China ‘senses weakness’ from Biden over the South China Sea
With the US and China vying for dominance as the world’s largest economy, US-based multinational companies are investing heavily in China in spite of threats by Beijing to invade Taiwan by force if necessary. China’s financial services market boasts a $45trillion dollar potential and could be the reason why companies such as JP Morgan Chase, Goldman Sachs and Blackrock are all turning a blind eye to the human rights abuses, the aggressive stance towards Taiwan, and the rising presence of Chinese interests across the globe in the One Belt One Road Initiative.
Here then lies the dilemma for the US government and Joe Biden.
On the one hand, the US does not officially recognise Taiwan as an independent state, yet has agreements in place to protect the breakaway island from China, demonstrated recently with the supply of dozens of US Marines.
Outside of the US, other nations private entities have also followed suit. UK-based banks and financial institutions are also keen on taking a slice of the pie from the Chinese market.
Standard Chartered, Schroders and Prudential have all expressed an interest in increasing their ties in China, further demonstrating that financial reward comes before political policies.
The economy is a key binding factor in SIno-US relations
JP Morgan is one of many Western MNC’s to invest in China
As the United States government floats around the notion of ‘decoupling ‘ from China, the strings that need to be cut appear to be far too thick to simply cut loose.
The US deficit to China currently stands at around $300billion in goods, a figure that has risen in the last 12 months in spite of tariffs and attempts by former President Donald Trump to reduce the sum.
For Mr Biden, picking up the pieces of the broken economy left behind by Mr Trump, with the added burden of the impact of the COVID-19 virus on top, means that any growth the US see’s may be positive, yet comes with a caveat.
As the US relies heavily on China for its manufactured goods, the faster the US grows in the post-pandemic period, the larger the deficit will grow with China as the US is forced to import more.
Would Western states back Taiwan if China invaded?
Furthermore, the decline of the US dollar as the world’s reserve currency is also something that the Biden administration must consider with great attention.
China has vowed to move away from the dollar when it comes to trade, with the introduction of the digital Yuan on the horizon, making its market more accessible to other nations, without the need to rely on the US or its greenback currency.
Should this happen, the US economy will weaken further, and allow China to gain the upper hand in the international arena.
An expanding Chinese presence within international trade agreements also allows the Chinese to remain one step ahead of the USA, who under Mr Trump, pulled out of so many.
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Donald Trump tried to reduce the US deficit to China
The impact of China invading and reclaiming Taiwan would pose a significant conundrum for Mr Biden. Interference in the conflict could result in a global crisis that will immediately affect the financial markets and plunge the many US-based MNC’s in China into turmoil, costing billions in dollars, and hundreds of thousands of jobs in the process.
Yet, on the other hand, China has to play devil’s advocate over a conflict with Taiwan. Although it is highly unlikely that foreign nations would become embroiled in a war with China to protect Taiwan, the MNC’s would be forced to withdraw, costing China billions in foreign direct investment in the process.
It seems that the current status quo in the Indo-Pacific remains the litmus test for Sino-US relations.
As the focus of attention turns away from the Middle East and into the South China Sea and Pacific, the flexing of muscles, shows of force, and the creation of security pacts are all designed to divert attention away from the undeniable economic interests both China and the USA enjoy with each other.
The US Treasury cannot afford another war
For Mr Biden, the emulation of private equity companies is an obligation for the US government as it vies to recover from the Covid pandemic, avoiding ‘thorn in the side’ issues such as human rights violations and conflict over Taiwan, in favour of financial security as it builds up its economy, delaying the inevitable Chinese catch-up in the process.
Finally, the cost of war is something that has reminded the US Treasury that priorities have changed in recent times. Costly wars and occupation in Afghanistan, Iraq and Syria have delivered no reward or results, and hence influenced Mr Biden’s decision to act on Mr Trump’s policy to withdraw, and put a stop to “endless wars”.
The ball now lies firmly in the court of Beijing, who on the one hand, continue to flex their muscles, yet on the other, have the time and tools to pick and choose their next shots wisely.