The Tik Tok tariff war

This Tik Tok stage of US-China rivalry is downright dangerous. — Reuters

THERE is a horror movie unfolding whereby the Hollywood hero, after trying garlic and all, is now driving a stake at the heart of the Chinese Dracula.

US president Joe Biden’s imposition of a 100% tariff on China-origin electric vehicles (EVs) and 50% tariffs on semiconductors and solar cells, plus 25% on a range of batteries, gloves and certain steel and aluminium products is another blow to free trade.

Taken together with US Treasury Secretary Janet Yellen’s comment about Chinese “overcapacity”, you get the feeling that if anyone begins to challenge Western dominance in any field, they will face a barrage of weaponised tariffs, non-tariffs and containment measures.

So far, everyone is waiting for some clues on China’s next move in this tit-for-tat game of US-China rivalry. The world is now at a dangerous phase of electioneering excesses, whereby if anyone loses his cool, we could be on the way to nuclear war.

This Tik Tok stage of US-China rivalry is downright dangerous.

On March 13, 2024, the United States passed the “Protecting Americans from Foreign Adversary Controlled Applications Act”, which effectively meant that if Tik Tok owner Bytedance did not sell the app to American owners, Tik Tok would be shut down.

The Great Powers are preparing for “War Unbound”, in which competition means “no holds barred” retaliation on any move by the other side that is seen as an existential threat.

Despite the demonising of non-Western leaders, they are far more rational than the current war-rattling rhetoric of Western leaders.

A more sober reading of the conflicts in the Middle East has shown that it is the West that is emotional, whereas the Middle East countries-ex Israel are being rational and strategically patient despite the atrocities in Gaza.

If there was a real jihad, the Middle East would be in flames, but governments from the Gulf to Iran have shown remarkable restraint, knowing that any war escalation would disrupt their search for peace and prosperity.

When you read former US Deputy National Security Adviser under the Trump Administration Matt Pottinger and US Congressman Mike Gallagher write about “No Substitute for Victory” against China in the influential journal Foreign Affairs, one wonders whether the Washington elites have learnt anything from the ongoing Ukraine war?

What does Victory mean when the North Atlantic Treaty Organisation is fighting to the last Ukrainian? Or when Israel can commit outright venocide (vengeance of 24,686 fully identified deaths out of the total 34,622 fatalities recorded in Gaza as of April 30) versus 1,200 Israeli deaths and 250 hostages with the United States blocking the United Nations’ resolutions for ceasefires?

In the past, wars stop when the protagonists ran out of money or arms. But in this day of central bank printing of money, wars will only stop when there is so much inflation, debt or deaths that nations go literally bankrupt.

Britain was able to finance its Napoleonic wars because it could raise long-term bonds, but by fighting to exhaustion in two World Wars on debt and Lend-Lease, it forfeited its reserve currency status to America.

Perhaps drawing on the lesson to have more bang for the buck to fund an escalating defence expenditure, Russin President Vladimir Putin has appointed an economist to be his new defence minister.

America also has a problem with rising defence expenditure, which is larger than what the next nine countries combined. The United States accounts for 40% of the world’s military expenditure, because it also accounts for 40% of global bond markets and 40% of the stock market capitalisation (SIFMA Fact Book 2023) that can fund America.

In the first seven months of this year, net interest on the federal debt surpassed defence spending, health and social welfare. The United States is funding its military spending out of debt. But as the British empire found out, lenders do not take kindly to losers.

So we come to the Tik Tok question of what does losing mean for global financial markets?

The difficulty of discussing nuclear war is that there are no winners, only losers.

But even in a conventional war before reaching the nuclear stage, both sides will cut each other’s undersea optic-fibre cables that carry all the Internet traffic, including destruction of space communications satellites, in order to make the other side blind. With Internet down, goodbye cyber-currencies and financial transactions.

The cloud may not survive under such an extreme but plausible scenario. The only asset with no counterparty risks is physical gold, provided you have it within your national borders. All other financial assets that thrive under digital markets may disappear because the underlying infrastructure will be gone.

What I am saying is that those who play with fire in curbing real trade and putting financial sanctions do not understand that it can only have a MAD (mutually assured destruction) outcome.

It would be too much to hope that the silly season will be over when the US Presidential elections are concluded in November. Presumptive Republican presidential nominee, and former US President, Donald Trump has promised to increase tariffs on Chinese cars to 200%. That means China car companies will shift production to Mexico, Brazil or Asean to export to a West that is hungry for green energy transport.

For every Tik, there is a Tok that counters the first move, making the whole game more messy, complex and unpredictable.

The Rest of the world is learning how to respond rationally with an emotional West that is wrecking the foundations of its own prosperity.

How does that Hollywood movie end?

In the Vietnam war classic Apocalypse Now, a re-telling of Joseph Conrad’s classic Heart of Darkness, the hero is sent to kill the renegade Colonel Kurtz, who saw so much of the futility of war which he waged on behalf of America that he uttered in his dying lines: “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 judgement. Without judgement! Because it’s judgement that defeats us.”

As Willard kills him, Kurtz (played by Marlon Brando) whispers the end, “the horror... the horror.”

Andrew Sheng writes on global issues from an Asian perspective. The views expressed here are the writer’s own.