The US-China Dispute

The Red Dragon and Uncle Sam have a lengthy history of being at loggerheads. The US initially refused to recognise China as a sovereign state and indulged in many ministrations to displace the latter’s communist roots.  It was only in the 1970s that diplomatic relations took flight with the US acceptance of One China Policy. Still, their relations were fraught with friction, especially over human rights. When China entered the world economy and began opening up its economy, its engagement enhanced, with China going on to become America’s largest trading partner. With a few hiccups, the relationship seemed to be aiming for cooperation. However, it all radically changed in 2018 when the Trump government’s tariffs targetted China, setting off a vicious trade war that is still ongoing. What started out as a trade dispute couple of years ago has now turned into a full-blown show of might, branching into other areas as well.

In late 2018, the US signaled its hardline approach towards the eastern giant. The Huawei issue only intensified the same, and the US has done everything in its power to kick the Chinese MNC out of the 5G race on charges of spying. By 2019, the trade war had intensified, with both countries levying hefty tariffs on the other, and placing various other sanctions as well. Early 2020 saw the signing of a trade deal which provided a brief breather for the economic world, but the respite period remained short. The onset of the Covid-19 pandemic sent the global economy tumbling. America faced multi-faceted effects: its capitalist system suffered a downfall and the health system was brought to its knees. This tension had the hegemon accusing China of mismanaging the pandemic and causing harm to the world, eventually pulling out of WHO due to the latter’s support of China. China obviously, did not take the accusations well. But it was the new security law imposed in Hong Kong that proved to be the last nail in the coffin. Trump went on to strip the city of its special status, reducing its credibility as a world economic and financial hub. China accused America of interfering in its domestic affairs, and everything has been downhill since.

The Asian Playground

Due to the deterrence that comes with two giants battling each other, the countries are unlikely to engage in an all-out war, even if relations have diminished to a new low. Their historical animosity played out in the Asian region much like the proxy wars that dominated the global landscape during the Cold War. Both nations have tried to expand the ambit of their influence by espousing Asia-centric policies. Obama’s presidency saw a more active role in the region coupled with an enhanced military presence. China on the other hand relies on its geo-economic power to bind Asia to it. The Belt and Road initiative, the String of Pearls approach, ADB Bank and increasing economic investment promises financial advancement for the region. South Asia in one of the most populous regions in the world, yet intra-regional trade is quite fragmented (just 5%), which reduces the economic benefits it can reap. Thus China’s meteoric economic rise has proved to be a fundamental driver of economic growth. 

US security cover coupled with economic benefits from China has helped in the advancement of many countries, resulting in the expectation that Southeast Asia will become the fourth-largest economy in the world, overtaking the European Union and Japan by 2050. Therefore for Southeast Asian nations, especially the ASEAN market is a key area for both America and China. The US is now frantically looking to shift Asian loyalties to its side as it perceives the rising Chinese aggression and economic strength as a threat.  That is why it has taken a strong position against China’s assertions in the South China Sea and has tried to play on the insecurities of the latter’s neighbours regarding the same. This ‘harbinger of justice’ role has helped the nation gain influence in the region, which was a difficult task because of China’s proximity to it. America is also banking on its military and technological investment to gain the region’s unequivocal support. 

Since the beginning of the Sino-American trade war, Southeast Asia has been an undisputed winner on account of the benefits it is reaping. The high American tariffs on Chinese goods have led to a shift in manufacturing processes to the region. In 2019 Chinese acoustics manufacturer Goertek announced that it will shift its Apple’s Airpods wireless headphones production to Vietnam because of the ongoing trade dispute. Similarly, Cambodia has bagged bicycle production for a high-value US firm, and Thailand has become a hub of vehicle assembly plants. According to Forbes, a survey of U.S. firms manufacturing in China found that 18.5% had either moved production to Southeast Asia or were considering it.

Usually, ASEAN countries have been able to maintain a delicate balance between American geopolitics and Chinese geo-economics. But as both countries increase the heat, it is difficult to predict if the future will force the region to choose sides. For now, Southeast Asia is having a good ride!

The Indian Factor

India has been facing a sudden increase in tensions with China too. The border dispute has led to a fresh impasse, the first one since Doklam. But this time the costs have been higher, with multiple skirmishes and martyred soldiers lining the situation. In response, India, akin to America, has tried to economically isolate China by banning 59 Chinese apps and making calls for being ‘Aatmanirbhar’. But it is easier said than done, for the mammoth amount of trade between the two is skewed in China’s favour. Some would think it is natural for India to lean on the US, especially in view of the latter’s vocal support of India in the afore-mentioned border dispute. It is to an extent true too: India has gained around $755 million in US exports since the trade war disrupted relations. India is also the only country capable of countering China’s influence in a disintegrated Asia. It also has a large youthful population capable of rapid mass production which it could use to its advantage in view of the trade war. 

But the path is not as smooth as it looks. There are multiple factors that weigh India down as compared to Southeast Asia when it comes to being business-savvy. The country has a massive supply of cheap labour but lags glaringly in other areas. Poor infrastructure to accommodate foreign production, inadequate technology, complicated labour laws and red-tapism of a sloth-like bureaucracy have tainted the country’s hopes of attracting foreign investment. That is why despite improving its Ease of Doing Business rankings by 37 places, it still is only the ninth-largest trading partner of the USA. Its tedious land-acquisition laws coupled with hostile neighbourhoods have not done much to attract investors. In addition to this, India’s decision to not be a part of the trade agreement with ASEAN called Regional Comprehensive Economic Partnership (RCEP) has put it on the back foot. It passed up on a chance to economically seal the deal with the fastest growing economic region and its markets.

