The Brexit factor in the US-China trade war and other conflicts

British Premier Theresa May received Donald Trump, President of the United States, at Chequers, the country house of the Prime Minister of UK. Taken on July 13, 2018. (Photo released by 10 Downing St., some rights reserved).

Last Friday, the American President Donald Trump aboard Air Force One threatened China with new tariffs on $267 billion of goods heading for the US markets, on top of the $200bn worth of Chinese exports Washington currently is ready to punish with extra levies. The US has already imposed extra tariffs on $50bn of Chinese exports. In 2017, the US bought goods from China worth $505bn.

Simple arithmetic says Trump now threatens to surpass this figure in a magical way, punishing Chinese imports which don’t exist. In such an environment, all major stock indexes in the New York Stock Exchange fell on Friday afternoon.

At the same time, Reuters revealed that Britain has practically joined the US naval forces sailing in South China Sea. HMS Albion, an amphibious 22,000 ton assault vessel made a pass near the islets of Paracels. They are a number of atolls with some of them being more or less artificially turned into islands by Beijing.

China claims exclusive jurisdiction on this key South China Sea passage, also contested by Vietnam, Taiwan and the Philippines. Some trillions worth of goods are shipped yearly though those sea straits. Beijing was enraged with the HMS Albion action and threatened to block the China-Britain talks for an after Brexit mega-trade deal.

Up to China?

Back to the US and aboard Air force One, Trump said “The $200 billion we are talking about could take place very soon depending on what happens with them. To a certain extent it’s going to be up to China, and I hate to say this, but behind that is another $267 billion ready to go on short notice if I want. That changes the equation.” Let’s see though what is ‘up to China’ to agree, or rather what the US demands from the most populous nation of the globe.

Larry Kudlow, the White House Economic Adviser, speaking on a separate occasion, spelled out what the US demands of China. According to the same source, he said the US is seeking “zero tariffs, zero non-tariff barriers, zero subsidies, stop the Intellectual Property theft, stop the technology transfer, allow Americans to own their own companies.” In short, the US asks China to rebuild her vast economy.

On August 27, the European Sting published a leading article entitled “US-China trade war at point of no return: Washington’s demands go beyond tariffs”. It conclude as follows “But China has become what she is today by absorbing western technology and running a centrally planned economy, having made subsidies its very structural base”.

Which market economy?

Understandably, despite the hard work and the successes of Beijing to move China towards a market oriented economy, there is a lot more to do to this direction. The country still uses her financial system and other instruments to keep the huge economy growing and her colossal labor force employed. However, many other countries big or small operate various versions of internal economy organization, resembling central planning or even using ‘oligopolistic’ production structures.

The automotive sector in Germany and Japan are characteristically organized in a kind of cluster arrangement, fixing market segmentation between producers and practically ostracizing free competition. The US herself uses various forms of subsidies and protection mechanisms from foreign competition. In the latest incident, Washington is to hand out subsidies of $12 billion to American farmers to make up for their losses from Trump’s trade wars.

Asking for the impossible

What the US is asking from China then is impossible to be realized, even if the leadership of the vast country was unreservedly willing to satisfy the American terms. While things between Washington and Beijing have reached such an awkward point, all of a sudden, Britain joined America in the precarious developments of South China Sea. Of course, London never accepted the Chinese claims in this key sea passage, but sending the flagship of the British fleet there raises a number of questions.

Is Britain not interested any more in concluding an after Brexit trade deal with China? Have London and Washington come closer to a major trade, investment and otherwise economic agreement? Does this mean London may be seriously contemplating a no-deal Brexit? Does this make mainland Europe if not an adversary at least not a friend for Britain? And can this be swallowed by more than half of the Brits who now appear favorable to EU?
More questions than answers

The British government itself, most probably, cannot answer those questions. Eight months before the Brexit day at the end of March 2019, and nobody in Britain can exclude any option, including a second referendum or a no-deal Brexit. Practically everybody, and more so, the cautious German industrialists, are preparing for the worst. As things stand, a possible way out may be a good gesture from Brussels.

The EU can agree to the interim period after March 2019 till December 2020 to stand, even if the two sides haven’t reached a full post-Brexit agreement in the next few months. During this provisional period, Britain will be a regular member of the EU with full obligations but without voting rights.

Over that period though, a lot of things may happen. Not to forget, there is a strong pro-EU absolute majority in the Commons, which includes 20 dissident conservative deputies. Even though only some forty Tory MPs and a few more support a no-deal Brexit, they still play hard and threaten Europe’s stability. It is clear then, that Brexit and Trump constitute the two most unpredictable and dangerous parameters in the global geostrategic play.