If the Old US-China Game Is Over, What Comes Next?

 

Phrase it whatever way you prefer. As my CNBC colleague said today on “Squawk on the Street,” “I think the president is saying, ‘Hey, listen guys, you are not going to make as much money in China as you used to. That game is over.’”

Or as my AEI colleague Derek Scissors writes in a new blog post, “…the Sino-American economic relationship is going to shrink, sooner or later.”

Or as I wrote yesterday that, basically, we are probably not one savvy Trumpian deal from ending this escalating conflict because there is no realistic deal to be had — at least not while global markets and American consumers/voters seem unconcerned. (The gradual implementation of the tariffs prevents market shock, especially given the broader strength of the economy. As for consumers, this from Barclays: “While the net economic cost may be modest, losses are likely to be disproportionately felt by US households, as they face higher prices for many goods.)

There will be no return to normalcy, even post-Trump given the bipartisan concern about China’s rise. That’s the new status quo with the result being a long-term attempt at economic disentanglement. Washington doesn’t want China’s advance fueled by theft of American technology and ideas. Nor jobs, for that matter, with one US goal being the long-term shift of supply chains away from China. At the same time, China isn’t going to abandon its attempt to upgrade its industrial capabilities through state support and subsidy, with a focus on advanced technologies.

(Not so easy, Tweets venture capitalist Kyle Yuan: “China has a classic Innovator’s Dilemma. What’s worked in the past will not work for the future. It needs to cannibalize its strategy and transition. Can it afford to? Will it?” This is also good: “China is more capitalist than communist. This does not mean China isn’t pervasively authoritarian. Bureaucracy is entrenched in social life, education, and the private sector. China’s culture of harmony: Conform. Not Confront. When does disruptive innovation conform?”)

Now the tools (“weapons” seems overdone) may change even as the conflict continues. As Scissors writes:

That said, broad tariffs are not the right method. The Section 301 inquiry was launched in August 2017 because China steals and coerces the transfer of intellectual property (IP). It may have been impossible to win true IP improvement from Beijing, but tariffs are now being applied to companies whether or not they are bad IP actors. It is definitely impossible for trade with China to be reciprocal, because state-owned enterprises are so heavily subsidized, both financially and through regulatory protection. The US should be, but isn’t, concentrating sanctions on these firms for embodying unfair trade practices.

But the US cannot afford to become China obsessed, focusing on what it does and forgetting to capitalize on our own strengths from entrepreneurship to immigration.

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There are 3 comments.

  1. Ontheleftcoast Inactive

    James Pethokoukis: tariffs are now being applied to companies whether or not they are bad IP actors.

    The bad IP actors as well as less culpable companies are all more or less subsidiaries of China Inc. While the US is trending towards state directed capitalism, China intentionally went directly there. When dealing with a largely authoritarian regime whose corporate leaders are even more directly tied to the government than in the US – to the extent of installing back doors in computer hardware for the convenience of industrial spies and spy spies – perhaps broad based tariffs are more reality based than sanctions against an identified IP bad actor.

    That of course is presuming that the .gov didn’t want the back doors for its own purposes, and turned a blind eye to it. What goes against that is the stories of security concerns voiced by the US military about the Lenovo back doors. Unless that’s just a cover story.

    • #1
    • September 18, 2018, at 2:22 PM PDT
    • 2 likes
  2. cdor Member

    Did anyone ever feel that China was not an ill intentioned aggressor? While U.S. consumers may pay more for things now, in the long term, our country will be stronger and more self sufficient as we reverse our dependency on cheap Chinese stuff. I think it is a wise direction to take.

    • #2
    • September 18, 2018, at 2:47 PM PDT
    • 2 likes
  3. DonG Coolidge

    I don’t think China can grow quickly without the help of US politicians (D. Feinstein, E. Chow, B. Clinton). I can’t think of a state planned economy that made the move from developing to leading economy.

    Is immigration really a strength for the US these days? Only a small number of immigrants meet our skills gap, the rest just suppress wages in the low-skill market. It has been a long time since the US simply needed more muscle or the US was the place for innovators looking for a low regulation opportunity. There are a lot of talented people that cannot immigrate in the current system.

    • #3
    • September 18, 2018, at 6:31 PM PDT
    • 3 likes