United States and China — a monumental shift

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The ongoing trade war between China and the United States will have consequences for Pakistan. It was in the late 1960s when then Foreign Minister Zulfikar Ali Bhutto fell out with President Ayub Khan who developed close relations with the United States. The relations were so close, that on his state visit to Washington, then President John F Kennedy want to receive Ayub Khan at the airport when his plane landed.

This is hardly ever done by the American president. But Bhutto was of the view that close relations with China was of great advantage for Pakistan. China was one of Pakistan's four neighbours. The other three were Afghanistan, India and Iran. The first two had difficult relations with Pakistan. Bhutto was of the view that working with China, Pakistan could balance India's economic and military might.

History proved Bhutto to be right. That provides me with the context to discuss the split between China and the United States. Whether that was his intention or not, United States President Donald Trump used trade policy to win what he saw as the growing battle between his country and China.

After the end of the Second World War, America had fought a "cold war" against what was then the Union of the Soviet Socialist Republics, or USSR. That conflict lasted for almost half a century — from 1945 to 1991. In 1991, the USSR collapsed with its constituent parts gaining independence. The largest of these was Russia which focused first on consolidating its political system and economy. It was only with the arrival of Vladimir Putin as president that Russia once again arrived on the global scene.

In the meantime, China emerged as a significant global player. One of the most important moves by Deng Xiaoping as the supreme leader was to open the country to the world outside. The opening produced extraordinary results. The Chinese economy grew at an unprecedented rate and significant amounts of the addition to the government's revenues were spent on helping the poor.

By the time of the dawn of the 21st century, China had eliminated poverty in both urban and rural areas. Deng Xiaoping succeeded Mao Zedong in 1976. From 1980 to 1988, under Deng's leadership, the size of the Chinese economy grew eight-fold, becoming the world's second largest after that of the United States.

Not only did the economy grow, it was also reshaped. From being a producer mostly of cheap goods produced by low wage workers, the Chinese government as well as private entrepreneurs began to invest large sums of money into technologically advanced activities. Significant amounts of the products produced by these new sectors of the economy found their way into the markets of the West, in particular to the United States.

One consequence of large imports from China was to close factories in several parts of America; in particular the mid-West. The unemployed were attracted to Donald Trump who won people's support by using the "Make America Great Again" slogan. The acronym of the slogan- MAGA created what have come to be known as MAGA Republicans. One way of putting these people to work was to bring production back to the less-developed parts of the United States. To make that happen, Trump sought to make Chinese production not competitive with what could be produced at home.

"A dizzying escalation of tariffs unraveled a trader relationship between the United States and China forged over decades, jeopardizing the fate of two superpowers and threatening to drag down the world ebony," wrote The New York Times in a story to which four of its correspondents contributed. "The brinkmanship displayed by the two countries has already exceeded the battles they waged during President Trump's first term. In 2018 and 2019, Trump raised tariffs over China done over a period of 14 months. The latest escalation has played out mostly over a matter of days, with levies that are far greater and apply to broader swath of goods."

Rather than remake its industrial sector so that it did not compete with the United States, China decided to fight back. The government headed by President Xi Jinping chose to apply tariffs to imports from the United States. On April 9, Trump countered China's decision to match his 50 per cent levy - a penalty for Beijing's countermeasures to earlier US tariffs.

Washington imposed additional tariffs, raising the rate on Chinese imports to at least 145 per cent. Not only were there rounds of tariff increases, but Beijing also took steps that would cause real harm to the United States' economy. There were menacing reminders from Beijing that it could choke off the supply of critical minerals in some of which it has virtual monopoly. These are needed for manufacturing technologically advanced products.

The effect of the tariffs will be felt in both China and the United States. According to Wendong Zhang, an assistant professor of applied economics and policy at Cornell University, 73 per cent of smartphones, 78 per cent of laptops, 87 per cent of video consoles and 77 per cent of toys in the United States come from China. This tit-for-tat fight between the two economic superpowers worried experts. "We are approaching a monumental train wreck breakup," said Orville Schell, the Arthur Ross director of the Center on US-China Relations at New York. "The fabric that was so carefully woven together for last several decades is ripping part."

Experts were not prepared to predict which of the two super economic powers would blink first. Economists were predicting that the growing divide between the two countries could drive the United States economy into recession. At the same time the Chinese economy, under considerable strain, would be further hurt by the painful divorce from its biggest trading partner from which it buys more than $400 billion worth of goods each year.

For small businesses in both the United States and China, this sudden rupture in the long-developed and cultivated relationship is devastating. One of the many examples of the businesses that will suffer is the one established by John K Thomas whose enterprise in California makes electric thermometers for animals that is dependent on importing electric components made in China.

He has customers in China but with the tariff war in place he has scrambled to pull together to meet the growing Chinese demand. But "we are close to being priced out of the Chinese market," he said. "At 84 percent tariff we are completely shot out."