After weeks of wrangling over tariffs, the prospect of a US-China trade war has become frighteningly real.
Some would dismiss this as alarmism - despite bouts of volatility caused by trade war talk in the markets, the international financial and business communities remain fairly sanguine and overall seem to be rather naive as to the magnitude of what is now transpiring between Washington and Beijing.
But the underlying shift has already occurred: this spat between the world's two leading economies is no longer about prosperity, but about power; it is no longer a clash between profit-seeking corporations, but between identity-seeking civilizations. Money is already rapidly being relegated to only a means to an end - this is why Wall Street and the global financial community are about to be completely blindsided by the developing course of events.
But Donald Trump's gambit to compel China to change its behavior by dangling the threat of a trade war is already doomed - in fact, practically even before it began. Because for all its stated reluctance to engage in such a conflict, Xi Jinping's communist regime is already resigning and resolving itself to disengage from the United States - and Washington is not aware of how far along this process has come. China has a "Plan B" if negotiations with America fail; the US does not.
China no longer needs the US exclusively for high technology to build up its already formidable economy and military - it can get most or all of that from its European and Asian partners who are caught in the middle of the gathering clash of the titans, who themselves harbor no illusions about being able to challenge China's rise and will thus demand an ever higher price from the US to join in an attempt to stop it, one that Trump has unequivocally stated he is unwilling to pay. Increasingly, China is also developing indigenous capabilities across an entire range of industries and sectors that, while not yet in the same league as those of the West, make it practically impossible to blackmail with sanctions.
Hawkish US commentators tend to be under the impression that the US still holds the ultimate advantage in an economic conflict with China because while it will absorb tremendous pain from a cutoff of cheap Chinese goods, it is China that will risk complete collapse as the social contract between the communist regime and its subjects is shattered by the loss of the export cash cow that is America. This is a dangerous misconception: it is China that will absorb tremendous pain in such an apocalyptic scenario, but the US which could stand to come apart at the seams if the cost of everyday living suddenly skyrockets.
Even when China first entered the WTO in 2001-02, its cheaply assembled consumer goods exports to the US underpinned hundreds of billions of dollars in annual markups to distributors and final retail sellers; today, that figure stands in the trillions. Literally millions of low-end, typically part-time and sparsely benefit-offering retail and service jobs in America - the lifeblood of much of the bottom 80 percent of the workforce - are now intertwined with Chinese products that must be imported in the volume that only the middle kingdom can reliably offer to keep basic expenses at American companies low yet still profitable for their merchants. The disruption to the bottom line of firms across the entire US economic landscape will be great enough to pressure wages and even jobs themselves on a broad and systematic scale; the dislocation need not reach the level of social instability to generate a political backlash that would reverberate powerfully both in state capitals and in Washington.
In the decade since the financial crisis, the other major factor in China's economic clout with the US has likewise exponentially mushroomed: mainland investments in US assets of all classes, of which the $1.2 trillion of US Treasury holdings by Beijing's central bank are only the foundational linchpin.
Chinese firms and financial institutions of all sizes, both private and state-owned, are now marquee players in the global US dollar ecosystem. The $10 to $15 trillion offshore dollar or "Eurodollar" money market has a single undisputed top player: China, whose over $3 trillion in foreign currency reserves doesn't even include the massive and still rapidly growing foreign-denominated liquid assets of Chinese state banks and enterprises and private Chinese individuals and firms - which together amount to perhaps another several trillion US dollars.
As such, the media debate over whether China will "dump" its vast Treasury holdings in economic warfare with America completely misses the point: while China would appear to have no interest in debasing its own assets, it is such a disproportionately large - even "market-making" - factor in global bond and debt markets that even small shifts in its allocation preferences will have powerful repercussions for debt pricing and borrowing costs worldwide. This is already evident in the heart of the Eurodollar money market based in England: largely presaging the looming Chinese switch from dollars to yuan for oil and other commodity payments, the overnight benchmark London Interbank Offered Rate (LIBOR) has shot up in the first months of 2018.
From these aforementioned financial and commercial realities, there is little doubt that Beijing - not Washington - already truly calls the shots in the global economy. Indeed, if anything the Trump trade spat is only highlighting how skillfully China has managed to continue keeping its profile low, per Deng Xiaoping's famous maxim, "Hide your strength, bide your time": when China was already a rising superpower in the 1990s and 2000s, it gave the appearance of merely a normal great power; now that China has already become the new superpower on the block, even its increased bouts of assertiveness on the world stage - especially in its own neighborhood - are still fooling its opponents and critics into the impression that Beijing is arrogantly overreaching and overextending itself.
But with Donald Trump in the picture, everything that is hidden is being dramatically brought to the light. The maverick US president was elected largely on the premise that something is deeply, deeply amiss about a postwar global order that purportedly was still under Washington's control for the benefit of the American people, yet was ever more obviously serving other nations, even competitors like China, better than America itself.
The Trump administration is now barreling towards the point of no return: it is Washington, starting from a weak and losing position that it is ever more fully conscious of, which is pushing this imminent clash with Beijing that one way or another stands to fundamentally reset the entire architecture of international relations and indeed alter the trajectory of world history itself.
In already backing away from actually imposing tariffs that amount to a paltry fraction of a percent of annual GDP, Trump has unwittingly signaled just how badly unprepared his administration is for a trade war that he has blithely declared to be "good, and easy to win."
It is good and easy to win alright: for China, because the middle kingdom has already won (something Trump, yet again unwittingly, admitted).
The talks between Washington and Beijing are essentially futile in substance no matter how substantive in appearance: they are basically negotiations over the terms of US surrender to China. (In fact, their opaque nature of late is itself an indication of just how little there is to really discuss, i.e. how practically nonexistent is any positive spin that the White House PR department can put on it.)
Because China is the party that can walk away and call a total victory. Its "Plan B" isn't even a plan: it's simply to stay still and virtually mum in its dealings with America even as the latter howls in protest for more "talks" and the like.
While it's true that Beijing is also accelerating already well-developed and partially implemented contingencies for joining with Russia to counter US military provocations across the periphery of Eurasia - the clearest evidence of all that Trumpian Washington is getting totally taken to the cleaners by its old Cold War rivals - even this is merely secondary.
The American system will itself fall apart should Trump finally and actually push the envelope on the Celestial Empire: its own internal dichotomy between a bipartisan globalist elite and an increasingly nativist Republican party base will not survive the headwinds of a clash that pits individual profit and interest against collective responsibility and cohesion. China will be the death knell for American liberal democracy and free-market capitalism - the coming realignment will be utterly epoch-changing, because it will spell the end of the supremacy of modern Western civilization itself.
