9◼ REMARKS Bloomberg Businessweek September 16, 2019DAMIRSAGOLJ/REUTERS● The growing animosity between the
U.S. and China is resulting in a world
that will benefit neither● By Peter Coy
It’s tempting to laugh off the U.S.-China trade dispute as a soap
opera featuring men with big hair and bigger egos. Presidents
Donald Trump of the U.S. and Xi Jinping of China once pro-
fessed close friendship; now both feel jilted. The two countries
are said to be “consciously uncoupling,” like Gwyneth Paltrow
and Chris Martin. Xi’s just not that into Donald, you know?
Except the consequences of this uncoupling—or decoupling
or disengagement or whatever it’s called—are deadly serious.
The world’s two largest economies, still heavily interdepen-
dent, are systematically chopping away at the ties that bind
them. There is less trade, less investment, fewer students cross-
ing borders to study, and fewer contacts between militaries.
The only question now is how much more contentious
the relationship is likely to get. In a worst-case scenario, the
U.S. and China split the world economy in two, each tugging
a group of trading partners into its own orbit. That would be
reminiscent of the 1494 Treaty of Tordesillas, in which Spain
and Portugal agreed to split the New World, or like the Iron
Curtain that divided Europe between the West and the Soviet
bloc after World War II.
A deepening division between the U.S. and China would
further disrupt trade, investment, and movement of people,
which together are a source of innovation and prosperity. “The
result of forcing Europe and the rest of the world to choose
between the United States and China cannot yet be discerned,
but it will be costly for all involved,” Jacob Kirkegaard, a senior
fellow at the Peterson Institute for International Economics,
wrote in a policy brief this month.
The consequences for global safety and security are poten-
tially even greater. True, there’s no guarantee that countries
with a dense web of contacts will be friends. But countries that
wall themselves off from each other are invariably rivalrous, if
not outright hostile, says Jeffrey Bader, a Brookings Institution
senior fellow who was director for Asian affairs on President
Barack Obama’s National Security Council.
The main reason for thinking things might get worse is that
trust, once broken, is hard to repair. (Ask any divorce lawyer.)
There will be no “just kidding” moment in which Trump and
Xi laugh off the whole episode as a silly misunderstanding.
For instance, now that the U.S. has slapped restrictions on the
sale of American-made chips to Chinese telecommunications
giants Huawei Technologies Co. and ZTE Corp., it’s impossible
to imagine that Xi will ever again regard the U.S. as a reliable
source of critical components. The companies are redoubling
in-house research and development. Huawei’s HiSilicon chip
subsidiary is on track to become one of the world’s largestmakers of core processing chips, according to Sanford C.
Bernstein (Hong Kong) Ltd. analyst Mark Li.
Another reason to expect worse to come is that a trade
war tends to feed on itself. Each act of retaliation by one side
is taken as a fresh affront by the other. Trump’s tariffs began
small in January 2018, with levies on washing machines and
solar panels imported from all countries, not just China. By
this December, according to each side’s stated plans, there will
be punitive tariffs on almost all products sold by each coun-
try to the other.
Finally, some of Trump’s advisers view China not just as a
rival but as an implacable and fundamentally alien foe. The
National Security Strategy, published in 2017, said China and
Russia seek to “shape a world antithetical to U.S. values and
interests.” Secretary of State Mike Pompeo said in June, “China
wants to be the dominant economic and military power of the
world, spreading its authoritarian vision for society and its cor-
rupt practices worldwide.” Peter Navarro, the White House’s
director of trade and manufacturing policy, wrote a book called
Death by China.
Last year at Bloomberg’s New Economy Forum in Singapore,
Henry Paulson, who was President George W. Bush’s secretary
of the Treasury, warned of an “Economic Iron Curtain” divid-
ing the world if the U.S. and China fail to resolve strategic differ-
ences. Paulson blamed China for a good deal of the impasse but
said the U.S. needs to tone down the rhetoric. “If we treat China
like an enemy, they might become one,” he is fond of saying.
The dissolution of what used to be called Chimerica has
already begun. Michael Scicluna, chief financial officer of Shyft
Global in Provo, Utah, says his small outsourcing company
used to arrange for all of its clients’ manufacturing to be done
in China, but over the last year it’s switched 15% of production
to lines in Taiwan, Thailand, and Vietnam, with more likely to
come. “We understood the Chinese culture quite well. We built
a relationship with factories. It’s just a good system for us,” he
says. But, he adds, the tariffs are making China far more costly.
The tariffs are also inadvertently making the U.S. a more
costly place to do business. Troy Roberts, chief executive offi-
cer of Qualtek Manufacturing Inc. in Colorado Springs, Colo.,
says steel tariffs have made the U.S. into an island of high steel
prices, harming companies like his that buy American steel
as an input. He says he recently lost a customer for tire-chain
parts to a competitor sourcing its steel from Austria. Roberts,
who is chair of a trade group called the Precision Metalforming
Association, says, “I applaud their efforts to try to deal with
China. It’s just their method is not working.”
Trump is right, of course, that China has committed theft
of intellectual property, forcible tech transfers, and (in the
past) currency manipulation, among other sins. But the most
effective way to deal with such violations is concerted inter-
national pressure exerted through multilateral bodies such as
the World Trade Organization. The goal with China should be
fairer trade, not less trade.
