Supply Chain Politics between the U.S and China.
The fact that diplomats from the U.S. and China met in Alaska recently, as has been pointed out, was full of acrimony and was a non starter. Later, President Biden in his first press conference of his presidency declared that during his watch, nobody is going to surpass US economically, militarily, technologically or in any other way. He warned both Russia and China, but more specifically China that they are better advised not think of outsmarting US in any way. It is the Chinese who over the past three years have been vocal about their economic prowess and their military might. Their economic prowess lies in the cash flow generated by exports to the US and Europe.
Initially, Chinese exports were motivated by the western desire to transfer the smoke stack industry to underdeveloped China. There were other political and international considerations also but the West preferred China. They provided the money (about a trillion dollars of FDI) and the technology and the Chinese provided the labor and the feedstock. A huge array of “Chinese-made” consumer goods have emerged in the US and Europe. From 1998, under Presidents Clinton/Bush/Obama, they also opened their markets for Chinese products without any quota or import duty. These goods were cheap compared to locally made hence the public got hooked to these. The US & China trade deficit in 2017 amounted to about $400 billion per year with Chinese importing next to nothing but exporting only. That surplus cash went into building their infrastructure and military. With that prosperity they began to pick up fights in their neighborhood. They claimed the dormant contentious islands near Japan and then spoke of re - conquering Taiwan. Later they gave notice to Philippines, Vietnam and all nations in South China Sea that they have a historic but dubious claim to the islands far away from China coast. To support their claim they built a few islands in the sea and posted their navy as well as bombers to intimidate the little nations. Which is why the United States came into the picture. Not only that, Chinese picked up a fight with India in the Himalayas, first in 2018 then in 2020.
In the meantime, the Chinese began bidding for intermediate products in the supply chain for US as well as Europe at much cheaper rates. This drove the existing suppliers out of business and established Chinese as the sole suppliers. In 2017-18, they accounted for approximately 30 per cent of the supply chain. This is bad news, which should have been noticed early on, but western governments were asleep. The Wall Street knew about it and encouraged it as it generated higher profits and sent the numbers zooming up. This enormous trade surplus for China continued to grow. Now they were draining western money for cheap but poor quality products.
The 2016 US Presidential elections brought a conservative President Trump to the top. He and his top trade advisors wished to deal with the Chinese trade surplus sooner than later. It imposed duties on $400 billion of Chinese merchandise arriving in the U.S. - in two phases. When he was in the midst of dealing with China, political complications at home for him (impeachment) raised its head. The impeachment fell through, but it consumed presidential attention away from China and trade matters. This turmoil was a Chinese gain. They were overjoyed. Then the Covid pandemic interfered in 2020 but demand for cheap Chinese products never abated.
The new President Joe Biden, contrary to expectations, is restarting to deal with Chinese belligerence again. Some indications of the diplomatic meet in Alaska available did not bid good for the Chinese. His pronouncements in first press conference are a warning and if carried out, then Chinese trade heyday are over and Chinese military prowess will be checked.
Where are we, two months after Joe Biden inaugurated:
1. The trade surplus in Chinese favor is still growing.
2. To put an end to Chinese intimidation, a military alliance called QUAD on NATO lines is in progress.
Trade could only be dealt with if multiple sources of consumer products are created to kill the Chinese monopoly. It is a five-year project with India, Vietnam and Bangladesh that are about to supply consumer products and become important suppliers of the supply chain.
Militarily, the Chinese have too much confidence. Their power is limited with copied and reverse engineered technology. They already suffered a setback in the Himalayas when India rose and told them to get lost. Vietnam and the Philippines all did the same. To re-assure, the US revamped a decade old the idea of four countries - Japan, Australia, India and US (QUAD) pull together their naval and other military resources and confront China. The idea is to force China to leave the North and South China Sea and return to its coasts. It is a novel idea. Its success is mainly based on resources that the US and Japan could put forward. The next three years, with other nations becoming consumers and intermediate goods suppliers, will determine the outcome. That will reduce Chinese cash intake. These steps can make a difference.