crisis. From this perspective, we can see that the global fission of the trade war and the drastic geopolitical changes among the major countries are inevitable, long-term, global and certainly asymmetrical. If we want to understand the root causes of Sino-US trade war, we must look beyond trade into the conflict between China and the U.S. in combination with the global fission based on a long period of time. This is my first point of view.

Second, possible options of the U.S. In August, a group of Chinese scholars led by RUC visited the U.S. and made exchanges with local think tanks. During their stay, they had a general sense that all social classes and factions in the U.S. had basically reached a consensus to contain China in an all-round way, which could be found from the public opinion and from the fact that two bills have been passed almost unanimously by the Congress recently. However, in spite of their consensus, there are great differences among various factions and schools on how to contain China. In fact, there are eight possible strategies that the U.S. can adopt to contain China. However, the U.S. made the worst choice. Many elites in the U.S. agree with the action taken by Trump against China, but disagree with the bad option made by him. They believe that the current anti-China action taken by the U.S. is the worst option, which is started by a full-scale trade war. The society of the U.S. is divided, and the income levels of many white collar and blue collar groups remain unchanged. The current pattern of income distribution and no income growth of the low-income groups cannot be changed through trade wars and tax cuts in the past two years adopted by Trump administration, and it is impossible to solve the fundamental problems in this way. Therefore, the ruling foundation of Trump administration will eventually run out in the next year or two. Certainly, the measures taken by the U.S. in the past year or two can be broken down into several levels:

First, establish an alliance consisting of the U.S., Japan and Europe, and build a global value chain excluding China, which has already been discussed by the U.S. Therefore, we have to consider whether the U.S. can convince such countries and regions as Europe, Japan, North America and even India to establish a new alliance of trade and form an economic pattern to contain China. If we look into it based on the most fundamental principles, due to the impossible triangle, the U.S. cannot unite with Japan, Europe and other allies to form a zero-trade pattern from the economic perspective. The reason is that these countries have high degree of political democracy, populism on the rise and strong internal divisions. Under such circumstances, it is impossible to continuously promote complete globalization, namely, the only option is limited globalization. At present, Europe, Japan and other countries are willing to further strengthen cooperation with China, which is very annoying to the U.S., who hopes to achieve the ideal state of globalization through zero tariffs between the U.S. and Europe and between the U.S. and Japan. However, this ideal state has no theoretical basis, namely the domestic politics of various countries cannot support these countries to reach an agreement in these respects.

Second, on the basis of the current pattern, China and the U.S. are competing for a new economic pattern, namely the U.S. has started to invest in infrastructures in some countries in the Asia-Pacific region, imitate the "Belt and Road" model and thereby eroding the new global economic pattern. In the future, China and the U.S. are likely to launch a new round of competition on the new economic pattern. At present, many people are discussing whether the economic competition between China and the U.S. will drag China down. Will China lose in the new competition of economic pattern? All these need to be discussed.

Third, the new trade system based on stricter rules. The comprehensive reform and upgrade pushed by DOS of the U.S. intends to exclude China by the rule-based approach. The actions taken by the U.S. in terms of intellectual property rights, government procurement, state-owned enterprises and industrial policies actually posed a large number of challenges against China.

We feel that the first extreme phenomenon will not occur, but we must focus on the second and third phenomena. In addition to the economic containment, the U.S. also adopted political and military measures for containing China. It is obvious to everyone that the most important thing is the Indo-Pacific strategy. Some scholars call the Indo-Pacific strategy the Small Asian NATO strategy of the new era, aiming to form a military alliance to contain China. It adopts the same model as the NATO in the cold war. We can see that this pattern is very simple and come into effect much faster than the economic containment. In this way, our economic and political countermeasures at the next phase may be layered and classified. Economically, I believe that capitulationism is definitely wrong, but in political and military perspectives, excessive aggressiveness may not be appropriate. In the era of global fission, China, as a successful rising power, must have a comprehensive classification of this strategic combination and deal with such in-depth thinking in an all-round way, rather than considering the trade war of this year separately.

(It is the keynote speech by the guest at the Macro Economy Study Report Release Conference (2018 Q3) of National Academy of Development and Strategy, RUC on September 22, organized according to the recording without my review)