In view of these shortcomings, Southeast Asia proves to be a better region to direct investments to. In fact, India is not extremely affected by the trade war as it has not gained much from it. 

Conclusion

The United States of America and China are the two hegemons that balance the current multi-polar world. This grandiosity of sorts, coupled with their mutual interdependence in terms of trade and technology makes it difficult for them to inflict real-time damage on each other, or indulge in an all-out confrontation. That being said, the current animosity between the two is different from their usual spats. In this pandemic-riddled world their tensions have been aggravated by blame-game, allegations of spying, erosion of Hong Kong’s democratic rights and of course, the rejuvenated trade-war. Many Asian countries have benefitted from this fallout and gained increased investment from the US and more come-hither offers by China. It is now to see how their balancing act will progress. However, India has a long way to trudge before it can fully reap the benefits of the clash and needs to work on its internal infrastructure and policies to attract any advantages.

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China is a one-party state with power lying mainly in the hands of the Chinese Communist Party. Moreover, it is one of the five permanent members of the UN’s Security Council and thus possesses tremendous power and reach.

History of China’s Economy

The trade reforms introduced in 1978 have changed the economic position of the country on a gigantic level. 

After the reforms were introduced, the country began to open and its economy has seen tremendous growth. GDP growth averaged over 10% per year, making it one of the world’s fastest-growing-economies.

Recently, however, due to several imbalances, comparatively low growth rate of institutional development and fast pacing economic development, there have been several reform gaps that have kept the GDP growth rate at 6% per year and it has been decreasing continuously. The country has made Innovation its top priority while working on the strategy for the 2020-25 growth model catering to the current scenario.

China’s Strategic Advantage

China is an upper-middle-income country and a major supplier of raw materials to the rest of the world. It observes major investment from MNCs globally. Most of the products that we use in our daily life are labeled as either made in China or assembled in China.

Apple iPhone, which is considered a revolutionary product, gets its product assembling done in China. Low labour costs were considered the main reason initially but there has been a shift in recent years. Since countries like India, Vietnam, etc. can provide even cheaper labour, hence the question arises, what makes China different?

The answer is the quality of labour and the type of skill provided. As said by Tim Cook “You find in China the intersection of craftsman kind of skill, and sophisticated robotics and the computer science world. That intersection, which is very rare to find anywhere, is very important to our business.”

Thus, comparatively low labour costs, highly skilled labour, the ability to produce big consignment daily due to the strong labour force and a large home market make China an ideal country for product assembly. 

Trade Relations with India

Economic relations between India and China date back to ancient times with the Silk Route being the major trade route then. China is a major exporter of raw materials like pharmaceutical ingredients, steel, electronic devices, fertilizers for India, thus making India as China’s biggest trading partner after the US. India too runs a huge trade deficit with China.

The major inability of Indian companies to produce products at low rates arises because of a lack of research and development facilities, poor infrastructure and incompetent labour policies.

In a survey of about 90 people, it was asked: “What is the main reason that encourages you to buy foreign goods?”

The following were the observations:

Due to this Chinese goods gain an edge and find a huge market in India. Moreover, the Indian population forms a large base for many Chinese apps. These do not mainly contribute to revenue but they help in boosting the reach of the product which is even more beneficial for the companies.

However, with the recent clashes and increasing deficits, the Indian government has banned several Chinese applications and has been constantly focusing on promoting the ‘Made in India’ campaign.

Impact of the Current Situation

With the advent of the current pandemic, almost all economies have come to a standstill. While some of the countries have been able to deal with the situation efficiently and have already observed the peaks, others like the US and India are the worst struck and their economies have faced a major shock. 

China has been accused of hiding information about the virus which eventually led to the pandemic. Markets crashed and the price of crude barrels fell to such an extent that they became negative for the first time in history. Many people have been laid off from their jobs, causing them to fall into debt traps.

However, the current border tensions with China have induced an even greater hatred among Indian citizens towards Chinese goods and services. Many Chinese contracts and tenders have been reworked and the suppliers have been changed. These have vastly affected China’s economy.

Nevertheless, the economic interdependence of the two nations is way too important to be ignored. An all-out boycotting of Chinese goods would force people to buy expensive goods in this period of recession. This would just worsen the situation and the governments would have to further moderate the policies to accommodate the situation.

Conclusion

 It can be rightly said that the expansionist and influential regime of the Chinese government is at an all-time high. China might be taking this course of action to drive the attention of the world away from COVID allegations by having disputes with other nations. However, with this course of action, it is losing a huge consumer base in India. Though low priced quality goods might still prevail in the markets as Indians don’t have good homemade alternatives.

India and China have been embroiled in border disputes since 1962 after the Indo-China talks failed. China has always been intruding in the territorial sovereignty of India, this has been very common but the international community never held China liable because of its veto in UN and structural hegemony in international markets but the advent of COVID-19 has led to an international bias against China. The factual matrix has created a situation in which China might be held liable for the very first time for violating the ceasefire agreement on LAC as it has lost support in the international arena and the CCP is facing extreme criticisms for its violations and misuse of authority.

The first step towards the long turn process of improving the efficiency of production in India should be taken immediately. Trade shouldn’t be stopped but the trade deficit needs to be brought to a balance to prevent other nations from exerting dominance in the future.

China needs to take into account the possible isolation by other countries in the long run which might bring down the already decreasing GDP growth and the scenario before 1978 might come into the picture again. China should acknowledge the need of the hour and help its subordinate countries with the current pandemic, help in building their economies to ensure healthy trade relations, the welfare of mankind and stability. History is evident, Wars cease to create any good, rather are a great way to destroy the global economy, loss of life and property and leave the world in a state of regret and despair. 

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