Trade, War, and the South China Sea

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Trade, War, and the South China Sea

In water where progress was once assumed, an ominous front is now forming.

Trade, War, and the South China Sea
Credit: AP file photo

When crossing the expanse of the Pearl River Delta, from Macau to Hong Kong, at one point you lose sight of the mainland; before you is nothing but the sea. On this day in August, during typhoon season, a veil of rain moves swiftly across the bay falsely suggesting a void, where in fact rests the most densely urbanized region in Asia – the industrial machine driving China’s rise, one of the globe’s great entrepôts. Large container ships, modern day camels, pass by. From the starboard of the high-speed ferry, somewhere in the distance, lies a series of contested islands, islets, and reefs – guardians of the sea lanes connecting the world beyond.

Access to and control of the Pearl River Delta has helped define the history of geopolitics in the modern era. When Western powers first circumnavigated Africa and penetrated the East, they came here by sea. And more than by God or glory, the resulting struggle for world supremacy – the globalization of human competition – was defined by trade. As Walter Raleigh (the dreaded pirate or honored knight, depending on your viewpoint) once noted: “Whosoever commands the sea commands the trade; whosever commands the trade of the world commands the riches of the world; and consequently the world itself.”

Thus, it is no surprise that in these waters we can see more clearly the undercurrent linking the South China Sea dispute and ongoing U.S.-China trade war.

A Piece of the Continent

John Donne offered that: “No man is an island entire of itself; every man is a piece of the continent, a part of the main.” While a reflection on the human condition, Donne’s observation extends to Beijing’s dilemma of contested borderlands and strategic encirclement by sea. For modern China, the maritime features and the very water of the South China Sea must, by necessity and self-preservation, be considered a piece of the territorial state, part of a main continental empire.

By Westphalian standards, China’s “Nine-Dash Line” is a revolutionary approach to sovereign territory. The controversial claim encompasses nearly the entirety of the South China Sea and increases China’s geographic size by nearly 50 percent. The Nine-Dash Line is recent history, dating back to a 1948 map from pre-Communist China, and formally revived by the Peoples’ Republic of China in 2009 to rebut a joint Malaysian-Vietnamese application to extend their continental shelves under the United Nations Convention on the Law of the Sea (UNCLOS).

The foundation for China’s sovereignty assertion, however, is not contemporary international law or even historic control over the South China Sea. In 2016, the arbitral tribunal, convened under Annex VII of UNCLOS, concluded there was no legal basis for China to assert historic rights to the sea areas falling within the Nine-Dash Line. After a lengthy investigative process, the tribunal also found there was no evidence that China had historically exercised exclusive control over the waters or their resources. Instead, the tribunal found that for much of history China’s navigation and trade in the South China Sea had simply been an exercise of existing high seas freedoms under international law. Moreover, because none of the Chinese-claimed features reviewed by the tribunal – the Spratly Island reefs and Scarborough Shoal – were technically “islands” under UNCLOS, they did not give rise to sovereignty claims or maritime entitlements, like economic exclusive zones.

Instead, the Nine-Dash Line finds its origin in China’s expanding national interest in securing its own periphery and access to vital trade routes. Like rising imperial powers before it, China faces the challenge of aligning its frontiers with its growing ambition and increasing appetite for resources and markets.

In the instant case, almost one-third of the world’s maritime trade transits the South China Sea annually. Eight of the world’s ten busiest container ports are in the Asia-Pacific region. Approximately two-thirds of the world’s oil shipments transit through the Indian Ocean to the Pacific, much of it to an energy-dependent China. Without securing maritime access through the South China Sea, China cannot be assured of the favorable trends in “differentials in growth rates and technological change” that have led to “shifts in economic balances” and resulting tilts in “political and military balances” – Paul Kennedy’s engine of great power transitions.

It is not mere coincidence that Beijing’s brazen South China Sea island-building campaign began in earnest during the same year China overtook the United States to become the world’s largest trading nation. Since 2013, the Asia Maritime Transparency Initiative reports, China has engaged in unprecedented dredging and artificial island-building in the Spratlys, creating 3,200 acres of new land, along with a substantial expansion of its presence in the Paracels. Beijing resorted to self-help to address an insecure front. Lord Curzon, as Viceroy of British India, summarized the frontier challenge: “[I]f rival and unfriendly influences creep up to it, and lodge themselves right under our walls, we are compelled to intervene, because a danger would thereby grow up that might one day menace our security.”

