Xi Jinping is openly raising the war pitch in response to US overtures in Asia Pacific. But while both US and China continue with such aggressive posturing in the backdrop of their trade war, their economies are already beginning to hurt.
Under a month after the dinner diplomacy between Trump and Xi put a temporary freeze on the Sino-US trade wars, US and China are pushing the rhetoric to military conflict. The trigger from the Chinese perspective would be US President Donald Trump’s signing of the Asia Reassurance Initiative Act into law, which reaffirmed America’s commitment to Taiwan’s security and independence by proposing more official exchanges and regular arms sales.
On the other hand, China has historically regarded Taiwan as a breakaway province that will ultimately have to return to the motherland. The Act goes beyond that to reiterate America’s security commitments to its allies in the Indo-Pacific region including Japan, South Korea and Australia.
US also intends to build security partnerships and incur expenditure of US$ 1.5 billion every year for five years to boost its presence in the region. This will also include freedom of navigation operations with allies in the East and South China seas raising red flags in China about the military ramifications of the move. Militaries of the two countries have often been at odds in the South China Sea, a strategic waterway through which billions of dollars of trade takes place.
On January 2, Chinese President Xi Jinping urged the people of Taiwan to accept that it ‘must and will be reunited’ with China. In the same vein, he also cautioned that China reserved the right to use force. Taiwanese President Tsai Ing-wen responded by resolutely stating that the Taiwanese people would never accept the ‘one country-two systems’ model that China was deploying in the case of Hong Kong. She has also asked democratic allies to protect Taiwan from Chinese threats.
On Friday, Xi has further amped the military rhetoric during a meeting with his top brass as tensions with US increase over the South China Sea. He stated during the meeting that China’s armed forces must strengthen their sense of urgency and do everything they can to prepare for battle. He further added that China faced increasing risks and challenges and that armed forces must work to secure its security and development needs. A few days ago, a Chinese warship was also spotted carrying a railgun, which can fire at hypersonic speeds and hit targets in the range of hundreds of km.
While military flexing between the two countries is not new, the Sino-US trade war could be a potential flashpoint for the global economy in 2019. The two countries signed a 90-day truce in December on tariffs. White House Press Secretary Sarah Sanders articulated on the outcome of the discussions, “China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries.” Furthermore, US pushed for structural discussions on issues like IP protection and cyber theft, for which it accuses China of being unfair.
If the two countries do not reach an agreement, sanctions could increase from 10% to 25% on US$ 200 billion worth of Chinese goods on March 1, 2019. This was earlier scheduled for January 1. Slowdown in American manufacturing and Apple’s reduced sales forecast for the quarter ending December 2018 are already being seen as signs of how the trade war is impacting both economies.
In fact, China’s economic slowdown has sharpened Trump’s rhetoric. Trump said in a meeting to reporters, “China’s not doing well now. And it puts us in a very strong position. We are doing very well… I hope we’re going to make a deal with China. And if we don’t, they’re paying us tens of billions of dollars worth of tariffs – not the worst thing in the world.”
So while Xi Jinping may be openly taking a hardline position on US, the situation in China merits a more accommodative stance from China. Apart from Apple, even the head of China’s largest search engine Baidu has told his employees that winter is coming in the nation’s economy. The country’s central bank has cut the amount of cash required to be kept in reserve by banks for the fifth time in a year to free up US$ 116 billion for lending. It shows that the trade war is hurting China as well, and the two sides may finally show some pragmatism on the negotiating table.