When Harvard’s Graham Allison published Destined for War last summer, I was among those skeptical of his argument that the US is on a collision course with China.
Central to Allison’s thesis is the idea that the modern world’s two most powerful nations are stumbling into a “Thucydides Trap,” his catchphrase for the theory of a Greek historian who posited in his chronicle of the Peloponnesian Wars that sudden shifts in the relative strength of major powers increases the risk of global conflict. Thucydides argued that, whatever superficial frictions and flashpoints might be blamed for hostilities between the two most powerful Greek city states in the fifth century BCE, the underlying cause of war was the frustration of leaders of the rising power, Athens, and the fear the growing strength of Athens inspired among leaders of the established power, Sparta.
Allison perceives a similar dynamic at work in conflagrations between a rising England versus the Dutch Republic in the 17th century, a rising Germany versus Britain in the early 20th century, and a rising Japan versus the United States in the 1940s. In Destined for War he argues that the logic of the Thucydides Trap also explains the recent rapid deterioration in relations between the United States and China. “On the current trajectory,” Allison writes, “war between the US and China in decades ahead is not just possible, but more likely than currently recognized.”
Ian Buruma, in a masterful review in The New Yorker, skewers Allison for relying too heavily for China insights on Henry Kissinger and the late Singaporean prime minister Lee Kuan Yew, and ticks off a host of variables that could derail the Chinese juggernaut: China’s rapidly aging population; its cataclysmic environmental problems; the “dead hand of Communist Party control”; the stultifying impact of state censorship; China’s inability to inspire trust or affection among its Asian neighbors.
And yet, in recent weeks, Donald Trump seems to have been working overtime to prove Buruma wrong and Allison right. On Monday, a security review led by Trump’s Treasury secretary quashed a $117 billion bid for US chip maker Qualcomm, citing fears of competition from China as the reason for the decision. On Tuesday, Trump sacked Texas oilman Rex Tillerson as his secretary of state, and on Thursday let it be known that he wants to dump H.R. McMaster as his national security adviser; the two men, along with Gary Cohn, who resigned as national economic adviser last week, had cautioned against antagonizing China with confrontational trade and security policies. And on Wednesday, White House spokesman Sarah Huckabee Sanders, clarifying a typo in a Trump tweet the previous week, confirmed that the US president had instructed his advisors to come up with a plan that would chop America’s $375 billion trade deficit with China not by $1 billion but by $100 billion.
The Qualcomm acquisition, had it gone through, would have been the largest tech deal in US history. The would-be buyer, Broadcom, is a Singaporean company. Trump, in a presidential order, said he had “credible evidence” that if Broadcom gained control of Qualcomm it “might take action that threatens to impair the national security of the United States.” But as explained in this excellent analysis in The Week in China, the panel’s primary concern wasn’t Singapore, but China. The committee feared the takeover might undermine Qualcomm’s ability to shape global standards for 5G, allowing rival firms from China to promote their own formats and expressed concern that Broadcom would scale back Qualcomm’s investments in R&D, ceding leadership in the field Shenzhen-based Huawei Technologies.
In the wake of departures by Cohn and Tillerson, it has been widely reported that Trump’s new favorite is trade skeptic Peter Navarro, author of books including Death by China and The Coming China Wars.
And as the Economist notes, Trump’s order to slash the US trade deficit with China by $100 billion is a “nigh-impossible task.” Meanwhile Trump has yet to announce the findings of the administration’s investigation into allegations of Chinese theft of US intellectual property. According to some reports, the White House intends to use the conclusions of that investigation to justify slapping tariffs of up to $60 billion on Chinese technology and telecommunications imports. Trump is also said to be readying new restrictions on Chinese investment and travel visas.
To date, China’s response to all these developments has been remarkably low key. That can’t last. Xi Jinping is certain to demonstrate his toughness by calling for equally drastic counter-measures—and making Professor Allison’s theory harder to dismiss.
More China news below.