From this vantage point, the Trump administration’s increased Freedom of Navigation Operations (FONOPS) in the South China Sea may have consequences other than the stated goals of upholding international law and global lines of communication. America’s naval dominance and operational readiness could also be interpreted as a menacing threat to cut China off from foreign markets and energy supplies. In May, for the first time, the Chinese military landed long-range bombers on Woody Island in the South China Sea, further enabling Beijing’s force projection in the region, including with respect to U.S. forward positions. If the Malacca dilemma seems only theoretical, it is worth recalling that Japan attacked Pearl Harbor in 1941 following the United States’ decision to impose a trade and oil embargo on Japan that would have effectively crippled the country.

There are also deep-held insecurities from the past for consideration, and they too begin with trade. Notably, the center of the “Cow’s Tongue” – as the dashed demarcation is oft described – flows directly from the mouth of the Pearl River Delta, where Western powers first landed in China more than five hundred years ago.

Trade and Insecurity

In 1513, shortly after another Iberian navigator set foot in America, Jorge Álvares arrived in Guangzhou waving the flag of Portugal. The Portuguese eventually established Macau, the first European settlement in the Far East, to serve as a commercial hub. Tansen Sen concludes that the 1554 Luso-Chinese trade agreement allowed the Portuguese to effectively take control of the maritime market from the Malabar Coast to southern China to the ports in Japan. But others soon arrived, and the global race for mastery of the Indo-Pacific’s waterways was suddenly underway. This contest would come to involve trade, wars, international law, and the steady erosion of Chinese sovereignty from its shoreline.

For instance, by the end of the 16th century, the Dutch had begun encroaching on Portuguese prerogatives in Asia. On February 25, 1603, near present-day Singapore, the Dutch East India Company (the “VOC”) seized the Santa Catarina, a Portuguese carrack, fully laden with goods from the ports of Macau and China, en route to Malacca. The Dutch engaged a young and talented lawyer, Hugo Grotius, to legitimize their action under the laws of war. As part of his brief, Grotius anonymously published Mare Liberum (The Free Sea), formally articulating the freedom of navigation. He argued that circumscribing the right to trade, by forbidding access or hindering navigation, is cause for a just war. As I noted in these pages, the ripple effect of these themes have continued to impact the development of international law, including during “lawfare” battles over the South China Sea.

In the 17th century, Beijing attempted to contain the West’s growing footprint, pressed by the world’s first corporations, like the VOC and British East India Company. By the 18th century, Western powers emboldened by the budding Industrial Revolution in Great Britain, began to chafe at the strict regulation of trade under the “Canton system” via designated merchants (hong) at Guangzhou. In 1793, King George III sent Lord George McCartney on a mission to achieve “free trade” on “equal terms” with Beijing. The envoy failed miserably. Henry Kissinger described the mission’s instructions to open “fair competition in the Market” as having no direct counterpart in Confucian China. But supple traditions would gave way to technological supremacy. As Lin-Manuel Miranda’s king predicts: oceans rise, empires fall.

The final pillar of Chinese power collapsed with the 19th century Opium Wars. Suffering from a balance of payments issues – with British silver going in and Chinese goods going out – the British East India Company began to rely on opium, largely grown in India, to reduce the trade deficit. Recognizing the public health threat, Beijing sought to stop the drug trafficking, but London forcefully insisted on the right of free trade. During this period, according to Pankaj Mishra, “free trade” appeared as much of a universal good to be enforced by military means as “democracy” in the post-Cold War era. Armed with the latest technology (steamships), the British blockaded Guangzhou, captured Shanghai and threatened Nanjing. The 1842 Treaty of Nanjing dictated the terms of China’s defeat: the opening of new treaty ports, including Shanghai; indemnification and payment for seized British property (opium); and the cession of Hong Kong to the British in perpetuity.

Following Britain’s lead, Western powers, including the United States, demanded equal treatment. But additional Chinese concessions could not stem the tide of another trade war. Bringing matters to a head, Britain launched the Second Opium War in 1856. The U.S. State Department Office of the Historian summarizes the action well:

“Under the most-favored-nation clause contained in the existing treaties, all of the foreign powers operating in China were permitted to seek the same concessions of China that Great Britain achieved by force. As a result, France, Russia, and the United States all signed treaties with China at Tianjin in quick succession in 1858…Although the Chinese signed the treaties in 1858, it took two more years of fighting before the Chinese Government was disposed to ratify them and accept the terms….Joined by French forces, the British entered the city and burned the Summer Palace in the northwestern periphery, but spared the Forbidden City, home of the Chinese emperor.”

