Ambrose Evans-Pritchard: Is Donald Trump actively seeking an all-out economic war?

US President Donald Trump. Photo / AP

COMMENT: The urgent question for investors and diplomats alike is whether Donald Trump wants a trade deal with China, or whether his undeclared objective is geostrategic victory.

The dark view is that Trump is trying to provoke Beijing into tit-for-tat escalation in order to justify a pre-emptive assault on the Chinese technology-military complex before it is too late.

The struggle is over control of artificial intelligence and the cutting-edge industries of the 21st century.

As Trumpian ideologue Steve Bannon put it last year: "We're at economic war with China. One of us is going to be a hegemon in 25 or 30 years."

An editorial in China Daily - the voice of the Communist Party - responds in kind. It accuses Trump of aiming to "suck the lifeblood from the Chinese economy" after he threatened to impose a trade embargo on China - and there is no other way to describe his talk of tariffs on the gamut of Chinese exports.

"Faced with this heightened intimidation, China has no choice but to fight back. Everyone is joined in opposition against the common enemy. Everyone is clear: China has been forced into battle," it said.

The US has already issued a declaration of cold war. This year's national security strategy report names China for the first time as a strategic rival that seeks to "challenge American power, influence and interests, attempting to erode American security and prosperity".

Trump has purged the foreign policy "doves" in his circle and surrounded himself with ideologues bent on the containment.

Secretary of State Mike Pompeo last week accused China of "predatory economics 101" and "unprecedented larceny".

Pompeo is supposed to be the restraining influence over the fire-breathing duet: national security adviser John Bolton, who wants to send aircraft carriers to the Taiwan strait, and trade guru Peter Navarro, author of Death By China.

Chinese President Xi Jinping (left) and US President Donald Trump. Photo / AP

"There is a widespread feeling in Washington that China has gamed the system and if it is not brought to heel in short order, it will be too late," said Scott Kennedy from the US Centre for Strategic and International Studies.

"They will discover that the Chinese are not going to come crawling on their knees. There is a very serious risk that this could halt US$1 trillion ($1.4t) of economic activity," he said.

There has been much talk of the "Thucydides trap", derived from a line in the History of the Peloponnesian War suggesting that Sparta had to fight because it could not abide the rise of rival Athens.

Ergo, the US might succumb to the same reflex and lash out at China. It is a confused theory. But it does focus thought on what can happen when a muscular arriviste disturbs a status quo equilibrium.

The great and the good of the Asia Society - no Trumpians they - issued a blistering report last year on China's behaviour.

They said the problem is not the rise of China "per se" but its behaviour since the ascendancy of Xi Jinping at the head of a military-mercantilist state with nationalist objectives.

Lorand Laskai from the US Council on Foreign Relations said Xi has pursued a policy of "civil military fusion" that subsumes private commerce.

Beijing is not striving for a "win-win" in global trade but rather to displace rivals altogether.

"In the saga of the US-China economic rivalry, Made in China 2025 is shaping up to be the central villain, the real existential threat to US technological leadership," he said.

This grand plan lists 10 strategic sectors from aerospace and robotics to electric vehicles, biopharma, new materials, G5 networks and IT, and ocean engineering.

It aims to shut foreigners out of the Chinese market with "self-sufficiency" quotas of 70 per cent by 2025 (80 per cent for robots), in violation of world trade rules.

The plan was singled out for attack in the US trade office's 200-page report on abuses by the Chinese state. It covers "cyber theft", forced transfers of intellectual property by US firms in China, and the foreign buying spree to capture advanced technology.

Most countries have technology plans. Germany has its Industry 4.0 strategy and the US has its strategic plan for advanced manufacturing.

The difference is that Communist Party officials are lodged inside Chinese companies and the sums of money are huge.

The drive is backed by a nexus of opaque subsidies and cheap credit from state banks.

The US trade report says China 2025 "calls on all facets of society to mobilise behind the plan".

It has a wartime structure. Trump's true intentions are anybody's guess. He is a compulsive improviser. His penchant for brinkmanship is plain to behold. He has a childlike idée fixe on China's US$375 billion trade surplus with the US.

This is easily satisfied - if that is all he cares about. China can give him a "win" before the November mid-term elections.

It has already offered to switch its global purchases of oil, liquefied natural gas and farm goods to US suppliers instead.

Trump is surrounded by advisers who think China is currently more vulnerable than it looks. Photo / AP

"If you watch at the magician's moving hands, not much is happening. It is mostly talk. I don't think he is really itching for a full-scale trade war. He is going to come under enormous pressure from his billionaire friends," said Kennedy from CSIS.

But let us suppose that Trump cleaves to his rhetoric and keeps escalating. China can retaliate by hitting US firms in the country, orchestrating a consumer boycott as it did with Japan over the Senkaku islands.

Deutsche Bank says US firms sell US$448b worth of goods and services in China through local subsidiaries, far greater than nominal exports of US$168b.

On that metric, the trade war would be a draw.

But is that Trump's metric? A chapter in Navarro's book is called "Death by Corporate American Turncoat CEOs". He relishes a conflict where US factories in Guangzhou become untenable. His goal is to force them to repatriate.

Trump is surrounded by advisers who think China is currently more vulnerable than it looks.

They calculate that a well-aimed shock might expose the structural cracks in the edifice, and that this may be their last chance to act.

This is needlessly defeatist. China's underlying growth rate has already dropped to near 4 per cent and may slide to 2 per cent by the early 2020s. The country will not overtake the US this century on such a trajectory. Soon its people will be old.

The wiser statecraft would be to combat China's prickly behaviour in a surgical fashion and in league with allies. But wisdom has run short at the White House. Trump seems to want an economic war. He may get one.

- This story first appeared in the Daily Telegraph and was reproduced with their permission.