There is no doubt that strong measures must be taken at some point to balance our trade relationship with China. Almost half of our $800 billion annual trade deficit relates to China, and the gap is growing. Despite joining the World Trade Organization in 2001, China has not been playing by the rules, instead requiring that foreign companies doing business in China must form joint ventures with Chinese companies, demanding that they have access to American technology as part of the bargain, and being found guilty by the WTO of periodic "dumping" of products on foreign markets.
Donald Trump is the first president in memory to seek concrete actions in the direction of "balanced" trade", and it is a daunting task as President Xi Jinping has become the most powerful Chinese leader since Mao, and Trump faces a Democratic opposition committed to #Resist, Mueller's Russiagate, rising sexual misconduct allegations, and alienated Establishment Republicans. Whether he succeeds or not, at least he promises to frame the issue and engage the necessary American conversation.
In one sense, this is a rivalry between America's free market capitalism and China's state-sponsored mercantilism. One can make the case that the Chinese model has many advantages - strategic investment in industries like steel and information technology; direction of low wage and managerial labor to the locations and industries selected by the political leaders; regulations and subsidies to guide development in the favored direction; protection of strategic industries from external competition; expansion of exports through direct subsidization and currency manipulation. The United States or Europe could not do the Three Gorges Dam development of the upriver Yangtze (displacing 1.3 million people and doing extensive ecological harm); we could not align capital and the construction industries to build external transportation infrastructure on the scale of the Belt and Road Initiative (which will provide infrastructure for China-centered trade with over 50 other countries); we could also probably not raise a third of the population from generations of poverty in two decades. Whether the Chinese can control corruption and avoid the traditional Chinese scourge of a bloated, lethargic bureaucracy remains to be seen, but at the moment they are on a roll.
Trump has started with modest proposals - unlike his predecessors who never started: putting tariffs on washing machines and solar panels; asking the Chinese for a proposal on how we can reduce the trade deficit by $100 billion; instituting tariffs on steel and aluminum, then exempting Canada, Mexico, the European Union, Argentina and Brazil; and instituting some $60 billion in tariffs on Chinese goods entering the United States - an amount calculated to equal the damage done to American companies by intellectual property theft.
The reaction - in line with Vladimir Lenin's obseration that the capitalists would sell his communists the rope with which he would hang them:
- Concerns from the National Retail Federation retailers like Walmart, Target, and Best Buy that higher prices will hurt working class American families. (No comment from the thousands of retailers and small American manufacturers that Walmart put out of business.)
- Howls from the Chamber of Commerce (read General Motors; General Electric; Boeing; etc) that the tariffs could lead to a destructive trade war. Note that many of the larger manufacturers have formed the required joint ventures in China to gain access to a market about the size of the United States.
- Articles and editorials in in the mainstream business literature castigating Trump's adventurism - The Wall Street Journal; Bloomberg; the Investor Business Daily.
- Letters from Democrats and Republicans in Congress advocating for the China lobby.
- Substantial stock market unease, reflected in a week of accelerating declines.
It will be hard to follow the actions of Trump's team - Commerce Secretary Wilbur Ross, and Trade Negotiator Robert Lighthizer - both because the subject is so extensive, and because they will be criticized by both the normal left wing media, and by the business establishment media. It is also hard to guage the global marketplace where most countries are reluctant to criticize China, but there is enough anti-China sentiment for our jilted TransPacific Partnership colleagues to have gone ahead without us in forming a trading alliance without Beijing. One can only hope that Trump has enough room to run to at least make a real start toward "balanced trade", and that he is able to cultivate allies like Chuck Schumer who seems to get it.
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This week's video is a brief exposure of the Facebook hypocracy where the genius of the Obama campaign's use of social media data mining became a hideous perversion when used by the Trump campaign. FWIW, the Trump campaign used the Cambridge Analytica tool in the primaries, but switched to the superior Republican Party data tools for the election.
bill bowen - 3/23/18
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