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You Think China Is Bluffing?

Eamonn Fingleton wants Trump to call China’s bluff [1] and demand they “swat” the North Korean “gnat”:

At the heart of the North Korean controversy is a Chinese double game. On the one hand, Chinese leaders pretend to be as eager as their American counterparts to shut down the North Korean nuclear program. On the other hand, they never seem to use their influence in Pyongyang to clinch the deal.

Yet it is hard to exaggerate the extent of Beijing’s influence. If the CIA Factbook is to be believed, at last count the Chinese supplied more than 76 percent of all North Korea’s imports and bought more than 75 percent of its exports. The North Koreans are heavily dependent on China for, among other vital supplies, their oil. Their moribund industrial sector would grind to a halt without copious supplies of spare parts and indeed entire machines sourced through China.

Then there are North Korea’s external air links. The vast majority of foreign visitors reach Pyongyang via four Chinese airports: Beijing Capital, Shanghai Pudong, Shenyang, and Dandong.

Trump seems to be offering Beijing a choice: either apply effective pressure on Pyongyang or stand aside while the United States takes a hands-on approach. That latter option would appear—at least for negotiating purposes—to include the threat of American military action.

The chances are, however, that it won’t come to that. If Trump holds tight, Beijing will blink first. After all, Pyongyang’s antics have long since ceased to be a joke. If press reports are to be believed, the North Korean missile program has lately made such strides that the Kim Jong-un regime may be able to deliver a nuclear strike to the U.S. mainland by 2020. While more thoughtful analysts may question that timeline, the reality is that North Korea’s repeated boasting of its intention to build missiles with such a capability leaves Beijing with little room for maneuver.

Once Beijing’s cooperation is secured, Pyongyang would surely have to comply, not only dismantling its program but opening up to United Nations inspections.

It’s all so simple. Talk tough to the Chinese, and they’ll surely do what we want to prevent us from using military action against North Korea. And then they’ll surely force North Korea to do whatever we want them to. What could possibly have prevented Obama, or Bush II, or Clinton, or Bush I, from pursuing such a course?

Oh, I dunno:

I’m so glad we have nothing to worry about, and I look forward to the conclusion of a successful summit in Mar-a-Lago.

13 Comments (Open | Close)

13 Comments To "You Think China Is Bluffing?"

#1 Comment By Lane Reeder On April 5, 2017 @ 3:23 pm

Mr. Millman,

I read Mr. Fingleton’s article, and I don’t think it’s accurate. China may not like North Korea’s antics, but they don’t want the alternative either.

But the intense sarcasm you use in this article is not becoming, respectful, or gentlemanly. As such, it should only rarely be used and only for important matters. This was not one of them.

#2 Comment By Noah172 On April 5, 2017 @ 4:32 pm

Millman’s bullet points are reasonable except for numbers 5, 7, and 8.

If China cuts off North Korea’s oil, North Korea will just fold. Because countries never respond with irrational belligerence to having their oil cut off

And look what happened to Japan. Surely Kim Jong-un knows this history.

And definitely nobody is worried about North Korea getting oil instead from some other country that is hostile to America

Who is foolish or desperate enough to subsidize Kim in this manner, considering how little money he has and how he poses little threat to countries outside his region. Would Kim nuke, say, Iran or Russia or Libya if they refused to sell (or rather give) him oil? Could he do so even if he wanted to?

And if they are wrong about that, and North Korea collapses, neither China nor South Korea are going to have any concerns about the flood of refugees that will pour over the border

China’s leaders, and even South Korea’s, are not Merkel. China, like Saudi Arabia, would feel no moral squeamishness about repelling a potential refugee flood by any means necessary, and China has ample resources to do so. Meanwhile, the border between the Koreas is the world’s most militarized, and the South could mobilize its large reservist pool in case of emergency (they’ve certainly thought of this scenario for decades). Chinese and Koreans are also not guilt-ridden, sentimental dopey white people.

Threats to cut off Chinese exports to America if they don’t “take care of” North Korea will be totally credible, because the American economy is not at all dependent on China, and they would totally be hurt way more than we are

It really isn’t clear who would cry uncle first in a trade war. America is not dependent on China for food, energy, minerals, other raw materials, or technological expertise. We are “dependent” on imported manufactures, many of them low-value-added*, and all of which we are perfectly capable of producing domestically. Chinese exports to the US represent ~4% of Chinese GDP, while US exports to China represent not even 1% of ours. The trade imbalance subtracts nearly 2% from US GDP, while adding nearly 3% to Chinese.

What this whole North Korea discussion boils down to is whether one takes Kim to be an evil but essentially rational despot who wants to preserve his regime, or an irrational madman who would sign his own death warrant by launching a nuclear attack. I figure the former. In 2002-3, we assumed that Saddam Hussein was the latter, to catastrophic results.

* 46% of total US imports from China (by monetary value), and 48% of imported goods, are consumer products (non-food, non-auto).

#3 Comment By Ken Hoop On April 5, 2017 @ 5:02 pm

Good piece but the economic warfare against Japan was purposeful and the Pearl Harbor attack was allowed.

#4 Comment By Eamonn Fingleton On April 5, 2017 @ 5:38 pm

A reply to Noah Millman

Your comments are based on multiple misunderstandings of East Asia, a region which, first as a financial journalist and later as an economic author, I covered from a base in Tokyo for 27 years.

I will here highlight just one of your errors. You suggest that the United States is “dependent” on China’s manufacturing capabilities. I know of no branch of manufacturing where the Chinese enjoy a monopoly or anything like it. On the other hand I can cite countless critical manufacturing technologies in which the Japanese — and to a lesser extent the Germans — enjoy either outright monopolies or at least strong oligopolies. These so-called “chokepoints” are clustered particularly in advanced materials, high-performance components, and precision capital equipment.

