Logic of Strategy: New Crisis as U.S. Identifies China as #1 Threat

Zaobao: 学者李晓:中华民族到了新危险时候
Dark clouds are forming over Sino-US trade, Li Xiao, dean of the School of Economics and Finance at Jilin University, said that for today's China, the biggest crisis is not a trade conflict, but the world's most powerful hegemonic state has made public that it thinks of China as its main opponent, "The Chinese nation is in a new and dangerous time."
According to the WeChat public number of Jilin University School of Economics released on June 30, Li Xiao gave a speech entitled "National Destiny and Personal Destiny" at the 2018 graduation ceremony of the Institute. What is the essence of China-US trade war and what China should learn? Kind of lessons to present views. He said that the trade war launched by the United States is the most humiliating behavior of the United States against China. "But there is nothing we can do because we are too dependent on the US market."
He goes on to explain the Logic of Strategy and why those focused on GDP are seeing only a part of the picture:
Li Xiao pointed out that the more important national strategic interest of the United States is to contain China's rise. He believes that the purpose of Trump's trade war is probably not only in the trade field, but also in "Made in China 2025", more likely to force China to make greater concessions through trade wars, and it is likely to force China to be more open in monetary finance.

Li Xiao said that for the average country, they will lose a trade war on economics. "But for big countries, the key is who can afford to lose."

He pointed out that historical experience has proved that the contest between big powers, especially the "boss" and "number two", is so much an economic act, not for economic benefit, but an international political act for national benefit. International political competition is not a "positive game", but a "zero-sum game." The political logic is "as long as I win, defeat the opponent, sacrifice no matter how much, do not hesitate."
This is the Logic of Strategy as explained by Luttwak. I laid out my brief review of his book and combined it with my expectation of yuan devaluation, political change in the U.S. that would favor manufacturers and a retreat on free trade, back in 2014: The Logic of Strategy: Yuan Devaluation and the Road to Trade War.

China's expansion (and claims of territory) into the South China Sea is driving the logic of strategy. China is pushing many nations towards the United States. Australia, for example, has been more proactive than the U.S. when it comes to regional security. Many economists correctly criticize President Trump for poorly implementing tariffs, offending long-term allies such as Canada and the United Kingdom. (#AnglosphereNow) However, they miss the question of sovereignty for nations such as Australia, Vietnam and the South China Sea nations. The Logic of Strategy argues they should voluntarily slow their GDP growth by reducing trade ties with China, thus also slowing China's growth and its military modernization. The greater goal is protecting national sovereignty.

Trade is no longer a purely economic issue beholden to free trade ideology, but one component of an overall national security strategy. On the one hand, by blowing up the TPP and shifting U.S. policy, President Trump has made as Pacific alliance less likely, but on the other hand, his direct confrontation with China has advanced the issue. Using Europe as a counterpoint, many NATO allies are upset at President Trump's demand that they increase their military and monetary contributions to NATO. They don't want to increase military spending and don't like that the United States will either reduce its military presence or find other means of extracting monetary support. However, in the Pacific there is a desire for greater security cooperation. The best way for Pacific nations to reduce trade tensions with the United States will be through greater military and financial support for joint security.

All that said, I think the scholar and many others assume far more planning than really exists. The Logic of Strategy isn't planned. It is emergent order based on strategic goals and the desire to avoid a war between great powers. It is based on interest groups, shifting social mood, and regulatory capture. A switch wasn't flipped in 2016, rather it was a tipping point when emerging trends converged. Previously, China policy was mainly decided by the Treasury and Commerce Department, which had been wholly captured by Wall Street. The 2008 financial crisis was the peak of Wall Street's political power as it extracted trillions of dollars from U.S. taxpayers through the federal budget and Federal Reserve. In short, Capital drove China policy. It wanted access to new markets and cheap labor. Losing in the debate were manufacturers, Labor and national security.

Manufacturers and labor unions have opposed free trade (or at least demanded concessions) for decades. American workers reached the breaking point after the 2008 crisis as opioid addiction burned through hollowed out communities. The Defense Department had long identified China as a threat, but other concerns such as Russia and jihadists gained the most attention. Economists such as Steve Keen exposed the flaws in free trade ideology. Falling social mood was the final piece of the puzzle that created the impetus for action. The United States had its own internal Logic of Strategy as manufacturers, labor unions, American workers in Middle America, the defense department, anti-Wall Street activists on Left and Right, foreign policy and economic dissidents converged.

Overseas, the same logic will play out. Nations such as Vietnam can experience faster economic growth at the cost of falling into China's sphere of influence, or they can accept slower economic growth in exchange for greater sovereignty, particularly if a more self-interested United States continues shifting foreign policy in a pragmatic direction.

Back to Li, he sees a Cold War unfolding:
Li Xiao pointed out that the biggest crisis facing China is not a trade conflict, but the United States, the most powerful hegemonic country in the world, and has publicly regarded China as its main opponent. "In the peaceful period, using economic means to launch China. The comprehensive containment and attack, while also using its superior global military strength, is increasingly deterring China, creating peripheral conflicts and even crises to interfere with our peaceful development process."

Li Xiao believes that the Sino-US trade war is "essentially a national war" and will not be resolved in the short term. Taking the US-Japan trade dispute as an example, he pointed out that from the 1960s until the end of the 1980s, the long trade dispute between the United States and Japan played for 30 years. As a result, the Japanese bubble economy collapsed and fell into a "lost 20 years," and the conflict between China and the United States A big country game, I am afraid it will take at least 50 years or even longer. "Everything today is just the opening of a historical drama."

He mentioned that some Chinese media are "extremely irresponsible and unprofessional, and often use a narrow nationalist sentiment to fool people's feelings."

Li Xiao analyzed that when China is full of blind arrogance, the Sino-US trade war, especially the "ZTE event", is a strong clearing agent. In addition to exposing the huge technological gap between China and the United States, "it makes us even more I am soberly aware that China’s economic growth model has been unsustainable so far, and we must carry out more profound reforms in terms of economic structure and economic operation mechanism."
Li Xiao’s speech sparked a heated discussion on the Internet, which was called “the most sharp speech of the year” and “a public speech that was shocking.” Many netizens said that Li Xiao’s point of view is “pertinent” and “in-depth”, and that “this is definitely not an alarmist, the Chinese must be vigilant”.

However, some netizens do not agree with Li Xiao’s point of view, saying that this is “risk-talking” and that “the analysis is incomplete and the economic resilience is not considered”.

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