Pearls and Irritations

Those who curb real trade and expand financial sanctions don’t seem to understand the likeliness of a destructive outcome for all. The West is wrecking the foundations of its prosperity.

The United States has struck another blow at free trade. This week, US President Joe Biden announced wide-ranging tariff increases, including to 100 per cent for Chinese electric vehicles, 50 per cent for semiconductors and solar cells, and 25 per cent for certain batteries, gloves, and steel and aluminium products.

This comes after US Treasury Secretary Janet Yellen decried China’s “overcapacity” during her visit to the country last month. It feels like any state that dares to challenge Western dominance in any field can expect to face a barrage of weaponised tariffs and other containment measures.

In April, the US passed a law forcing Chinese parent company ByteDance to divest itself of TikTok or face a ban on the app. The world waits for China’s next move in this tit-for-tat rivalry. In a year of US electioneering excesses, if either side loses its cool, we could be on our way to a nuclear war.

There are signs that the great powers are preparing for an unbound war, in which competition means a no-holds-barred retaliation against any move seen as an existential threat.

Despite the demonising of non-Western leaders, their behaviour is far more rational than the sabre-rattling rhetoric of their Western counterparts. A sober reading of the conflicts in the Middle East shows that it is the West that is being emotional, whereas the Middle Eastern countries excluding Israel are being rational and strategically patient despite the atrocities in Gaza.

If there was really jihad, the Middle East would be in flames, but largely governments in the region, including Iran, have shown remarkable restraint, knowing that any escalation in war would disrupt their quest for peace and prosperity.

Reading last month’s Foreign Policy piece “No Substitute for Victory” about the US-China competition, by former US congressman Mike Gallagher and former deputy national security adviser Matt Pottinger, one wonders if the Washington elite have learned anything from the Ukraine war.

What is the meaning in victory if it requires fighting down to the last Ukrainian? Or when Israel is wreaking vengeance on Gaza – compare the 24,686 fully identified fatalities reported by Gaza’s health ministry since October 7 to the about 1,200 killed in and 250 hostages taken from Israel – and the US is standing by?

In the past, wars stopped when protagonists ran out of money or arms. But with central banks readily printing money nowadays, wars will only stop when there is so much inflation or debt that nations go bankrupt.

Britain was able to finance its Napoleonic wars because it could raise long-term bonds, but by fighting two world wars to exhaustion and debt, it forfeited the sterling’s reserve currency status to the US dollar. Thus in Russia, where defence expenditure is rising, President Vladimir Putin has just appointed an economist as his new defence minister.

US defence spending, which is higher than the combined spending of the next nine biggest military spenders, is also looking problematic.

US proposes new round of tariffs on China in latest trade war escalation

The US not only accounts for 40 per cent of the world’s military expenditure but also 40 per cent of global bond markets and 40 per cent of the world’s market capitalisation. In the financial year so far, the country has spent more on debt interest than on defence and health insurance; the US is funding its military spending with debt.

So what would it mean for global financial markets if the dominant global power was to fight – and lose – a war?

In present-day warfare, even before reaching the nuclear stage, the expectation is that each side will seek to cut the other’s undersea cables, which carry the bulk of internet traffic, and attempt to blind the other by destroying space communications satellites.

With the internet down, the world can say goodbye to digital currencies and financial transactions as we know it. Cloud computing is unlikely to survive in this extreme scenario. The only asset with no counterparty risk is physical gold, provided you have it within your national borders. All other financial assets that thrive in digital markets may disappear because the underlying infrastructure will be gone.

Those who play with fire by curbing real trade and spreading financial sanctions do not seem to understand that along that way lies mutually assured destruction.

It would be too much to hope that the silly season will end once the US presidential election concludes in November. Former president Donald Trump has promised to increase tariffs on Chinese cars to 200 per cent if he is elected. That would mean Chinese car companies shifting production to Mexico, Brazil or Southeast Asia to continue to export to a West hungry for green transport.

For every “tik”, there is a “tok” – making the whole game messier and more complex and unpredictable. The rest of the world is trying its best to respond rationally to an emotional West wrecking the foundations of its prosperity.

How does that Hollywood movie end?

In the classic film Apocalypse Now, a retelling of Joseph Conrad’s novella Heart of Darkness set in the Vietnam war, a Captain Willard is sent to kill the renegade Colonel Kurtz, who so despairs of the futility of the war he waged on behalf of the US that, faced with his death, he says: “You have to have men who are moral and at the same time who are able to utilise their primordial instincts to kill without feeling, without passion, without judgment. Without judgment! Because it’s judgment that defeats us.”

As Willard kills him, Kurtz whispers his last words, “The horror, the horror …”

Republished from the South China Morning Post, May, 2024

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