Eagle vs. Tiger: The Economic Undercurrents in America’s Trade War with China

Eagle vs. Tiger: The Economic Undercurrents in America’s Trade War with China


Jonathan Dinsmore




Is America’s trade war with China due to their communism, or is there a subtler economic motive, involving differences of opinion about capitalism and it’s relationship to the state? Why is China doing so well economically, and why does the capitalist West see this as a threat? Is it merely because arrogant Americans don’t want to be outdone, or is there something more to the plot?

The story of modern history is, among other things, a story of economic models. The gradual transition of much of the world from tyranny to democracy and capitalism around the time of the enlightenment opened a variety of possibilities, and of course, the communist opposition. Mostly, these possibilities revolved around the relationship that the (hopefully democratic) state should have with the market, or private sector.

The neoliberal model, also sometimes called the Anglo-Saxon model, what we have in America, is quite different from the European model(s), for instance, and the primary difference is in the relationship of the state to the market.

The neoliberal model values the minimal amount of government involvement possible, believing that the supply and demand of the market is the ultimate force for good. Other models, like some of the European or Asian ones, see the market as a wild beast which must be regulated and controlled by the state. Another way to conceptualize this fundamental question is, how much control should be given to the people as a whole (democratic state), or to the wealthy few (capitalist private sector)?

In a way, the world is like a giant geopolitical and economic laboratory, and each country is a trial of a particular formula. Economic diversity, like biodiversity, is a good thing, as we can look upon the various trials being run in the world, and see what kind of results different systems produce, that we may be more informed when we choose how to move forward.

So, in the interest of seeing which systems are producing what, what are these opposing forces represented by the neoliberal Eagle, and the state capitalist Tiger?


The Asian Tigers


In the 1970s, an overall economic trend emerged in the East, perhaps due to it’s proximity to communism, involving the state having a much more prominent role in the economy, particularly in the finance sector. Operating by this model has resulted in rapid growth for several countries, for which some economists have coined the term “Asian Tigers.”

The four countries officially listed as “Asian Tigers” don’t include China, but they probably should, because they involve a similar economic model to that of China. For the sake of this article, I’m considering all rapidly growing Asian state capitalist markets as “Asian Tigers”, including China. The growth which these East Asian states experienced in the latter half of the 20th century has been called the “East Asian Micracle”. The miracle is that very under-developed countries rapidly advance to having powerful economies more much more quickly than Western countries typically do.

A variety of factors are given credit, and of course each economist’s bias effects whether they think instances of trade liberalization or state intervention were responsible. However, overall, a particular economic model has emerged in East Asia, which involves a prominent role of the state in guiding the economy, something that is considered blasphemy here in the “capitalist West.” Economists today call it the East Asian model, and government oversight of industry and finance increasingly seems to be the reason for this “miraculous” growth.

Although there are many widely varying societies in the region, political scientist Bruce Gilley points out that there is a common thread of state-guided capitalism in East Asia. This heavy role of the state is justified by the fact that “public interest in economic growth takes precedence over individual or other particular interests”. Translation: The overall economic needs of the people take precedence over the interests of the minority of wealthy capitalists.



The Power of State Banking


One of the most essential elements of this model is state control over finance. Private ownership of banks, and in particular central banks, has long perplexed me and many others. Why should private banks be able to create money from thin air and collect interest on it from the government and other large private banks, for the profit of their shareholders? Couldn’t the same stabilizing, money-creating function be served by a state-owned bank? Why doesn’t our government create it’s own money, interest-free?

Apparently, that’s more or less what’s been going on in China, and it’s working really well. Back during the Asian financial crisis (in the 90s), the neoliberal economists were pressuring and advising China to privatize their financial sector, as they always do, and China actually resisted, and chose to maintain majority state ownership of their biggest banks. There followed no shortage of criticism, of course, from the neoliberal consensus. As Guy Williams in his article The Evolution of China’s Banking Systems put it:

China’s approach to banking reform is often portrayed as anti-market or obstructionist, but this could not be further from the truth. Since Deng Xiaoping, the architect of China’s economic reforms, its leaders have all had a strong belief in the power of the market to transform the economy. But they view the market as a ‘double-edged sword’, which can promote economic instability or even a crisis if it is poorly regulated.

That sounds like a pretty sober assessment to me, given the financial crises we have faced in our relatively unregulated financial markets here in the West since the 1970s — coincidentally, the same period of time we’ve been ruled by neoliberal economics. It’s pretty simple, if you don’t set fair-play rules, a few opportunists will play the system to get rich quick and leave the rest of us up a creek without a paddle. That’s what happened most recently in 2008, and China has managed to largely avoid such situations by keeping the banks firmly under the control of the state.



Sounds Like China’s Banks Need Some Freedom


As any studious observer of neoliberalism will know, there is a very real world-wide neoliberal conspiracy to eradicate state involvement in anything other than upholding property rights, and perhaps securing the occasional resources in neocolonial wars. So, it should come as no surprise that when China enjoys the benefits of a social market economy with a heavy role of the state, our resident Wall Street psychopathic billionares are not enthused.

This is evidenced by the recent U.S. trade war with China, which consists mostly of imposing tariffs to apply pressure for them to change their policies. Yet in this whole political circus, there’s a very real danger that the economic picture behind the trade war will go totally unnoticed, mostly because people find economics boring. Even those who don’t find it boring often have a free-market dogma that is extremely common among economists. Luckily, that is changing.

Since the financial collapse of 2008, the necessity for the state’s involvement in the economy became clear, and state intervention is why we have weathered the storm as well as we have. But not all the laissez-faire apostles have died out, of course, and the empire has struck back, particularly during the Trump administration, which is trying to de-regulate and privatize anything it can.

If you’ve been paying attention at all, then hopefully by now you realize that this neoliberal form of capitalism is simply the new aristocracy attempting to install their own kind of corporate autocracy. As far as I can see, the real battle raging in this trade war isn’t East vs. West, it’s People Power vs. Money Power, and although China has its own issues with authoritarianism, perhaps when it comes to economics, they really are putting the success of their people as a whole first. What’s more, they are only one of many nations who see the enormous benefits of keeping the private sector in it’s place.


This article originally appeared on Medium.


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