intellectual property) any more than the Chinese will admit doing them because the public relations’ costs of
admitting to doing them are too great. When they are looking for supporters of their causes, all leaders want to
appear to be the leaders of the army that is fighting for good against the evil army that is doing bad things. That is
why we hear accusations from both sides that the other is doing evil things and no disclosures of the similar things
that they are doing. As a principle…
When things are going well it is easy to keep the moral high ground. However, when the fighting gets tough, it
becomes easier to justify doing that which was previously considered immoral (though rather than calling it
immoral it is called moral). As the fighting becomes tougher a dichotomy emerges between the idealistic
descriptions of what is being done (which is good for public relations within the country) and the practical
things that are being done to win. That is because in wars leaders want to convince their constituents that “we
are good and they are evil” because that is the most effective way to rally people’s support, in some cases to the
point that they are willing to kill or die for the cause. Though true, it is not easy to inspire people if a practical
leader explains that “there are no laws in war” other than the ethical laws people impose on themselves and
“we have to play by the same rules they play by or we will stupidly fight by self-imposing that we do it with one
hand behind our backs.”
Regarding the trade war I believe that we have pretty much seen the best trade agreement that we are going to see
and that the risks of this war worsening are greater than the likelihood that it will improve, and we won’t see any
treaty or tariff changes anytime soon as all trade negotiations are on hold until well after the US presidential
elections. Beyond the elections, a lot hinges on who wins and how they will approach this conflict. That will be a
big influence on how Americans and the Chinese approach the Big Cycle destinies that are in the process of
unfolding. As things now stand, the one thing, maybe the only thing, that both US political parties agree on is
being hawkish on China. How hawkish and how exactly that hawkishness is expressed and reacted to by the
Chinese are now unknown.
How could this war worsen?
Classically, the most dangerous part of the trade/economic war comes when countries cut the other off from
essential imports (e.g., China cutting the US off from rare earth elements that are needed for the production of lots
of high-tech items, auto engines, and defense systems, and the US cutting China off from essential technologies)
and/or from essential imports from other countries (e.g., the US cutting China off from semiconductors from
Taiwan, crude oil from the Middle East or Russia, or metals from Australia)—much like the US cutting off oil to
Japan was a short leading indicator of the military war that followed. Thus far we haven’t seen this, though we
have seen movements in this direction. I’m not saying such a move is likely but I do want to be clear that moves to
cut off essential imports from either side would signal a major escalation that could lead to a much worse
conflict. If that doesn’t happen evolution will take its normal course so international balances of payments will
evolve primarily based on each country’s evolving competitiveness.
For these reasons both countries, especially China, are shifting to more domestic production and
“decoupling.”2 As President Xi has said, the world is “undergoing changes not seen in a century” and “in the
current external environment of rising protectionism, downturn in the world economy, and shrinking global
markets, [China] must give full play to the advantages of the domestic super-large-scale market.” Over the last 40
years it acquired the abilities to do this. Over the next five years we should see both countries become more
independent from each other. Obviously the rate of reducing one’s dependencies that can be cut off will be much
greater for China over the next 5-10 years than for the United States.