The views expressed in this article are solely the writer’s and this may not reflect on the views of others in Qutnyti.
Introduction
The White House’s top trade adviser, Peter Navarro has accused “globalist billionaires” of trying to pressure President Donald Trump into ending his tariff led trade war with China. He warned that if a deal is reached when the US president meets with his Chinese counterpart President Xi Jinping at the G20 summit in Argentina this November, it would have “imprimatur of Goldman Sachs”. The comments came as former mayor of New York City Mr Michael Bloomberg organised a New Economy Forum in Singapore not only to discuss how to end trade war between USA and China but also to rival World Economic Forum of Davos.
Wall-Street talking to China in the New Economic Forum
Stephen Schwarzman, chief executive of Blackstone, was among those invited and has served as a key conduit between Beijing and Washington with access to top officials on both sides, including Mr Trump. Henry Paulson, former US Treasury secretary, and Goldman Sachs chief, and John Thornton, former president of Goldman Sachs and a professor at Tsinghua University, have also served as trusted intermediaries between the two countries. Above all, there was Henry Kissinger who played a great role in recognizing Communist China and forming Perto-dollar Empire by making an oil deal with the Saudis establishing neoliberal globalisation.
Since the 2008 global financial crisis, the neoliberal globalisation is falling apart. The Chinese economy has grown significantly to depend on the US market alone. Therefore China wants its own Belt Road (BRI) globalisation model. Now Trump and the anti-Chinese hawks like Navarro is going to trade war with China. Thus Navarro type anti-Chinese hawks are suspicious of Kissinger lobby’s talks with China in Singapore’s New Economy Forum as well as in Beijing. Mr Navarro accused them that they are working as an agent of China to pressure the US President into some kind of a China-friendly deal.
Mr Navarro’s intervention suggests anti-China hawks within Mr Trump’s circle are concerned about Kissinger’s banking lobby to get the upper hand in the sidelines of the G20. Others in the administration, including Steven Mnuchin, the treasury secretary, and Larry Kudlow, director of the National Economic Council, have been more willing to forge a deal with Beijing in order to prevent a full out economic conflict in the coming months. Mr Trump has said that a deal with Mr Xi was possible at the G20 summit, raising hopes among investors and officials that a ceasefire could be in store at the summit to stave off any further escalation.
China Talking to the Pentagon
Mr Yang Jiechi has spent several days in Washington trying to determine whether there was scope for the two leaders to reach an agreement at the G20. Mr Yang met John Bolton, the US national security adviser, earlier in the week, but did not meet Mr Trump, according to sources familiar with his visit. His meeting with Mr Bolton was joined by Jared Kushner, the President’s son-in-law, according to two people familiar with the talks. In a joint news conference Chinese Foreign Affairs Director Yang Jiechi, alongside Pompeo and Mattis, said the situation in the South China Sea is moving “toward greater stability.” According to the press release, both countries during the talks, the second US-China Diplomatic and Security Dialogue, agreed to support a peaceful resolution of disputes, overflight issues and other lawful uses of the sea in the region.
Different Reactions
Henry Paulson asked China to abide by international laws in the South China Sea, open market for imports, disengage state enterprises’ dominance in the Chinese economy, more roles of private sectors. Xi hailed Kissinger to be a great friend of China. He told Kissinger that China will follow its own development path i.e. state enterprise led economy. Mr Xi has recently called Trump’s tariffs as the “law of the jungle” trade policies. Kissinger agreed with Chinese model’s success. He further stressed in the New Economic Forum, that,
“If the world order becomes defined by a continuous conflict between the US and China, sooner or later it risks getting out of control.”
Both Kissinger and Xi agreed that both China and USA must come half way to make an agreement. In a separate interview, Kissinger told that many in Washington failing to accept that China is the largest economy and any action to stop Chinese growth will hurt global economy whose impacts can go beyond control. Pompeo said that the USA will continue to act in the South China Sea according to international maritime law and also asked China to remove missiles from Sparty islands in the South China Sea. Yang Jiechi said that China will always act to maintain its territorial integrity. But both agreed about a peaceful resolution. Bloomberg praised former Mayor of Beijing and present Vice President of China Wang Qishan while the latter quietly implied he cannot be ‘screwed’ by simple words of praise. Trump’s economic advisor, Larry Kudlow told the press that Navarro’s Wall Street-China nexus allegation is his personal view and not President Trump’s view.
The potential of the New Economy Forum
Trump’s trade war with China has shown Wall-Street-based Kissinger lobby is not powerful enough to control Trump. Thus China is unhappy with this lobby which profited a lot from China. Hence, the Forum was created to rival the World Economic Forum of Davos to convey China the message that Wall-Street accepts the shift of the centre of the global economy from West to East.
