Welcome to Trade War, newsletter 34, the first published on a Friday. I hope this new schedule works well for you and welcome your feedback.
Now on to the news. While the U.S. and China try to keep the trade deal afloat, now seen by both sides as a rare chance for amity in the bilateral relationship, elsewhere tensions continue to grow. TikTok is suing the U.S. government, Washington is censoring Chinese companies for their involvement in expansion into the contested South China Sea, while a former WTO president is warning that an actual war between the two countries is a real risk.
A shiny spot in a diminishing relationship
Both Washington and Beijing are trying to put a happy face on supposed progress in the trade deal, a “shiny spot in a diminishing relationship,” reports the Wall Street Journal.
“Despite recent bilateral friction on tech” U.S. and Chinese officials say “they are committed to a phase-one trade deal,” tweets Wall Street Journal reporter Liza Lin, referring to comments made during a videoconference that brought together U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He.
Need a deal!
While both sides may feel they need a deal (recall how Trump reportedly told Xi that China’s help in buying wheat and soybeans was important for his reelection prospects, according to former national security advisor John Bolton), that’s not any kind of solution to the overall acrimony.
Entertainment, inspiration, and connection?
TikTok has announced it is suing the U.S. government in response to Washington’s attempt to ban it. And it says it is doing so “to protect our rights, and the rights of our community and employees.”
“Today, 100 million Americans turn to TikTok for entertainment, inspiration, and connection; countless creators rely on our platform to express their creativity, reach broad audiences, and generate income,” waxes TikTok’s corporate communications. “Our more than 1,500 employees across the US pour their hearts into building this platform every day, with 10,000 more jobs planned in California, Texas, New York, Tennessee, Florida, Michigan, Illinois, and Washington State.”
From the far west of Xinjiang to the South China Sea
Meanwhile, expanding on earlier visa and export restrictions punishing Xinjiang and Hong Kong officials, the U.S. is now “targeting Chinese state-owned firms & their execs involved in advancing Beijing’s territorial claims in the contested South China Sea,” including units of “Belt and Road giant CCCC,” tweets Wall Street Journal reporter Kate O’Keefe.
Relationship right now in a free fall
“Relations between Washington and Beijing are slipping dangerously with growing risk of a military confrontation and potentially dire implications for the global order,” writes Mark Magnier in the South China Morning Post, citing comments made by Robert Zoellick, a former head of the World Bank.
“The relationship right now is in free fall. It’s quite dangerous,” Zoellick said at an event held by the Peterson Institute for International Economics. “People need to be aware that miscalculations can happen, and issues with Taiwan and others can move to a danger zone.”
Five consecutive statements
China’s foreign ministry has issued five consecutive statements criticizing U.S. actions; before this, China had never issued more than two in a row about a single country, says a Congressional Research Service report by Susan Lawrence.
A state within a state: XPCC
Most of the media attention to date has focused on tech frictions between the two countries and examined how U.S. sanctions might also affect American companies. But it’s more than tech: retailers and clothes brands who rely on Xinjiang cotton look set to be seriously impacted too.
“Last month, the Treasury Department announced sanctions on the Xinjiang Production and Construction Corps (XPCC), the paramilitary group often described as a ‘state within a state,’” writes the Washington Post’s Eva Dou.
One-fifth of global cotton from Xinjiang
While news of the sanctions got buried in the coverage of Trump’s same day announcement to ban TikTok, “the cotton restrictions probably will have broader economic repercussions; XPCC produced about one-third of China’s cotton last year, while Xinjiang overall accounts for almost one-fifth of global production,” reports the Post.
“For retailers, it will be a challenge to simply map out the thousands of companies in which XPCC holds a stake, to check that they aren’t dealing with one controlled by the organization," writes Dou. “While some of XPCC’s subsidiaries are publicly listed, the company is tight-lipped about much of its business, partly because of its historic roots as a military division.”
Trump to Biden: Not a sharp break on China
While Trump and rival presidential candidate Joe Biden surely differ on many policies, there is little reason to expect a huge change when it come to China policy, writes Frank Lavin in Forbes.com.
“Biden’s policy toward China will not be a sharp break with Trump, except in tone. This stems from a widespread consensus among policymakers in Washington that the problems the U.S. faces with China are largely the result of China’s misbehavior,” he writes.
India-Australia-Japan supply chain coalition to counter China?
As global companies look to diversify supply chains beyond China, India, Australia, and Japan are looking at how they might benefit.
“India, already seeing some success luring supply-chain investments away from China, may team up with Japan and Australia to counter Chinese dominance as trade and geopolitical tensions escalate across the region,” reports Bloomberg News.
“The three nations are discussing building a ‘supply chain resilience initiative,’ according to the people, who asked not to be identified because they are not authorized to speak to the media about internal discussions.”
Notable/In Depth
An interesting podcast on the “fraught, contentious, and important” relationship between India, China and U.S., with Brookings Institution’s Tanvi Madan, Syracuse University’s Jim Steinberg, and moderated by China expert Sheena Greitens of the University of Texas.
Martial propaganda video of China PLA aircraft carrier.
The Myth of Chinese Capitalism: Challenges to China's Future as a Global Superpower is the title of a talk I will be giving on September 9 at the Rotary Club of Missoula.