In the history books and blogs of the future, May 2019 could well be viewed as a turning point, certainly in the history of China-US relations, and possibly of China itself. The importance of the Chinese decision to revise the working draft of the trade war peace treaty cannot be over-emphasized. This feels not like a blip, but a defining moment. The consequences are unknown, the visibility close to zero. But what we have now is something beyond a preamble to trade war. There are many options each side can use. China could sell off its US treasuries and not buy Boeings, and it could restrict global access to rare earths, which is a really heavy nuclear option. The US could place an ever greater range of controls on China access to US markets and technology and indeed access to the international financial systems. Every step by each side would raise the ante and cause a reaction. And so we are left with the core questions – who needs who more, and who is likely to blink first. It is that stark and definitive. And one more question: What would be, or have been, the systemic consequences of reviving the deal that was so close to being done?
Official China’s public reaction to the situation also shifted suddenly this week. The gloves came off, and a muted state media turned strident and defiant. In five thousand years, China has faced any number of challenges, what matters a trade dispute with the United States? China can go it alone if necessary, and the Americans are simply picking up a rock to drop it on their own feet. Actually, we haven’t yet seen that last phrase, used so frequently in the 1960s and 1970s, but it’s probably being readied for re-launch.
Things got a lot tougher for Huawei as well this week with the United States declaring Huawei to be on the restricted list for US tech companies in a wide range of ways. We asked in last week’s missive if Google’s Android operations system would be pulled, and it effectively has been. No more upgrades for Huawei smartphones using the software. Potentially even more devastating is the announcement by chip design firm ARM that it would cease all cooperation with Huawei. Basically every Huawei device includes an Arm chip or CPU, and industry pundits reacted categorically about the implications. It is always possible that Trump or the Commerce Department grants a waiver, but it’s feeling unlikely at this point.
Another sign of the times: American actors are reported to be being pulled out of and written out of Chinese film and TV drama productions, which will result in a drastic fall in facial hair presence in Chinese movies, as virtually all foreign males have beards, as is well known.
Enjoy the summer weekend ahead.