US tariff fight ignores changed geopolitics

US tariff fight ignores changed geopolitics

Tue, 27/03/2018 - 12:28
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China rail

LINKS: China’s Belt and Road Initiative is creating a new hub and spoke network that sees ports being paired with rail. Photo: David Gubler

There has been much talk about who will be most affected by the tariff war between then US and China.

There is already evidence the decision by the US is starting to unravel, with the country pleading with China to keep receiving waste from the west. As some in China have commented, the US should be left to drown in its own swamp.

While the tariffs point to a battlefront, many commentators are ignoring the impact that the Belt Road Initiative is determining the overall outcome of the trade war.

It can be argued the US action has been misdirected and demonstrates its lack of understanding or appreciation of the geopolitical factors in play. 

By resorting to a mercantilist tactic, it has failed to recognise China’s drive to revive national pride without a direct challenge but through a sophisticated strategy based on the classic Sun Tzu principle of destroying an enemy without having to resort to fighting.

With my recent trip into China to present a paper on the BRI, it was clear Western observers had a focus on whether the initiative will happen, as well as the commercial viability of such an audacious plan. 

The focus is driven by the West’s obsession with measuring investment in terms of a business case and commercial returns.

Little thought is given to the softer elements that have a long-term focus based on other strategic factors.

While there are issues to be overcome, the BRI is already progressing and the scope extends beyond simply building infrastructure.

It is building a logistics and transportation network that connects markets within Eurasia while redressing China’s unbalanced socio-economic development by shifting development towards the western and inland regions.

These regions promise high economic growth with strategic resources made possible by building infrastructure that connects and links manufacturing with key markets.

What is emerging is that the BRI is resetting the ‘logistics paradigm’ by creating a new hub and spoke network that sees ports being linked with inland transshipment zones by being paired with rail.

Just as a country has an energy mix to produce optimal deliverable electricity, so to must it have an optimal mix in transport modes to sustain economic growth.

Currently, China rail accounts for only 1.5 per cent of its trade volume. Discussions have revealed that the focus is now to pair ports with rail, such that a minimum of 20 per cent of trade volume with Europe will go by rail.

This is already evident with the likes of IBM, Lenovo and other laptop/IT companies moving away from ocean freight to rail.

While much focus is on the maritime routes, it should be noted that maritime and land-based elements within the BRI are connected under three broad economic passages, referred to as the blue economic passages.

These passages have been developed to protect China’s import-export supply chains.

The three passages are:

  • China-Indian Ocean/Africa/Middle East.
  • China-Australia/South Pacific.
  • China-Russia/Northern Europe via the Arctic.

These corridors have already realised trade of $US1.3 trillion in 2017, with 200,000 jobs having been created along the BRI. We already see that 35 per cent of Shanghai Port trade volume goes to BRI countries.

Furthermore, there is increasing evidence of shipping companies, such as Nippon Express, developing short sea routes that link ferry with European intermodal networks.

It could be argued that shipping is moving from a ship-centric model to more a cargo-centric services concept. The move appears to be drifting towards vertical integration. A goal of the BRI is to move one million TEUs (twenty-foot equivalent unit) of cargo from China into Europe by 2021.

China also manages 77 sea terminals in the region, including countries such as Indonesia, Australia, Malaysia and Thailand. These are paired to a 35-rail line network connecting Eurasian trade facilitated by 19 free trade Agreements.

This network gives China alternative markets, as well as creating options to relocate manufacturing to low-cost centres.

What does this mean for the US?

In simple terms, the BRI has shaped and developed a powerful new economic and trade block. The announced tariffs by the US would have been effective at the height of its economic dominance, but the geopolitical and socio-economic transformation of trade and economics has allowed China to insulate itself.

It is a paradox that as China pushes for more open trade, the US turns to nationalistic approaches.

By providing the means to build infrastructure that connects Eurasian markets, it gives not only China but also all of Europe, the ability to turn its back on the US. By enabling onshoring manufacturing, this gives Eurasia a powerful economic voice as the rising Asian middle class becomes accessible, potentially replacing the US market.

In some ways this own goal by President Donald Trump has already started the process as Europe threatens countermeasures and turns to Asia and China in particular, to secure markets.   

 

Andre Wheeler is CEO of Asia Pacific Connex, and is currently working towards his Doctorate on the Impact of the Belt and Road initiative on infrastructure and logistics in the ASEAN Region. He has also published and presented a number of papers concerning China’s Belt Road Initiative and the changing Eurasian trade paradigm.