False Reasons Of American Trade War

The trade war between the US and China actually seemed to look like a cover, not purely economic matters such as the American trade deficit, intellectual property theft, investment barriers, and the like. But it is more about the clash of supremacy, America First versus China First, especially with the massive development of China technology and its military budget as well as the expansion of China’s foreign policy (via the Belt and Road Initiative). What US feels is that China is considered to be preparing to displace US global domination.

The matter of American trade deficit, for example, is actually not related to China’s trade surplus on the opposite. As long as the global currency is US Dollar and the US applies a budget deficit into its budget system the US will continue to deficit. So if viewed in more detail, US’s foreign trade deficit is not due to China per se. Then matter of theft of technology and intellectual rights, in fact the same. If viewed from the side of the economic history of the US itself, it is not an important matter, considering some of the main American businessmen in the era of the British industrial revolution also did the same thing. So the main issue is only a matter of imitation, stealing, reversed engineering, and the like, especially those related to US military technology.

Even though the problem is actually common in a country undergoing transformation. Why does the US feel threatened? Because the end will lead to the rapid development of Chinese military technology as witnessed today, which will trigger an arms trial or threaten the military supremacy of west superpower. Therefore, the issue of the new cold war (New Cold War) began to be raised. Even though the matter of technology transfer in general, it seems that only intensive cooperation is needed to equalize law enforcement on Intelectual Property Right in both countries. And it can be discussed carefully.

Economist Yukon Huang, a former Country Director of the World Bank, in his book “Cracking China Conumdurum” three years ago had an interesting example of American theft of technology. In the era of the British Industrial Revolution, he wrote, it was Francis Cabot Lowell from US who stole power loom technology, an electric spinning device, from England and brought it to US, which eventually accelerated the industrial revolution in the US. At that time, the protection of intellectual property rights was very strict in England, it was very difficult to record or take photograph. So inevitably, Francis Cabot finally kept it in his head on memorizing it. And when he returned to US, power loom technology from England began to be used massively without permission.

The problem is, for the case of imitation technology, China does look prominent, “truly good,” done massively in almost all lines. Some economists and observers try to understand it. Symptoms of “from imitating to innovating” usually occur at the beginning of the transformation, not just in China. But because many have begun to endanger the security and comfortable zone of US, in particular for military one, willy nilly US has to find a way to fight on behalf national security.

As a result, prejudice also burst. Not just because of theft, but because the culprit is China’s’ military (PLA), not Japan or South Korea, which incidentally are an ideologically stronghold with US. More over, these technological developments also infiltrate China’s foreign economic cooperation policy issue, the Belt and Road Initiative (BRI). And US is getting unhappier looking at any step taken by the Communist Party of China (CPC) in the highly aggressive South China Sea . Dozens of countries have entered into the BRI list, ranging from toll roads, ports, power plan, fast trains, airports, reservoirs, and other connectivity infrastructure.

Interestingly, one and two of them ended less smoothly, then were acquired by China and made it as military bases such as in Djibouti and Gwadar, Pakistan. Becoming increasingly interesting, both are close to India which incidentally is one of the US partners. But why can US allow to have 800 military bases around the world?

The same thing happened in the South China Sea. CPC is assumed to lie about promises of not militarizing new islands there. Then the opposite happened. Unfortunately, besides the international sea, the position of the South China Sea is directly vis a vis with the US power line in the Pacific, starting from the Philippines, Guam, Japan, South Korea, and Taiwan. Finally the transfer of technology that underpins the rapid development of CPC military technology seems very challenging for US.

Although, in one of the principles of the World Trade Organization (WTO), it is also explicitly stated that developed countries are actually obliged to transfer technology to developing countries and poor countries. Because it is considered, one of the distinguishing line between developed countries and not or less advanced is the technology resulting from innovation that will increase economic productivity. That is, US supremacy will eventually fade away with the diminishing technological disparity, more over if the transfer also takes place in the realm of military technology. Actually it does not matter, if the country is not China or Russia, the two countries that become ulcers for US supremacy and liberal democracy.

So the intention to leave the WTO or to categorize China and many others countries as developed countries is actually part of the US strategy to stop the actualization of the WTO principle, namely the obligation of technology transfer, in addition to eliminating the General System of Preference (GSP) in trade with US for emerging market countries. By that way, US’s opportunity to maintain its supremacy remains large. This means that there is no longer US obligation to implement technology transfer policies to China or countries whose status has been changed into developed countries by the United States, if US leaves the WTO or change the status of developing countries to developed countries.

The case of theft of US technology by China is in the same logic to the case of investment barriers in China. It is actually not too crucial for reason of a trade war decision. The US accuses China of backing up its large companies in various lines. The problem is, China’s economic system is not entirely the same as US economic system. However, state control is strong. It is natural that China supports its major large companies, both strategic partners from private and state enterprises. Land transfers will be much easier for them or even various financial incentives from state banks are very diverse and varied.

This condition is clearly not the same as US, which is dominated by private-owned giant companies. So it’s not a matter of obstacles, but more substantive than that, namely the difference in the system and values. The same thing will happen, if USa pushes Russia’s companies into Wallstreet, the New York Stock Exchange (NYSE), to get fresh capital as same treatment to China, then funds from the US finally flow into Russia like China gets. The same problem will arise later on because the two systems are not the same. What US should note is that whatever China does to compete with US or other giant economic countries is China’s right and can always be justified in the Chinese interests perspective.