Mutually assured disruption
The America v China spat reveals a dangerous dynamic
A balance of economic terror is no basis for stability
“DON’T WORRY about China, it will all be fine!”
President Donald Trump posted on social media on October 12th, days after threatening retaliation for Beijing’s new export controls on batteries and rare earths.
Don’t worry, world, it will all be fine, China’s Ministry of Commerce had said, roughly speaking, in a press briefing a day earlier, emphasising how its rules would have a “limited” impact on supply chains.
Many accept these assurances.
Markets fell after Mr Trump’s initial angry reaction, but have recovered.
Observers assume that Mr Trump will butter up his Chinese counterpart, Xi Jinping, supposing that the two meet as planned on October 29th ahead of a summit in South Korea.
But even if a truce is re-established, their latest spat is disturbing.
It shows that Mr Trump is happy to contemplate triple-digit tariffs on one of America’s biggest trading partners.
Many investors and, it seems, Chinese officials do not believe his threats.
It is true that the president is sensitive to financial markets, and that he backed down earlier this year. But he hates appearing to be pushed around.
At some point, he may decide that enough is enough.
As in his first term, Mr Trump could switch from a dealmaker to a China-basher, with more dangerous results.
America’s president has threatened to cripple China’s semiconductor industry by withholding critical software.
Hawks in his team talk of sanctions against Chinese tech and financial firms.
For its part, China has scope to harry American firms, as shown by its new investigation into Qualcomm, an American chipmaker.
The latest rupture also demonstrates that America and China still misunderstand each other.
Scott Bessent, America’s treasury secretary, says China’s economy is in a depression.
Its growth is indeed soft, but that is not because of tariffs.
In the 12 months to September China’s goods exports grew by 8%, as sales to other markets replaced those to America.
The White House is furious that China introduced its new rules weeks before their leaders’ planned meeting in South Korea.
China counters that America broke the ceasefire when it modified its export controls in a way that could have blacklisted thousands of Chinese firms.
Even if China’s new rules were partly retaliatory, they have raised the stakes.
Its battery-makers, the world’s best, will need permission to share many products, ingredients or kit with foreigners.
Firms in foreign countries, outside China’s jurisdiction, will need a licence to export products with trace amounts of Chinese rare earths.
Mr Trump hopes to persuade Mr Xi to abandon these controls.
He will be disappointed.
They are part of China’s effort to build a regulatory framework for its best economic weapons.
China has offered an olive branch by suggesting it will implement its rules with a light touch.
But that rings hollow.
Bureaucrats at its commerce ministry, who will sign off on licences, will fear appearing soft.
China will have a tool to raise or lower the pressure as needed.
The world’s two biggest economies depend on each other.
Yet that also means they have the ability to inflict grievous harm on each other.
America has long had limits on semiconductor exports; China now has more control over rare earths.
The threat of mutually assured disruption is hardly a good basis for relations.
It is inherently unstable; both China and America have a chokehold, but both are wriggling to break free.
The behaviour of each causes its rival to tighten its grip—a cycle that, for now, seems destined to get worse.
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