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What’s Missing from Trump’s China Policy
The Dow plunged 450 points on the opening bell May 6 in response to this presidential tweet: “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No! The 10% will go up to 25% on Friday.” Economists eye this brinkmanship fearfully. Bank of America/Merrill Lynch’s global research team, among many others, has warned that a trade war could cause a global recession. Desmond Lachman of AEI notes that there are splash back effects of imposing harsh tariffs. They may succeed in weakening China, but “Any marked slowing in the Chinese economy is bound to have spillover effects on those economies with strong trade links to that country.”
Among those countries with “strong trade links” to China would be ours. Lachman is warning that Trump’s policies may be undermining the strong economy, and that this should worry him looking at 2020. But before we get there, spare a moment to savor the irony of what Trump’s policies have so far achieved on one of his favorite 2016 hobbyhorses — the trade deficit. In 2016, the goods and services trade deficit with China stood at $309 billion (which Trump frequently exaggerated to $500 billion). As of March, 2019, the trade deficit with China was $379 billion — a 23 percent increase.
As nearly every economist will attest, trade deficits are not important. Between 1980 and 2009, US employment rose when the trade deficit went up and fell when the trade deficit came down. Hmmm. Same thing seems to have happened in the first two years of the Trump administration. Employment and trade deficits are both up. Someone should tap Trump on the shoulder and mention this. Actually, don’t bother. Gary Cohn talked himself blue in the face on the subject to no avail. Trump is frequently the embodiment of the joke: “Don’t confuse me with the facts, my mind is made up.”
This is not to say that China should be free to cheat with impunity. But Mr. Trump doesn’t seem to be focused on the most serious threats from China. He seems fixated on the great crime China commits by selling us products, rather than on the threat to privacy and civil liberties China’s authoritarian government represents to its own citizens and to the world.
China’s communist government has permitted free enterprise (to a point) and we all know what a massive difference that has made for the average Chinese. More than 800 million people lifted themselves out of poverty once the state stopped forbidding it.
But in other respects, China has remained as ruthless a Big Brother as Orwell imagined. The internet is successfully smothered by what techies call “The Great Firewall of China.” The press is controlled. In Xinjiang province, up to 3 million ethnic Uighurs and other Muslims have been shipped off to concentration camps. Transgressions that can result in deportation include observing Ramadan, growing a beard, or phoning relatives abroad. While in camp, they are “re-educated.” In March, after U.S. citizen Ferkat Jawdat met with Secretary of State Pompeo, his mother, aunt, and uncle were moved to a camp and then sentenced to eight years in prison as retaliation for Jawdat’s meeting.
But even for those not physically imprisoned, China is erecting a virtual cage for everyone, with cameras equipped with facial recognition software now ubiquitous, “free” health checks that permit the government to collect fingerprints and DNA, mass surveillance by police and neighborhood snitches, and a system that would make Winston Smith cringe: the “social credit system.” This permits Big Beijing to keep tabs on every phone call, text message, jaywalking ticket, and night out with too much drinking. If you transgress, you get demerits, and these can be used to deny plane tickets, jobs, or apartments. Sometimes the state requires that a special ringtone be added to the miscreant’s phone so that he/she will be embarrassed every time the phone rings in public.
That’s only a sampling. Equally worrying is China’s success in exporting this sinister system as part of its “Belt and Road Initiative.”
The Trump administration has very recently begun to impose limits on technology transfers to Chinese tech firms. But the effort has been slapdash. (In 2018, the Commerce Department imposed sanctions on Chinese telecom company ZTE only to see President Trump reverse the decision).
Trump is focused on the non-threat of Chinese exports while ignoring the true threat of China’s totalitarian system reaching abroad. A few weeks ago, CBS censored a comedy that mocked China’s censorship. That ought to worry us more than imported washing machines.
Published in Economics, Politics
Mona,
American foreign policy on China has been wishful thinking for the last 40 years. We have hoped that pseudo-capitalist modernization will wean them off Marxism. They are certainly no longer the belligerent Maoist regime they were 40 years ago but they are most certainly still bent on a totalitarian path. This is already resulting in contradictions in their economy/society and their meteoric growth is slowing down no matter what we do.
You must grasp that the wishful thinking on China has been a left-wing Democratic program from the beginning. Mr. Friedman of the NYTimes was its chief intellectual apologist and Bill & Hillary Clinton its chief conspirators, talk about collusion. Before we abandon the “crude” Trump because he irritates us anyway (well he irritates you Mona for sure) perhaps we should take a look at his likely replacement. Biden & son took a page right out of Bill & Hillary’s playbook and were/are knee deep in Chinese goo. Although Trump’s tweets can be annoying and everything about his policies not to our liking, abandoning Trump for Biden would be jumping from the frying pan right into the fire.
Net net Trump is still doing a very good job. He is also capable of reacting to fresh incoming data and changing course. He doesn’t telegraph his course changes so a lazy pundit class can sound like great sages by just echoing banal administration speak. We’ve got to go with the flow & ride with the tide because we don’t have anything better and the truth is that net net it’s not so bad after all.
Hang loose Mona.
Regards,
Jim
Look for this conference on youtube, for further study. This is sort of the umbrella interview from it.
The other thing is, trade deficits are good in theory because of comparative advantage. We really ought to try to do that as much as possible. The problem is too many things are going up in price anyway for no good reason, healthcare education shelter etc. So I don’t think we are comprehensively practicing it. Same thing with occupational licensing laws.
This is the Q & A from that conference. There is one long video fro the whole thing but I couldn’t find it. To be clear, this stuff is over my head but the stuff on Real Vision Bannon.and Bass is laid out better for the layman.
Trade is a way to force diplomacy without using guns. Thinking this is about trade deficits is naive. This is already working. Manufacturing supply chains are rapidly diversifying with ABC (Anyone But China). This will bring about a balance of power throughout the region. That is good for everyone including minority groups in China.
I have a hard time respecting any argument that begins with how the stock market reacts to a Tweet. Yes, as conservatives we believe in the power and wisdom of markets. But those are long term things. On the short term, the market is downright stupid. One need not look past some of the enthusiastically received IPOs that turned worthless in a matter of months and years.
I’m learning how to do trading right now and this is so true. Some of the companies with the best signals in short term trading are not among the most healthy businesses.
Perhaps we should lecture them in stern terms at the UN, that would definitely change their behavior. History is rife with instances of authoritarian governments reversing direction when confronted with diplomatic admonitions. Or maybe give regime change a try as it has consistently worked out so well.
Absent trade disputes, how do you envision the administration addressing these “serious” and “true threats”? China’s economy is vastly more dependent on exporting goods to us than ours is on importing goods from them. That asymmetric relationship gives us leverage. There are not many more palatable ways to impose our norms on their country…
Kyle Bass is convinced that they are really up a creek because of their lack of central bank reserves and the monetary policy in Hong Kong. Something like that.
China watches every single word Kyle says. They take down whole websites about economic statistics sometimes after he says something. This stuff is way over my head, unfortunately.
You can get a pass for real vision, and that stuff is laid out pretty nicely, but honestly I don’t have a head for this stuff.
It’s appalling that the human rights abuses that Mona describes taking place in China are not being called out loudly by the UN, as someone stated above, as well as by the Pope, and other Asian countries. Tremendous suffering taking place and in the modern age, spreading like a plague through technology to free societies – a soul-less regime. But let’s keep buying cheap light bulbs…..
Kyle Bass’s twitter feed on China