In electronics, for instance, the United States is completely dependent on two Japanese companies — Shin-Etsu and SUMCO — for silicon ingots. Such ingots are the vital inputs from which American companies cut silicon wafers. Every new generation of chip requires an even more astronomically pure grade of silicon. In the early days of the electronics revolution, Monsanto was a leading source of silicon ingots but it could not keep up with the Japanese and dropped out a generation ago. The only other non-Japanese supplier, Wacker Chemie of Germany, followed suit a few years later.

The Chinese enjoy no ability to hold the United States to ransom in manufacturing and, provided US tariffs on Chinese imports are applied intelligently, it would be China not the United States that emerged the loser.

#5 Comment By Jonathan Shultz On April 5, 2017 @ 5:52 pm

I think the sarcasm is appropriate given the moronic assumptions that military force can be successfully used to solve the North Korea missile crisis. It’s a serious matter but sometimes it’s effective to answer a fool according to his folly.

#6 Comment By OhhJim On April 5, 2017 @ 6:23 pm

“But the intense sarcasm you use in this article is not becoming, respectful, or gentlemanly. As such, it should only rarely be used and only for important matters. This was not one of them.”

Possible war with nukes involved is not an important matter?

#7 Comment By EngineerScotty On April 5, 2017 @ 6:59 pm

I’m certain China rather doesn’t mind North Korea’s antics, seeing as they are targeted at its rivals.

#8 Comment By Noah Millman On April 5, 2017 @ 11:02 pm

Mr. Fingleton:

I suspect my sarcastic tone may have led you reasonably to assume that I was dismissive of your expertise rather than merely disagreeing with your argument. I assure you that was not my intent.

With regard to the specific point you address: you clearly know more than I do about the specific areas of Chinese industrial development, but I am unsurprised that they have not achieved dominance in any strategic product. But I don’t know that that’s really the question. If China is also not dependent on strategic products or commodities from America, then neither of us can hold the other ransom in that fashion.

So the question becomes whether America is more financially dependent on China than the other way around — that is to say, whether the creditor or the debtor nation has the greater leverage — as well as which of us can better adjust to the sudden disruption of supply chains. In that regard, my feeling is that China is in a stronger position.

Many American corporations would face substantial disruption to their ability to produce goods, which could cause a sudden loss of market share to foreign rivals in countries like Germany and Japan, and the American government could face a sudden and sharp rise in the cost of borrowing.

China would, of course, have to spend enormous amounts to cushion the blow to their GDP, but it has the financial reserves to do this. Do we? And they would have vigorous political support in the face of the American economic assault. Would American corporations — and American voters — similarly rally around a trade war launched for the purpose of forcing China to pressure North Korea?

Ultimately, though, I don’t have to prove that China would “win” a trade war with America — and I don’t know that they would. Indeed, I think there’s a powerful argument for working much harder to rebalance the terms of trade between our two countries, and for strategically supporting American manufacturing, an argument I’ve shown sympathy for in these pages.

I merely have to refute the blithe assurance that of course China — or North Korea, for that matter — would blink first in a confrontation. Such assurances have proved hollow too many times in too many past confrontations for me to be comfortable taking them at face value, even from someone of undoubted expertise.

#9 Comment By peanut On April 6, 2017 @ 9:25 am

“So the question becomes whether America is more financially dependent on China than the other way around — that is to say, whether the creditor or the debtor nation has the greater leverage — as well as which of us can better adjust to the sudden disruption of supply chains. In that regard, my feeling is that China is in a stronger position.

Many American corporations would face substantial disruption to their ability to produce goods, which could cause a sudden loss of market share to foreign rivals in countries like Germany and Japan, and the American government could face a sudden and sharp rise in the cost of borrowing.”

This is really the crucial point: both Fingleton and Noah make the fallacy of viewing the relationship between China and the US from the point of view of a general probing for his own weaknesses: “ok we get this and that from China, but none of it and vital, and if necessary, we will adapt.” But the United States is not a top down state where the government can mobilize the population at the drop of the hat to defend the national interest at the price of lower standards of living (like Russia, post sanctions)- it’s a consumer driven democracy. And a disruption of trade with China would create enormous dislocations in the short term. The US economy will adapt in the medium term, but the political and economic effects of recessions tend to be brutal. Now, of course, if there is a real national interest at stake, Americans, like anyone else, will adapt, but will they accept a sharp recession for a trade war in the name of a better trade balance or imposing costs on North Korea? Count me skeptical.

#10 Comment By MikeCLT On April 6, 2017 @ 2:03 pm

I think Pat Buchanan is right once again. Why is North Korea our problem?

#11 Comment By Forbe On April 6, 2017 @ 8:34 pm

On a tangential note, Mar a Lago, again? Is it really appropriate that state visits be carried out not just on a golf resort, but one that owned by the president? At taxpayer’s expense and to Trump’s direct financial profit! This is neither normal nor right.

#12 Comment By PAXNOW On April 7, 2017 @ 4:06 am

Let’s ask Jared?

#13 Comment By Kevin O’Keeffe On April 8, 2017 @ 11:03 am

You make a lot of excellent points. Unfortunately, I remain deeply concerned that we may have no choice but to go to war with North Korea (unless China can be successfully prevailed upon, which I still hope for, but would never count on). I’m a strong, almost reflexive anti-interventionist by inclination, and do not readily entertain the idea of sending our young men off to die in Korea. But I fear that Kim Jong-Un’s ICBM development program is becoming a bona fide national security issue of the utmost import. You can see why the Japanese are terrified that if we anger the North Koreans, they could lose Tokyo. I don’t want to be in that same position ourselves, five years from now.