Human rights could be the next US-China flashpoint

Disney is facing calls to boycott its live-action remake of Chinese fable Mulan on its successful streaming service Disney+. Some scenes from the movie, released in Chinese cinemas today, were filmed in Xinjiang – the region where Beijing stands accused of human rights abuses against the Uighur and other Muslim minorities.

So far in the US-China trade dispute, technology and jobs have been at the centre of US actions but, as Disney is discovering, human rights are now moving up the agenda. In campaigning for November’s presidential election, each side is vying to appear toughest on China as clipping the wings of America’s major geopolitical rival has significant bipartisan support.

But, as each side pushes the other to ramp up their rhetoric, the relationship between Beijing and Washington is being further damaged – even if the most extreme threats will remain on the campaign trail.

So far in the trade war, human rights have not become a major issue. Indeed, ex-Trump aide John Bolton claimed earlier this year in a book on his time in the administration that Donald Trump told Xi Jinping, the Chinese president, that actions in Xinjiang were “exactly the right thing to do”. The president denied the allegation – and said his inaction on alleged abuses was explained because he was in the “middle of a trade deal” that would boost American jobs. 

However, Mr Trump has since closed the door on phase two negotiations, saying he was unhappy with Beijing’s handling of the Covid-19 pandemic. To demonstrate its hard line on China, the Trump administration is now developing plans to block exports from China’s Xinjiang region due to allegations that these goods are produced using “forced labour”. US Customs and Border Protection is currently preparing withhold release orders, which allow it to detain shipments based on suspicions of forced labour involvement. The proposed bans on Chinese exports include cotton and tomato products, two of its major commodity exports.

This change in tone presents more of an existential threat to Beijing than previous trade tariffs – and both sides are fully aware that the human rights issue will lead to a significant escalation. It is a direct attack on China’s sovereignty and model of governance, representing severe interference in its internal affairs. The proposed targeting of exports from Xinjiang also comes less than two weeks after officials from the Trump administration said the US was considering a formal declaration that China’s brutal repression of Uighurs was a “genocide”.

Joe Biden’s campaign has already declared that his administration would consider the oppression of Uighur Muslims as a “genocide”, and a statement was issued indicating that Mr Biden “stands against it in the strongest terms”. This statement was made immediately after suggestions that the Trump administration was mulling the genocide label.

Any formal accusation of genocide by the US would infuriate China at a time when divisions between the two countries are already ratcheting up. But the rise of China as a major geopolitical force is high on the agenda of Americans across the political divide – and anger over the theft of US intellectual property is definitely a bipartisan issue.

This week, the Pentagon put more pressure on China’s tech sector by proposing that Semiconductor Manufacturing International Corporation (SMIC), the Asian nation’s largest chip manufacturer, should be treated in a similar way to Huawei and added to a government blacklist.

The move would restrict suppliers from providing it with American-based tech without special permission and is likely to be a reaction to Chinese moves to jump ahead of the US in the development of third-generation semiconductors, an ambition revealed last week. China accused Washington of “blatant bullying” of its technology companies and reiterated its view that the US was using fabricated national security concerns to break international trade rules.

This race between Democrats and Republicans to outdo each other on China rhetoric led to Mr Trump reiterating this week that he wants to “decouple” the US economy from China. This followed comments in June from Steven Mnuchin, US treasury secretary, that a decoupling of the US and Chinese economies will result if American businesses are not allowed to compete on a fair and level basis in China’s economy.

Of course, Mr Trump has made many extreme threats and comments during his term but he usually backs off when the financial consequences become clear. So, China-exposed businesses may see this period of increasing accusations and threats against Beijing as a short-term issue that will disappear once the election is over. Beijing must also surely understand that this is political posturing, not an agenda that is likely to be enacted.

US businesses are therefore staying put. According to a report released by the American Chamber of Commerce in Shanghai on Wednesday, of more than 200 respondents that own or outsource manufacturing operations in China, 70.6pc said they did not intend to shift production out of the country and 14pc are moving some production to non-US locations. Only 3.7pc said they were moving some production out of China to the US.

Nevertheless, whoever wins the White House in November, US strategic goals are moving higher up the agenda than business and profits in some areas, particularly semiconductors. With ordinary Americans keen to be more self-sufficient – and not rely on China in particular – trade barriers are likely to increase further. Should campaign talk about human rights turns into action, these US businesses feeling confident about operating in China could be guilty of complacency.

Garry White is chief investment commentator at wealth management company Charles Stanley

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