Previously, this lobby failed to address Chinese concerns in the IMF and the World Bank. In return, China replied by forming AIIB and NDB and also using Chinese state banks lending in different countries reducing the importance of the IMF and the World Bank considerably. Wall-Street knows these measures from China have reduced their global influence and it does not want to lose further.
This forum also saw Wall-Street make a specific demand for making a private sector-led Chinese economy instead of state enterprise led model that China has now. China has rejected the demand. China’s rejection stemming in from the fact that the Western neoliberal model has failed to prosper any developing country while Chinese Socialist model got relative success. Another problem is that Wall-Street private led neoliberal model needs a strong currency to function.
US GDP was 45% of global GDP after World War II. Thus USD became more than 70% of the global reserve currency which resulted in more than 80% of global transactions to be in USD. In 2017, when the US share of GDP fell to as low as 15% while Chinese share rose to 19%, the use of USD as the global reserve currency is still 65% and in global transactions 75%. The Chinese currency Yuan is still just less than 2% of reserve currencies.
Thus the Yuan cannot act as a credit channel of external debt that can inflate Chinese asset prices. Thus trading Chinese assets cannot be profitable enough. Therefore the private-led neoliberal model cannot be successful in China. So China will have to depend on its state banks and state enterprises for less profit making demand generating investments to generate economic growth.
This Socialist model certainly will reduce Wall-Street’s influence on the global economy. Wall-Street can only hope to make the Chinese economy to become more of an asset trading based one, only by helping the Yuan to establish as a formidable reserve currency. Certainly, Chinese leadership also has the same objective. Similarly, Wall-Street and China both agree that the latter must import more (which is a direct consequence of greater share of Yuan as a reserve currency) and have intellectual property rights ensuring more profit to be catered to Western investors in the Chinese high tech sector.
As a result, the New Economy Forum can ensure the increased role of the Yuan in the global economy (as reserve currency first and in global transactions later) for higher market access and profits from intellectual property to the West. But it cannot ensure the Pentagon’s gradual withdrawal from Chinese backyard and reduction of the role of state and communist party in the Chinese economy.
New Economy Forum: Big Challenges Ahead
Trump trade policies are designed to reduce the current account deficit. Thus most of the world which has a current account surplus with the Yuan, while the USA is devoid of a primary source of demand. Therefore, the USA is sacrificing the role as the centre of the global market. This is leaving most of the world with little chance other than asking China to become new demand centre since it has already become the centre of global production.
Hence both the world and China will be benefited by giving Yuan a greater role in the global economy. Wall Street is stimulating the process too. In the first half of 2018, China became the largest destination of foreign investment replacing the USA to the third. The role of the Yuan as the reserve currency rose as a result too. Trump’s policies also forced Iran, South Korea, Venezuela, even India and Japan to get closer to China. Trump’s decision to avoid APEC and Asian summits also follow his policy trend that started with abandoning Trans-Pacific Partnership.
But these actions from Wall-Street are not enough. The Yuan’s role bolstered by foreign capital inflows can be reversed any day due to some economic crisis or boom. Pentagon’s geopolitical role ensures the USD’s role as the global currency. This raises a fundamental question: Can the Wall-Street size down the Pentagon in the Chinese backyard?
This will make the Chinese navy new the ‘security provider’ of the South China Sea and East Asia and permanent impetus to Yuan. Wang Jiechi visit to Washington showed neither Pentagon nor China is ready to leave an inch. Pence’s demand from China to accept all terms US terms indicate that the Pentagon does not want any deal, since, they may lead to the US acceptance of sizing down of the Pentagon in the Chinese backyard.
Kissinger relied on the US finance and Chinese labour to create neoliberal globalisation in the 1970s. Today, not only China is unfit to play the role of USA but also there is no alternative to Chinese labour. Most of global South though has huge labour supply but feudalism being intact it cannot reach its full potential, unlike China of 1970s. Thus the New Economy Forum will be endowed with the duty of not only making Yuan the global currency and make Chinese asset market profitable but also to annihilate remaining feudalism of the global south.
Conclusion
Wall-Street based global capital lobby has to play a long game of taming the Pentagon, liberating the global south resources from feudal and other socio-political shackles and then only they can make Chinese market profitable enough to impose their neoliberal model on China. In the short run, sacrificing the US geopolitics for gaining Chinese market is the only deal that can be facilitated by the New Economy Forum. In the long run, the world must prepare for huge changes in the politics of the global south. But the Forum will be remembered in history as the first official acceptance by the global capital that the future of the global economy and politics will be revolving around China. Can global capital make such dramatic innovative moves? Time will tell. But the Forum is the first action by the global capital and how it may be more determined against the Pentagon’s outposts from now onwards.
Further Reading: Bloomberg.com, The New York Times, Business Times
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