More twists and turns in US-China trade war

Delhi, India Oct 10, 2018, 03.54 PM(IST) Written By: Major General S B Asthana

File photo of US-China flag. Photograph:( Reuters )

Story highlights

The US has continued military posturing in the South China Sea ignoring Chinese repeated warning.

US Secretary of State Mike Pompeo’s stopover at Beijing on October 8 may not have been a pleasant experience, more so in the backdrop of accusation of US Vice President Mike Pence about China attempting to interfere in US elections.

The agenda of North Korean denuclearisation, wherein the US and China were broadly agreeing earlier, seems to have also taken a back seat.

China braving the threats 

China is putting a brave front despite being badly hit at some of its most vulnerable spots in the tit-for-tat trade war with both sides imposing tariffs on a wide range of each others’ trade items. Taiwan, which is another sensitivity of Beijing, is witnessing visit of US officials after Taiwan Travel Act was signed by President Trump with a promise to arm it further with the latest weaponry. 

The US has continued military posturing in the South China Sea, along with the appearance of UK warship, ignoring Chinese repeated warning.

China has recently injected over $110 billion into its economy. Some of its BRI partners want to get out of the 'debt trap' by refusing/reducing Chinese investments, which is adversely affecting the Chinese dream project (BRI), after five years of its announcement.

Not a smooth sail for the US 

The US, on the other hand, cannot be celebrating either with China digging in its heels and refusing to give up either on trade war or the South China Sea. On the North Korean front, the policy of good optics continues with Kim managing to get a lot of goodies from South Korea. Kim, in fact, has been an outright winner, managing to get another Summit with President Trump, which helps him in convincing his countrymen of his sound leadership, as well as boosting his status internationally. 

Moreover, China has relaxed the sanctions on North Korea, without any worthwhile denuclearisation/reduction in his nuclear/military arsenal. The US realises that knocking out China financially is the key to its global dominance, hence, is unlikely to soften up to China. 

The US also faces another challenge of keeping its allies like Japan and South Korea satisfied while negotiating with North Korea and asking ASEAN to make choices of partners.

It will take some time to see that whoever has greater resilience to withstand the economic stand-off and appetite to take setbacks will have an upper edge, which seems to be the US at this point of time. As per IMF assessment, China’s GDP size will be 1.6 per cent lower in 2019 than it otherwise would be, if the US slaps tariffs on all Chinese imports.  

How is India affected?  

The Indian economy has survived some global slowdowns earlier and should be able to sail through the present one. The bigger problem is the sanction under CAATSA in dealing with Russia for urgently needed military hardware like S-400 and Iran for cheaper crude oil being paid in rupee terms, for which India has adequate refineries. The US option of buying shale oil does not suit India as it does not have adequate refineries and will have to purchase finished product in dollar terms.

The port of Chabahar is also crucial for India for connectivity to Afghanistan. The silver lining is that the US being our strategic partner will like to have well equipped Indian Forces to balance China and for Afghanistan's connectivity, in case Pakistan does not serve their strategic interest. On both counts, I am hopeful that the US will find a way out not to hurt its strategic partner.    

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Major General S B Asthana

Major General S B Asthana had been an Infantry General with 40 years of defence experience at national and international level.