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US Tries to Counter China’s Maritime Dominance
China’s “century of humiliation,” as President Xi Jinping likes to call it, arrived by sea, with foreign merchant vessels backed by naval assets. More than one and a half centuries before China joined the World Trade Organization, the British forced it into the global trading system in a highly subjugated form.
When neighbor Japan was presented with something similar in the 1850s, via an American ultimatum presented by Commodore Matthew Perry, Japanese modernizers, viewing the China experience, quickly understood the importance of controlling your own maritime trade. While China trading was dominated by Western “hongs” such as Jardine Matheson, Japan built its own trading houses — which are still thriving today (Warren Buffett is a big fan.)
China in turn had Japan’s example when it kicked off its own economic modernization in the aftermath of the ruinous decades under Mao Zedong. In maritime infrastructure, Beijing took Tokyo’s game plan and supercharged it. Since the 1990s, China has become the world’s dominant shipbuilder, has one of the biggest shipping firms in Cosco Shipping plus the top port builder in China Communications Construction.
Now, the US has identified China’s maritime preeminence as a construct of its mercantalist industrial policy, as well as a potential geo-economic chokepoint. Following on a Biden administration investigation, the Trump administration in late February kicked off a potential escalating scale of fines for using China’s commercial ships.
The big question though is whether Washington is truly ready to spend the money to rebuild a capacity the US outsourced long ago. With President Donald Trump’s incoming chief White House economist this week calling for an industrial policy putting national security at its core, this will be an area worth watching.
This week in the New Economy
- Traders place bets on the end of sanctions on Russia.
- Indonesia is stoking fiscal concern with a big bond sale.
- A massive blackout in Chile cuts off power to 8 million people.
- Trump goes beyond tariffs in his biggest salvo yet against China.
- India looks at tariff cuts on chemicals and cars to head off US levies.
China’s history of being exploited by Britain, the US and others provided a harsh lesson in the leverage offered by controlling maritime trade. Not only did foreign trading outfits benefit from so-called unequal treaties, their assets were protected by patrols up the Yangtze River by the Royal and US Navies — through deployments called the China Station and Yangtze Patrol. The equivalent would be Chinese gunboats patrolling the Mississippi River.
Today, not only does China’s Cosco handle containers and freight between Chinese ports and the nation’s trading partners, but it also oversees a share of trade between third countries — such as shuttling goods back and forth between Spain and Brazil over the Atlantic Ocean. Alarm about this rising global dominance is shared on a bipartisan basis in Washington.