First, some very macro thoughts:
- It is a good thing that some 400 million Chinese peasants have risen from poverty in the last couple of decades. There are several reasons for this progress - political stability following centuries of foreign control, civil wars, and Mao's Cultural Revolution; successful centralized planning for infrastructure and industrialization; tight internal by the Communist Party; and an outside world eager to buy cheap Chinese-manufactured goods.
- American global hegemony since World War II, and particularly since the collapse of the Soviet Union, is a rare phenomenon in modern history. The United States represents some four percent of the world's population and about 20% of the world's economy. Economic ascendency has allowed military, political, and cultural ascendency. China, with 19 % of the world's population, also represents about 20% of the world economy - having grown at about 10% per year for four decades.
- The United States' trade deficit with China of some $375 billion annually represents about half our overall trade imbalance. Primary imports from China include consumer electronics, machinery, and clothing. Primary exports include agricultural products, aircraft, and electrical machinery. America's advantage in intellectual property is being greatly eroded by requirements for American companies doing business in China to share their technology, by the education of some 350,000 Chinese students in American universities and thousands of others employed by American companies, by hacking of American data bases, and by installing spyware in Chinese-manufactured electronics. Republicans and Democrats have both let the problem grow.
- The American and Chinese economies and societies operate under fundamentally different systems. Many core industries in China are dominated by state-owned companies (often run by the military); the Chinese government is centralized, without our checks and balances; the current president, Xi Jinping, recently had his term limits removed so that he can be "president for life"; China operates on Five Year Plans with strategic allocation of resources; dissenting opinions and minority populations are suppressed. (The desirability and long term viability of decentralized capitalist democracies versus centralized socialist dictatorships is a subject for another day.)
While the United States slept, China has openly advanced several initiatives designed to surpass the United States as the world's most powerful country by the middle of the century. While far ranging, the total effort is predicated upon ongoing substantial trade surpluses.
- The Belt and Road Initiative. Beginning in 2013, the $4 to 6 trillion dollar program to build roads, railroads, and ports supporting economic, cultural and political connections between China, Eastern Europe, the Persian Gulf, Africa, South Asia, and Southeast Asia has been the centerpiece of Chinese foreign policy. Underpinned by the China Investment Corporation which manages some $5 trillion of foreign exchange reserves, China shares development costs with the 60 participating countries, but is able to play a dominant role - as have the United States and Europe through the World Bank and the International Monetary Fund which were established after World War II.
- The "Made in China 2025" initiative which was announced in 2015 intends to surpass the United States in the key technical fields of artificial intelligence, robotics, and biotech within a decade. Elements include the education of engineers (some 350,000 studying in the United States), and national R & D spending of 2% of GDP (greater than Europe.)
- Traditionally a "continental" country, China has expanded its navy to the point where its ships outnumber the United States Pacific fleet. The current flashpoint is the Chinese-constructed island military base in the South China Sea between the Philippines and Vietnam, designed to extend claims to mineral rights and control of passage. The larger threat is to Japan whose economy is dependent upon an exposed supply of oil via tanker routes around Southeast Asia and up the Chinese coast.
- As much as the French would like for the euro to replace the American dollar as the world's reserve currency, the Chinese would like to see the yuan become the global standard. With our federal government debt surpassing $20 trillion, annual budget deficits of some $1 trillion, and trade deficits of $800 billion that is not an unreasonable goal.
Enter Donald Trump. Lost in all of the daily crises and breathless reporting is a strategy. First he withdrew from President Obama's Trans Pacific Partnership which would have joined together a dozen countries in a trade agreement which excluded China, believing that the United States can do better with bilateral agreements where our dominant position is maximized. (The others have gone on without the United States.) Then he negotiated a beneficial trade agreement with South Korea - finalized in September. Then he negotiated a revised NAFTA - finalized last week. Then he got President Abe to agree to open trade negotiations which will impact our $69 billion deficit with Japan. In time he will bring in the Southeast Asians who are fearful of Chinese domination and who benefit as increasing Chinese manufacturing costs drive production to lower-cost havens - Vietnam, Malaysia, the Philippines, Indonesia.
In the spirit of Lenin's alleged quote about capitalists selling the rope with which the communists would hang them, many "Free Trader Republicans" see China as a huge potential market rather than a fierce competitor. Trump gets it; Boeing doesn't. The outward battle is about tariffs and trade deficits, but the implications for the world order in the 21st century are much greater.
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This week's bonus is the memo which sex crimes prosecutor Rachel Mitchell wrote after cross examining Dr. Blasey Ford. With hindsight, her questioning and this memo were not aimed at the media or the general public; they politely explain to Senators Murkowski, Collins, and Flake why Dr. Ford's allegations are not credible.
bill bowen - 10/5/18
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