Trade and Economy
Bumper package. The package of tariffs presented to Trump last week by U.S. trade rep Robert Lighthizer targeted $30 billion a year in Chinese imports in response to alleged intellectual property theft, but Trump wants to bump the number up to $100 billion. In response, Chinese state-media said the U.S. was trying to play the victim. Politico
The China Whisperer. Chinese sovereign wealth fund China Investment Corporation (CIC) has sold its stake in private equity giant Blackstone Group. CIC did not reveal the size or reason for the sale, which ends an 11-year investment that helped Blackstone co-founder Stephen Schwarzman become a prominent player in US and China relations. The Washington Post has this detailed profile of Stephen Schwarzman, often billed as Trump’s ‘China Whisperer’ – a claim which Schwarzman himself has denied. New York Times
Next in line. After Anbang and HNA, energy company CEFC is the latest to come under the Chinese government’s scrutiny. Its founder Ye Jianming is currently under investigation for unspecified reasons and several senior executives have been barred from leaving China. New York Times
Distressed sale. Chinese conglomerate HNA Group has sold its 25% stake in Hilton Grand Vacations for $1.14 billion ($46.25 a share) this week, a more than 90% gain since acquiring the shares just a year earlier. Wall Street Journal
Serious deficiencies. The US Federal Reserve has found “serious deficiencies” in the Industrial & Commercial Bank of China, the world’s largest lender by assets. The bank was instructed to submit a written plan to strengthen its anti-money laundering mechanisms, especially by “politically exposed persons” to the the US central bank within 60 days and hire an independent party approved by the Fed to audit the bank’s dollar clearing transaction activity in the final six months of 2016. Financial Times
Li Ka-Shing retires. Asia’s most prominent billionaire Li Ka-Shing will announced his retirement Friday. Li will officially step down as chairman of Hong Kong conglomerate CK Hutchison and property giant CK Asset after the firm’s annual general meeting on May 10. CNBC
Technology and Innovation
On the books. Conservative author Peter Schweizer claims that China has offered hundreds of millions of dollars of investment opportunities and business deals in exchange for political leverage to the families of Senate Majority Leader Mitch McConnell and former Vice President Joe Biden in his new book. Aides to both men have strongly disputed Mr. Schweizer’s findings as “wild accusations” and “politically motivated hit pieces.” Wall Street Journal
CPPCC’s new chairman. The Chinese People’s Political Consultative Conference, the country’s top advisory body, this week unanimously voted in Wang Yang as its new chairman. Wang is often described as down-to-earth person with a vast network of contacts at home and abroad and familiarity with China’s approach to the United States, Russia, Hong Kong and Macau, all strengths that he will draw on as CPPCC chairman. South China Morning Post
List of Dishonest Persons. Chinese citizens with poor social credit will be barred from taking flights and trains for up a year from May 1, the National Development and Reform Commission said on Friday. Those found guilty of social wrongdoing such as spreading false information about terrorism, causing trouble on flights, using expired tickets or smoking on trains are most liable to be on the restricted list. Reuters
Foreigners out. Police have instructed popular student hangouts in Beijing’s Wudaokou university district to permit no more than 10 foreigners at once, as the Chinese capital ramps up security for the annual National People’s Congress. New York Times
In Case You Missed It
This Is Exactly How Trade Wars Begin Wall Street Journal
China’s credit crunch The Diplomat
One Woman Rolls Her Eyes and Captivates a Nation Wall Street Journal
China tells Vatican it’s fighting illegal organ transplants Washington Post
How Stephen Hawking reached cult status in China South China Morning Post
Pricier Than Apple? Xiaomi’s Hot Again, and Investors Could Get Burned Wall Street Journal
Technology and Innovation
Alibaba’s homecoming. The Alibaba Group is planning for a secondary listing in China, which could happen as early as this summer if China’s securities regulator changes its rules. Chinese laws forbid companies with shares of different voting rights and foreign companies such as the Cayman Islands-registered Alibaba to sell shares directly to Chinese investors. Wall Street Journal
Open channel. China will launch depository receipts by the second half of 2018 that will allow Chinese investors to hold shares listed elsewhere, the vice chairman of the China Securities Regulatory Commission told state media this week. Though not technically shares, it would open the door to the country’s top tech firms issuing a form of shares on the mainland as China steps up efforts to woo home overseas-listed firms such as Baidu and Alibaba. Reuters
Consumer watch. China Central Television (CCTV)’s annual consumer watchdog show, which exposes problems with products and services, has targeted Volkswagen once again over its defective Touareg sports utility vehicles. Some say the programme is deliberately shaming the country’s top auto manufacturer for the benefit of Chinese car brands but Chinese companies that imitate foreign brands and use fake ingredients and investment frauds that prey on older people were also exposed. Nikkei Asian Review