How the US-China Trade War Could Impact the South China Sea


Trade and oceans have always been integral parts in the struggle for global supremacy. In 1829, English adventurer Sir Walter Raleigh wrote: “For whosoever commands the sea commands the trade; whosoever commands the trade of the world commands the riches of the world, and consequently the world itself.” It was the case for Great Britain with the Pax Britannica in the 19th century, the United States with the Pax Americana in 20th century, and will be the case for China if it wants to build up its own Pax Sinica in the 21st century.

It was thus no coincidence that Beijing’s South China Sea island-building campaign began around the same time as China overtook the United States as the world’s largest trading nation. Meanwhile, unfair trade practices and military aggression in the South China Sea were the main accusations that U.S. Vice President Mike Pence made toward China in an unprecedented speech in early October. Thus, the intensifying trade war – initiated by U.S. President Donald Trump – is not a normal quarrel, but a shift from a “peaceful coexistence to a new form of confrontation” between the two global powers. Understanding the trade war in this light inevitably raises the question of how it will affect the South China Sea disputes.

The main channel of impact will be economics. An authoritarian regime like China depends mainly on socioeconomic performance for legitimacy. When the country endures economic hardship, it will be tempting for the leaders at Zhongnanhai to stir up nationalism to divert public dissatisfaction (for an example, look at Argentina’s decision to start the Falklands War in 1982).

Certainly, the trade war has just started and it is still uncertain what lies ahead. However, the Chinese economy has already suffered. In the third quarter of 2018, its GDP growth decreased to 6.5 percent – the lowest in a decade – and it could even go as low as 5 percent when facing the full effects of a trade slowdown. The pessimistic mood has even infected some of China’s biggest investors. Morgan Stanley, Nomura Holdings, Jefferies Group, and most recently JPMorgan have all cut down on their China-based holdings for fear of a full-blown trade war scenario. If this situation continues, it will be not surprising if Beijing chooses to play the nationalism card by taking a more aggressive stance in its maritime disputes.

This is tempting because China has the capability to do so. Beijing has invested a great deal to reinforce its military capability, particularly its naval force. A 2018 report by the U.S. Department of Defense reveals that China now possesses “the world’s largest and most capable maritime militia.” While the U.S. Navy has 282 deployable battle-force ships as of August 2018, the Chinese People’s Liberation Army Navy (PLAN) has “more than 300 surface combatants, submarines, amphibious ships, patrol craft, and specialized types,” making it the largest navy force in the Indo-Pacific region. According to Professor Robert S. Ross at Harvard University, had a naval war between China and the United States happened 10 years ago, America would have won easily. However, if it happened now, the war would be long, painful, and detrimental to both parties.

That explains why China has been confident on its bullish stance in the South China Sea since the start of the trade war. In addition to the heated exchanges between the two countries, last month, a Chinese destroyer challenged a U.S. destroyer when it maneuvered in the waters close to one of China’s artificial islands.