The U.S. and China Are Making Davos a Mess for Everyone Else

(Bloomberg Businessweek) -- The rivalry between the U.S. and China is complicating the lives of companies and countries that would prefer to stay on the good side of both superpowers. Those caught in the crossfire range from U.S. airlines, which were threatened last year if they didn't indicate on their websites that Taiwan is part of China, to Canada, which ran afoul of the Chinese when it detained a prominent Chinese tech executive at the Americans' request.

The tensions are likely to be palpable at the annual World Economic Forum. In recent years each country has used Davos to zing the other. In 2017, Chinese President Xi Jinping issued a veiled attack on Donald Trump, who'd just begun his presidency, saying, “Pursuing protectionism is like locking oneself in a dark room.” In 2018, Trump said, “The United States will no longer turn a blind eye to unfair economic practices.”

U.S.-Chinese trade negotiations may occur on the sidelines in Davos ahead of the March 1 end of a 90-day cease-fire in their trade war. China's delegation will be led by Vice President Wang Qishan. His counterpart will be U.S. Treasury Secretary Steven Mnuchin. Trump was planning to attend but tweeted on Jan. 10 that he was staying home because the fight over the wall on the Mexican border hadn't been settled.

Collateral damage in the contest between the U.S. and China has been heavy because both are employing hard power—economic and military might—rather than the soft power of persuasion. Trump's “America First” rhetoric has rubbed many nations the wrong way, but China hasn't managed to take advantage of the situation, because it's been even rougher to other countries at times, essentially demanding they make room for its ascent. “U.S. soft power has not been good for the last 20 to 30 years, and China's soft power is close to nonexistent,” says Robert Ross, a political science professor at Boston College.

Canada has suffered the consequences of getting caught between the giants. On Dec. 1, Canadian authorities arrested Meng Wanzhou, chief financial officer of China's Huawei Technologies Co., on behalf of the U.S., which wants to try her on charges that she misled banks about the telecom equipment maker's dealings with Iran. China responded by threatening consumer boycotts of Canadian products and detaining two Canadians in China. On Jan. 15 a Chinese court sentenced a third Canadian to death for drug smuggling. David Mulroney, a former Canadian ambassador to China, told CBC News that the strong reaction seemed to be a warning to others based on a strategy of “kill the chicken, scare the monkey.”

Last year, when Chinese aviation authorities pressured airlines to list Taipei as a Chinese destination on their flight schedules, the White House urged them not to cave to what it called “Orwellian nonsense,” and U.S. carriers dragged their heels. But at the July 25 deadline, United Airlines, American Airlines, and Delta Air Lines compromised by taking Taiwan off the city name without adding China, leaving the destination “Taipei.”

The U.S., equally intent to recruit countries to its side, has lobbied Europe and Japan to join in getting the World Trade Organization to crack down on Chinese subsidies and the country's requirements that foreign companies turn over technology as the price of admission. The Group of 20 at its Buenos Aires summit in late 2018 agreed to work to change the WTO's procedures to get tougher on China.

The U.S. is pressing poor countries to take assistance from it rather than China, says Scott Morris, a senior fellow at the Center for Global Development in Washington. National security adviser John Bolton said in a Dec. 13 speech that the U.S. is a better choice for African nations in need of loans. China, in contrast, is happy to have recipients of its aid also take money from the U.S. and other Western sources because “it helps them reputationally” to have partners, Morris says.

The downside to relying on China is that its loans come with strings attached. Recipients frequently must use Chinese suppliers and labor, and the lending terms are often harsh. In his December speech, Bolton accused China of practicing “debt trap” diplomacy in Djibouti and Zambia. Ecuador, Sri Lanka, and other countries have also become highly indebted to China.

Navigating a superpower rivalry is nothing new for Klaus Schwab, the WEF's founder and executive chairman. He launched the conference in Davos in the 1970s because Switzerland was neutral territory between the West and the Soviet bloc. In a Dec. 31 op-ed in the Washington Post, Schwab advised the U.S. not to give up on diplomacy. “The old order that the U.S. founded and maintained appears to be crumbling,” he wrote, “but if Mr. Trump leverages his first-mover advantage in negotiations then the U.S. could actually come out of the current dispute stronger than before.”

To contact the editor responsible for this story: Dimitra Kessenides at dkessenides1@bloomberg.net

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