by Vince Dhimos
If you have been watching the trade war and the hate campaign against China and if you have noticed how this is working out for the West, it must have occurred to you by now: Is it economic suicide? Or are Washington politicians really brain dead (notice I did not use the s word – starting with stu, ending in pid. I’m trying to be nice)?
Let’s just do a cursory review, shall we?
Sanctions on Rusal shake global aluminium markets
In April 2018, the geniuses in Washington slapped sanctions on Rusal, a large Russian aluminium company supposedly to punish CEO Oleg Deripaska, who was accused of various crimes for which there was no evidence, just rumours, and which, even in the event he had committed them, would not have affected anyone in the Western world anyway. The sanctions immediately impacted the US aluminium industry because Rusal manufactured ingots, not finished products, and US aluminium companies had been relying on these cheap Russian made ingots to elaborate finished products such as castings, forgings, extrusions, etc. US aluminium manufacturers warned that if the imports were not restored soon, they would be going bankrupt. Finally, after almost ruining the US aluminium industry, Washington lifted the sanctions in January 2019 against the wishes of the Democrats in Congress, who put harming others far above the health of the US economy.
Bloomberg ran an analysis of the incalculable damage done by the Rusal sanctions to a host of Western industries and investment bankers and to the global supply chain. None of these things interested the US lawmakers who meddled in the aluminium trade and hence, in their own economy. This illustrates why US politicians are the biggest enemy of their own, and the global, economy. Remember that neither Russia nor China – nor any other country in the world – deliberately undermines its own economy to punish another country.
If Biden is elected in November, the sanctions on Rusal could be re-imposed.
The war on Huawei disrupts the electronics industry’s supply chain
Then came the Trump trade war with China, which carried on the effort to undermine the economy, supposedly to punish China for misdeeds that were for the most part unproven – and to prevent Chinese companies from the alleged intention to use exported electronic devices to spy on the US. Again, as in the Deripaska case, there was no evidence of any such intentions to spy or of the damage they might have caused the US in the outside chance they might exist. But anyway, the real goal was to hurt China as part of the US’s zero-sum strategy.
The epicentre of the war is Huawei, a company that has been more technologically advanced than any US company.
US politicians, who know a lot about manipulating their voters but nothing about economics, were so paranoid about the potential for this company to strip the US of all its precious secrets that they began bullying their allies not to trade with Huawei, or else. Trump managed to bludgeon the UK into submission with threats of sanctions, and London was forced to cut Huawei out of the major share it was to have in the UK’s 5G rollout. By reneging on its original contract with Huawei and stripping Huawei components out of its 5G project, the UK probably lost billions of pounds sterling at a critical time when no trade agreement has yet been reached with the EU. Finian Cunningham writes:
“The British government admits that this reversal will result in delays for modernizing the country’s telecoms services – seen as vital for economic development – and will add huge costs of up to £2 billion ($2.5 bn) for eventual replacement. Something which taxpayers and consumers will no doubt have to pay for.”
Now, you will admit that forcing trading partners to lose enormous amounts of money is not an economic strategy. Nor is it a viable diplomatic strategy that might improve US-UK relations.
But it gets worse
As part of its war on Chinese electronics, the US banned the sale of electronic components to Huawei and ZTE, and this ban extended to non-US companies, such as notably Taiwanese chip maker TSMC. Predictably, as with all unconsidered actions aimed only at hurting someone but without benefiting the US economy, the ban did not have its desired effect.
Firstly, it deprived US and other Western manufacturers of a lucrative customer and cost them money. Just like the Rusal sanctions, it was a shot to the foot.
Secondly, it caused the resourceful China to start manufacturing more of its own chips, which, according to CNBC, caused a 245% surge in the shares of Shanghai chip maker SMIC.
China’s response to the US restrictions is a perfect illustration of the difference between the Chinese win-win and the US zero-sum strategy.
While the US, in its attempt to undermine the Chinese economy, winds up hurting its own economy and the economies of its allies, China’s “retaliation” ends up making China stronger.
It’s easy to see who wins in the long run.