China and America are going through a serious, expensive break-up that could be big enough to reorganize the world economy and reshape the script of the 21st century. The 2020s will reveal how bad this break-up will be, who sticks to their principles and the price each country has to pay.
Even though China and America will sign a deal January 15th that cuts down tariffs and forces China to buy more products from American farmers, the relationship is in a free fall and it hasn’t been this bad since more than five decades ago, before Richard Nixon and Mao Zedong got back on good terms.
However, almost everyone around the world has become hip to China’s high-tech authoritarianism, artificial intelligence companies, social surveillance and the prison camps in Xinjiang. In response, America has been trying force China to buy soybeans from Iowa and shut down their state-led economic model, which President Xi Jinping called an alternative to free-market democracy that can expedite a nation’s development without losing independence.
For a long time, many people thought China and America could thrive simultaneously because of mutual benefit, but clearly each country has a different definition of success. China joined the World Trade Organization in 2001 and many people figured China would liberalize economically and politically, allowing China to mesh well into an American dominated world. However, things changed after America dealt with the financial crisis, and over time, the dictatorship under President Xi began to trust America less.
China’s influence and stature has been growing, and just like any emerging power on the come up, it wants to call more shots and create more of its own rules, especially when it comes to commercial standards, finance, global commerce, and the flow of information.
President Donald Trump hasn’t been afraid of confronting China, an approach that has received bipartisan support, but America needs to settle upon the top priority, whether that’s making money from American-owned subsidiaries in China, chasing a lower bilateral trade deficit, or focusing on a geopolitical campaign to contain China’s expansion.Â
The deal China and America sign January 15th postpones major disagreement for later. China isn’t in a rush and Trump, if he’s being tactical, is probably more focused on the economy looking good in the short term because it’s an election year.
Nonetheless, the break-up will be somewhat complex because China and America are so intertwined, especially when it comes to technology, foreign suppliers, cloud-computing and semiconductors. It could take more than a decade for China to become self-sufficient in some areas and just as much time for America to find a good replacement.
When it comes to high finance, America has leverage. The yuan only represents about 2% of international payments and Chinese banks have more than one trillion American dollars. China shifting to the yuan and decreasing its exposure to American dollars isn’t impossible, but it could take about ten years.
The break-up is also connected to the red scare happening on American campuses about Chinese spies, athletes and coaches monitoring what they say about China, TikTok coming under national security review, and the drama over Taiwan.
Furthermore, even though Huawei is experiencing a lot of pressure from America, the Chinese tech giant just had one of its best years ever with sales increasing by almost 20% and closing 2019 with $122 billion dollars in revenue.
It’ll take time to understand how this coexistence plays out, but it’ll be interesting to see which country becomes more powerful in controlling the morality of the future and who has more influence over global rules, open markets, human rights and free speech, especially since all of us are living in a time where we’ve become too familiar with serious existential threats like climate change, authoritarianism, fascism, inequality and mass extinction.