US-China trade wars have bearing on the Middle East

Consumers in the Middle East could end up paying higher prices for goods from China as a result of growing American tariffs against its industries.
Saturday 26/10/2019
Tough task. Former US Treasury Secretary Henry Paulson (C) arrives for a meeting with Chinese Prime Minister Li Keqiang at the Great Hall of the People in Beijing, October 23.(Reuters)
Tough task. Former US Treasury Secretary Henry Paulson (C) arrives for a meeting with Chinese Prime Minister Li Keqiang at the Great Hall of the People in Beijing, October 23.(Reuters)

DUBAI - Intensifying competition between the United States and China has regressed into a trade war over the past year as the world’s two leading powers have gone head-to-head.

Recent months have witnessed unprecedented tit-for-tat tariffs imposed by the United States and China against imports from one another as talks failed to break the gridlock over their trade disputes.

The implications of the US-China trade dispute have implications far beyond their bilateral context. The uncertainty generated by the emerging trade war is weighing down on the global economy at large and global markets have been shaken by the prospects of a prolonged crisis.

The United States and China represent each other’s largest trading partner but the trade balance has historically been heavily skewed in favour of Beijing. It is an imbalance the United States has attempted to address for years.

Earlier, the United States was primarily concerned with Beijing’s manipulation of its currency, the renminbi. Washington charges Beijing with maintaining an artificially low exchange rate that provided Chinese exporters with an unfair advantage and essentially powered China’s phenomenal economic growth over the past 15 years in particular.

China has built massive foreign exchange reserves generated by its trade surpluses — in particular with the United States — more than $1 trillion of which are held in US Treasury bonds.

Now the United States has begun to pressure China on what it says is “theft” of technology and intellectual property from US companies. The gambit has expanded into a wider set of issues related to economic and national security.

Leading Chinese technology firms have been blocked from competing in public contracts for potentially sensitive areas such as telecommunications and information technology. The United States says the Chinese technology can be used by Beijing for spying and building Trojan horses, compromising US national security.

Leading US companies have been blocked from supplying Chinese manufacturers with components and software for their products. The United States has warned its allies that use of Chinese technology may not only compromise their national security but also potentially mean that the United States would draw back on intelligence and security cooperation as a result.

While trade disputes are a key driver to the crisis, there are a range of other complex issues at play. Trump administration officials described the change in US policy towards trade with China as necessary but they do produce new economic and strategic risks.

Dismissing fears that its strategy is self-defeating, the Trump administration says the approach is based on the logic of “short-term pain for long-term gain.” However, it is unclear what precisely constitutes a successful outcome for Washington and Beijing has responded just as boldly.

Meanwhile, China has been embarking on President Xi Jinping’s flagship Belt and Road Initiative (BRI). The BRI is an unprecedented programme of strategic projects that involved hundreds of billions of dollars being invested over the next two decades to develop trade connectivity through massive infrastructure development.

The BRI was meant to be about geo-economics but it also appears to be viewed with growing suspicion by Washington for its geostrategic ramifications. China remains some way away from challenging US global primacy but the momentum with its economic rise remains strong. The emerging strains in US-China relations thus not only weigh heavily on prospects for global economic growth ahead but potentially also the scale of BRI itself if the crisis does not find a resolution.

The Middle East has stakes to US-China trade differences. China has become the leading trade partner and investment source for many Middle Eastern countries. Consumers in the Middle East could end up paying higher prices for goods from China as a result of growing American tariffs against its industries. More damaging, a slowing Chinese economy could see less demand for Middle Eastern commodities and planned investments could be rolled back.

Longer term, the BRI’s components in the Middle East, which heavily involve Saudi Arabia, Egypt, the United Arab Emirates, Oman and Iraq — all of which are key US allies — alongside a range of other regional partners, could face unforeseen challenges. This is problematic because the BRI would enhance Middle Eastern trade connectivity in general, not only with China.

Situated as a global crossroads for trade, connecting East and West, North and South, the Middle East has enormous future gains at stake with a programme such as the BRI. However, the Middle East is not alone here — much of Asia, Africa and Europe have growing stakes with not only China and BRI but stability in the global economy and its free trade rules.

Ironically, both the United States and China could suffer the greatest fallout themselves from a systematic economic slowdown in the other’s economy if the current measures of either precipitate this. Another failure to find a breakthrough in US-China talks would be a lose-lose outcome for not only them but the world at large, including the Middle East.

16