Trying to force apart the interconnected U.S. and Chinese
economies with the blunt instrument of tariffs is fraught with9◼ REMARKS Bloomberg Businessweek September 16, 2019DAMIR
SAGOLJ/REUTERS
● The growing animosity between the
U.S. and China is resulting in a world
that will benefit neither● By Peter Coy
It’s tempting to laugh off the U.S.-China trade dispute as a soap
opera featuring men with big hair and bigger egos. Presidents
Donald Trump of the U.S. and Xi Jinping of China once pro-
fessed close friendship; now both feel jilted. The two countries
are said to be “consciously uncoupling,” like Gwyneth Paltrow
and Chris Martin. Xi’s just not that into Donald, you know?
Except the consequences of this uncoupling—or decoupling
or disengagement or whatever it’s called—are deadly serious.
The world’s two largest economies, still heavily interdepen-
dent, are systematically chopping away at the ties that bind
them. There is less trade, less investment, fewer students cross-
ing borders to study, and fewer contacts between militaries.
The only question now is how much more contentious
the relationship is likely to get. In a worst-case scenario, the
U.S. and China split the world economy in two, each tugging
a group of trading partners into its own orbit. That would be
reminiscent of the 1494 Treaty of Tordesillas, in which Spain
and Portugal agreed to split the New World, or like the Iron
Curtain that divided Europe between the West and the Soviet
bloc after World War II.
A deepening division between the U.S. and China would
further disrupt trade, investment, and movement of people,
which together are a source of innovation and prosperity. “The
result of forcing Europe and the rest of the world to choose
between the United States and China cannot yet be discerned,
but it will be costly for all involved,” Jacob Kirkegaard, a senior
fellow at the Peterson Institute for International Economics,
wrote in a policy brief this month.
The consequences for global safety and security are poten-
tially even greater. True, there’s no guarantee that countries
with a dense web of contacts will be friends. But countries that
wall themselves off from each other are invariably rivalrous, if
not outright hostile, says Jeffrey Bader, a Brookings Institution
senior fellow who was director for Asian affairs on President
Barack Obama’s National Security Council.
The main reason for thinking things might get worse is that
trust, once broken, is hard to repair. (Ask any divorce lawyer.)
There will be no “just kidding” moment in which Trump and
Xi laugh off the whole episode as a silly misunderstanding.
For instance, now that the U.S. has slapped restrictions on the
sale of American-made chips to Chinese telecommunications
giants Huawei Technologies Co. and ZTE Corp., it’s impossible
to imagine that Xi will ever again regard the U.S. as a reliable
source of critical components. The companies are redoubling
in-house research and development. Huawei’s HiSiliconchip
subsidiary is on track to become one of the world’slargestmakers of core processing chips, according to Sanford C.
Bernstein (Hong Kong) Ltd. analyst Mark Li.
Another reason to expect worse to come is that a trade
wartendstofeedonitself.Eachactofretaliationbyoneside
is takenasa freshaffrontbytheother.Trump’stariffsbegan
smallinJanuary2018, with levies on washing machines and
solar panels imported from all countries, not just China. By
this December, according to each side’s stated plans, there will
be punitive tariffs on almost all products sold by each coun-
try to the other.
Finally, some of Trump’s advisers view China not just as a
rival but as an implacable and fundamentally alien foe. The
National Security Strategy, published in 2017, said China and
Russia seek to “shape a world antithetical to U.S. values and
interests.” Secretary of State Mike Pompeo said in June, “China
wants to be the dominant economic and military power of the
world, spreading its authoritarian vision for society and its cor-
rupt practices worldwide.” Peter Navarro, the White House’s
director of trade and manufacturing policy, wrote a book called
Death by China.
Last year at Bloomberg’s New Economy Forum in Singapore,
Henry Paulson, who was President George W. Bush’s secretary
of the Treasury, warned of an “Economic Iron Curtain” divid-
ing the world if the U.S. and China fail to resolve strategic differ-
ences. Paulson blamed China for a good deal of the impasse but
said the U.S. needs to tone down the rhetoric. “If we treat China
like an enemy, they might become one,” he is fond of saying.
The dissolution of what used to be called Chimerica has
already begun. Michael Scicluna, chief financial officer of Shyft
Global in Provo, Utah, says his small outsourcing company
used to arrange for all of its clients’ manufacturing to be done
in China, but over the last year it’s switched 15% of production
to lines in Taiwan, Thailand, and Vietnam, with more likely to
come. “We understood the Chinese culture quite well. We built
a relationship with factories. It’s just a good system for us,” he
says. But, he adds, the tariffs are making China far more costly.
The tariffs are also inadvertently making the U.S. a more
costly place to do business. Troy Roberts, chief executive offi-
cer of Qualtek Manufacturing Inc. in Colorado Springs, Colo.,
says steel tariffs have made the U.S. into an island of high steel
prices, harming companies like his that buy American steel
as an input. He says he recently lost a customer for tire-chain
parts to a competitor sourcing its steel from Austria. Roberts,
who is chair of a trade group called the Precision Metalforming
Association, says, “I applaud their efforts to try to deal with
China. It’s just their method is not working.”
Trump is right, of course, that China has committed theft
of intellectual property, forcible tech transfers, and (in the
past) currency manipulation, among other sins. But the most
effective way to deal with such violations is concerted inter-
national pressure exerted through multilateral bodies such as
the World Trade Organization. The goal with China should be
fairer trade, not less trade.
Trying to force apart the interconnected U.S. and Chinese
economies with the blunt instrument of tariffs is fraught with