A new dimension to the US-China Trade War: The Blue Dot Network!

U.S. officials have recently revealed America’s belated rival to China’s trillion-dollar Belt and Road Initiative global infrastructure plan. President Donald Trump now has his Blue Dot Network, with the help of the Japanese and Australian governments. In the backdrop of ongoing US-China Trade war, US decides to add a new dimension to it and confront China directly on its trillion dollar infrastructure plan.

Our earlier write up on the subject

The plan, as the U.S. Overseas Private Investment Corporation explains it, is to “promote high-quality, trusted standards for global infrastructure development in an open and inclusive framework.” The swipe at BRI for wrecking ecosystems and creating debt traps for developing nations is plain.

Trump wants to curb China’s gambit to curry favor with governments from Asia to Latin America. With the Blue Dot Network, Trump wants to turn attention away from his trade war with China, where he is desperate for a “phase one deal.” With tariffs backfiring on growth and farm bankruptcies swelling, the U.S. leader wants to declare victory, real or imagined, and move on.

What is equally clear, however, is that attacks on China will not now diminish, only broaden through the 2020 election, which will be open, bipartisan, season for China-bashing. Markets must beware.

Trump’s pivot from tariffs spells domestic political concerns writ large. All the theatrics surrounding his trade talks with Xi are a recognition that import taxes are backfiring. These levies on hundreds of billions of dollars of Chinese goods are not helping to raise U.S. growth to the promised 5%-6%. What they are doing is producing a 24% jump in bankruptcies among farmers, in states Trump needs come November 2020. This dynamic increases the odds Trump will agree to some face-saving trade pact with Beijing. The plan is to declare victory and take his China battle in new directions.

However, critics counter that this push may be too little, too late; it lacks the lending function that give Xi’s Belt and Road plan traction. That might change if Trump gets a critical mass of Democrats on board.

The US-China Trade War

There are longer-terms plans. The Blue Dot Network targets Xi’s designs on the global hardware game — roads, bridges, airports and power grids. Its name derives from astronomer Carl Sagan’s observation about how the Earth appears from outer space. Under this network, Australia, the US and Japan will provide technical expertise, rather than huge amounts of investment and capital. In addition, Blue Dot Network was about providing foreign companies, often reluctant to invest in developing countries due to concerns about corruption or climate change, the right information about which projects to invest in. 

Trump also recently added another 28 Chinese companies to Washington’s export blacklist. The so-called entity list takes direct aim at Xi’s Made in China 2025 vision. Team Trump hopes to hobble any mainland company that might dominate the future of microprocessing, automation, renewable energy, artificial intelligence and robotics i.e. the software of tomorrow’s economy. 

Until now, the trade war has been driven by hard-liners like Trump adviser Peter Navarro. They aim to contain the geopolitical rival via economic pain and limiting access to U.S. technology and finance. Now, says Arthur Kroeber of Gavekal Research in Beijing, “a third corner needs to be added to this debate: values advocates who believe that China must be confronted over its efforts to suppress culture and local autonomy in Xinjiang and Hong Kong.”

The Xinjiang controversy relates to Beijing turning a Muslim-majority region into a totalitarian surveillance state. The latter is about Xi reneging on commitments to Hong Kong’s one country, two systems status to exert more mainland control. 

The U.S. House of Representatives is pushing for annual certification to maintain normal economic ties. Two of Trump’s biggest rivals for 2020, progressive Senators Elizabeth Warren and Bernie Sanders, will have lots to say about China’s policies. Warren, for example, wants to tie labor rights and carbon emission levels to access to U.S. markets. Sanders would punish China for manipulating its currency.

“So even assuming that a trade deal gets done next month, 2020 could still be an ugly year in U.S.-China relations,” says Kroeber. Herein lies the risk to global markets as the U.S. presidential battle heats up.

This next phase of U.S.-China tensions could be rough in world markets. Electioneering is sure to feature a China-bashing arms race between Trump and his Democratic rivals. Currency, bond and equity markets may be caught in the crossfire as candidates vie to look tough on Beijing. Those crosscurrents are the last thing allies from Japan to Singapore to South Korea need. Add in Trump’s impeachment troubles, and the election year ahead could mean a wall of worry for Asia.

The information shared in the article above appeared first in Japan Times and South China Monitor, edited and reproduced further by our senior editor who may further be contacted at admin@strategiccognizance.com.

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