US-China Deal Question Marks

Beijing is confident because it has achieved several successes in recent months and relies on the US’s persistence in making mistakes. Still, America remains much stronger. Will it get it right and alter the course of history?

There are three aspects to the US-China issue: short-term, medium-term, and long-term. In the short term, China has already achieved four results: 1) It halted rare earth exports to block the US tariff offensive; 2) It used the September 3rd parade to intimidate the US military; 3) It distanced India somewhat from America’s orbit; 4) Exports to third countries increased, and the total surplus reached nearly US$600 billion in the first six months of the year, even as exports to the US declined.

In the medium term, China is linked to two losing partners, Russia and Iran, which are depleting its resources. Yes, conflicts in Ukraine and the Middle East have diverted the US from focusing on China, as was the apparent plan four years ago. However, it’s uncertain whether China needed to support these lost causes, tying Beijing down in unwinnable struggles. 

In the long run, it remains unclear how China will address the fundamental issues of its large surplus and non-convertible currency. Historically, China’s problems caused by a surplus have contributed to the fall of the Ming and Qing dynasties in the 17th and 19th centuries, respectively.

Today, China might try to address these challenges by gaining control over global trade. However, this depends on having a free market (which also assumes free information and a liberal political system), as well as a trade deficit, where a country imports foreign goods to circulate its own currency. This could lead to de-industrializing China, causing problems similar to those faced by the US today. 

Or China envisions forcing conquest or vassalage on the world. It is neither good nor bad; politics is beyond moral judgments, but is it realistic? Imposing vassalage on the world would be very risky. The Chinese may think about their history. 

According to the Zuo Zhuan, since the weakening of the Zhou Dynasty in 711 BC, at least five states assumed the role of hegemons (ba) in the ancient Zhou territories. Combining analyses from other authors, such as Xunxi, suggests that there could have been up to ten. Eventually, the system collapsed in the middle of the 5^th century BC, when most of the smaller states were eliminated and the struggle for major unification began. About 200 states emerged from the Zhou collapse, a number strikingly similar to the number of states represented at the UN today.

Even those considering replicating ancient Chinese history realize that there is over a 99% chance of failure for a process of global unification, and it’s uncertain whether China will be the ultimate winner of the race. 

There is a possibility that the American system could rapidly collapse in the coming years. China might decide to shut itself off, hoping, like in an apocalypse, to survive in partial isolation and then rebuild. Meanwhile, it has time to think about how to put the pieces back together after the collapse, understanding that this also depends on how the disaster unfolds.

Even if the world doesn’t fall apart, China will have gained time and will determine how to handle whatever happens next, based on the circumstances.

Overall, China is in a reasonably good position.

China good or bad

Furthermore, Taiwan, the prize of ultimate national unification, is at risk. There is no need for invasion. Beijing may have underground forces on the island, including triads and billionaires who are fed up with the trappings and inefficiencies of democracy. They can shift the political and social balance on the island at any moment.

Therefore, what should the USA do? Does it have a plan? Now, US President Donald Trump apparently doesn’t want to be caught in long-term strategies that can’t be quickly verified. The idea may have its merits. But a short-term deal with China doesn’t address the bigger China challenge. 

Making the USA richer than ever may not make up for the declining support from allies or the lack of long-term global plans. The US must address its issues, but doing so risks upending its own international system. That can be understandable, but then the US needs to establish a new global system that allies and the world generally can support.

Upon re-reading the analysis, it becomes clear that China’s short-term successes largely result from American mistakes. Regarding points 1 and 4, China has been preparing for a trade war since 2019, when talks with the US broke down. Meanwhile, America did not prepare. On point 2 – again, the US was unprepared not only militarily but also strategically. Obama negotiated a strategically vital free trade agreement in Asia, but in 2016, Trump canceled it, leaving Asian countries more vulnerable to Chinese military and commercial pressure. On point 3, allegedly, a superficial spat with India caused the Indian Prime Minister, Narendra Modi, to distance himself from a long-standing US alliance.

For the future, China has a plan, as we saw; it’s unclear whether the US does. Still, China has its own wounds to heal.

China’s costly mistakes include its relationships with Russia and Iran. Support for Iran has cost China its political influence in the Middle East, as Tehran lost much of its regional power. Support for Russia could be even more costly, as Beijing might drain resources and political capital backing a war that is ravaging Russia in many ways. 

Domestically, the economy lacks a catalyst due to the collapse of real estate and oversupply in manufacturing. Internal debt is rising at an unprecedented pace and hampers domestic consumption. China could shut everything down and become a second, larger North Korea, but it wouldn’t be easy for a population that has, for about 50 years, grown accustomed to improving their living standards.

There are no clear solutions to any of these problems, unlike the US, which basically just needs to get its act together. Still, so far, America hasn’t played its hand well.