These so-called “unequal treaties” forced China to give foreigners privileged status – extraterritorial legal protection from Chinese jurisdiction – and concede trade and political authority to external powers. In sum, through trade wars and treaties, China lost sovereignty over its territory and control of its destiny.

The appropriate weight to attach to this history during the current debate is an open question. But it would be a mistake to overlook Western imperialism’s lingering presence in the Indo-Pacific, its “epistemological mutation” upon the “consciousness of our time” to quote Edward Said.

According to this narrative, the “century of humiliation” continued until 1949 with the establishment of the People’s Republic of China in 1949. Or perhaps the restoration occurred when Hong Kong and Macau, the final colonial outposts, were returned to China in 1997 and 1999, respectively. Another date that stands out is 2001, the year when China joined the World Trade Organization (WTO) – it is one fact, at least, that U.S. President Donald  J.Trump has been very clear on.

Trump’s Great Wall

During the 2016 U.S. presidential race, at a pit stop in South Carolina, Trump boasted: “China built a wall that’s 13,000 miles long 2,000 years ago. My ambition is for ours to be much higher.” While Trump has gained notoriety for his threats to build a physical border wall, his plans to erect a virtual barrier around the U.S. economy are even more robust. The primary target of his bulwark – from tariffs to investment restrictions to technology protections to visa limits – is China. The weapon of choice, to be countered and employed, is trade.

The Trump administration signaled early and repeatedly its design to challenge the status quo in U.S.-China relations and the global economy. As a candidate, Trump pledged to stop China’s “economic assault on American jobs and wealth” by enforcing trade deals and applying economic “leverage” to force change. Once in office, he issued his National Security Strategy describing a global competition with China that requires the “United States to rethink the policies of the past two decades—policies based on the assumption that engagement with rivals and their inclusion in international institutions and global commerce would turn them into benign actors and trustworthy partners.” During Trump’s tour of Asia last year, he criticized the WTO regime and China’s trade practices, and vowed to take action to ensure “fair and equal market access” on his terms. Trump then investigated and issued tariffs targeting China’s industrial policies on the basis that they unduly exploit the free market principles underlying American prosperity and innovation.

In lambasting foreign trade, immigration, and the rules-based international order, Trump risks isolating the United States and undermining the uniquely American ecosystem once presumed to fuel the U.S. innovative and technological edge. By closing America’s open society, Trump could kill the goose that laid the golden egg. Moreover, instead of interdependence, countries may pursue paths separate from America. Allies across the Atlantic could begin to balance against Trump’s threats. Here in the Pearl River Delta, Beijing has laid plans to establish the “Guangdong – Hong Kong – Macau Greater Bay Area” as an integrated innovation and financial center to rival Silicon Valley. These are risks Trump appears intent on taking.

Perhaps more than any prior U.S. president, Trump has laid bare the struggle for power underlying international trade, technology, and economic growth. In this sense, the American president’s economic policy is mirrored by the naked power grab occurring in the South China Sea. More deeply, Trump’s trade war and China’s militarization of the South China Sea challenge long-held Enlightenment beliefs about the benevolent nature of trade.

The economist Ludwig von Mises mused: If the tailor goes to war against the baker, he must henceforth produce his bread for himself. But what if the tailor cares more deeply about the character of the baker – his nationality, religion, race, sexuality, or identity? What if trade is not just a splendid exchange, but also a cause for war? Is pareto optimality or even efficiency the most common goal of human relations? Or should fear, pride, envy, tribalism, and nationalism factor as meaningfully when attempting to construct a perpetual peace?

Optimists can rightly cite the merits of a democratic peace and quantitative analysis demonstrating that trading states are less likely to go to war. But the modern era of globalization is not fixed; the view beyond the bow, the future, is constantly changing. From the waters of the Pearl River Delta, what we can see building is an ominous front, the friction of trade, what we once easily assumed to be progress.

Roncevert Ganan Almond is a Partner and Vice-President at The Wicks Group, based in Washington, D.C. He has counseled government authorities in Asia, Europe, the Middle East, Africa, and Latin America on issues of international law. He served as an aide to Hillary Clinton’s 2008 presidential campaign, but is not currently affiliated with any campaign. The views expressed here are strictly his own.