- The American Conservative - https://www.theamericanconservative.com -

Trump’s Muddled China Strategy

The highly anticipated U.S.-China summit [1] held in Florida this past week was upstaged by President Donald Trump’s decision to bomb [2] Syria, but the two events aren’t totally unrelated. The decision to hit Bashar al-Assad is seen by many observers as a signal to a defiant North Korea (and by extension, its ally, China) that Trump is willing to use military force to get what he wants.

Yet the president’s tone on China has moderated rather dramatically since he was a candidate in last year’s election campaign. And as the two countries exchange diplomatic platitudes, it seems unlikely that a trade war, or any kind of negative escalation for that matter, is on the horizon.

Trump campaigned on the promise that he’d label China as a currency manipulator [3] on his first day in office. That didn’t happen. He also constantly brought up China as one of the major reasons for the outsourcing of U.S. jobs. This and related issues may eventually be discussed, but the summit at Mar-a-Lago seemed to produce (publicly, at least) little more than a 100-day plan for trade talks, along with some nice words.

This is a sharp contrast to Trump’s tone even earlier this year, when he tweeted [4], “China has been taking out massive amounts of money & wealth from the U.S. in totally one-sided trade, but won’t help with North Korea. Nice!”

Advertisement

The president’s latest post-summit remark on the U.S.-China trade relationship—“Only time will tell” [5]seems an apt description for his overall China strategy, as his administration thus far hasn’t been known for predictable patterns of international behavior. Dealing with China seems to have reinforced this reputation of unpredictability, though in a much more subdued way. It’s probably not entirely wrong to interpret this as a signal of Trump’s learning curve when it comes to dealing with the world.

The U.S. imported $480 billion worth of Chinese goods last year, while selling just $170 billion worth of exports to China. This makes China the biggest contributor to America’s trade deficit (about 60 percent). That the 100-day trade talks will address this issue first and foremost is significant. A large trade deficit usually goes hand-in-hand with a small manufacturing sector, which connects with Trump’s promise to address the outsourcing of jobs.

According [6] to David Dollar at the Brookings Institution, “Between 2000 and 2007, U.S. manufacturing jobs fell sharply, from 16.9 million to 13.6 million. The 2008 financial crisis pushed the number lower, to 11.2 million, although the number has since been fairly stable.” Dollar notes that up to 40 percent of these job losses can be traced back to the huge influx of Chinese goods into the U.S. after China joined the World Trade Organization in 2001. And though Trump threatened a whopping 45 percent tariff on Chinese goods, it’s important to note that extreme protectionism hasn’t been shown to produce a smaller trade deficit.

China has agreed to restructure the current trade relationship in order to reduce its surplus as a way of dealing with inflation back home. Also, according [7] to the Financial Times, “China will offer the Trump administration better market access for financial sector investments and US beef exports to help avert a trade war.”

change_me

None of this validates the kind of inevitable confrontation that Trump’s typical on-the-campaign-trail rhetoric seemed to forebode. And even though Secretary of State Rex Tillerson did call the negotiations “frank,” [8] the broader implication of Trump’s first meeting with China seems to be that the administration, though terribly unpredictable and often reckless, is ready to demonstrate some measure of moderation when it comes to foreign affairs.

The ironic thing is that despite Trump’s confrontational words, China has actually routinely intervened recently through its central bank to keep the yuan high [9], which makes its exports more expensive. It would be in the U.S. national interest to extend this. More importantly, the Trump administration should, like every other administration, try to negotiate for better access to Chinese consumers. This means prying open sectors like telecommunications and transportation, which aren’t open for foreign investment.

The other area that the U.S. should focus on is China’s trade policies and conduct in relation to intellectual property. American companies doing business in China are constantly pressured [10] into sharing insights and knowledge with Chinese counterparts. Even though this practice is banned under WTO rules, there aren’t many effective ways to prosecute this kind of behavior.

The latest summit has given very limited signals when it comes to the tenor of the Trump administration’s China strategy. But it seems that the focus thus far has been the trade deficit and little else.

Yet, as Peking University’s Michael Pettis notes [11], deficits are usually a sign of a deeper problem related to patterns of investment. Flows in trade, Pettis points out, are a result of flows in capital. Foreign money coming into the U.S. has helped facilitate the deficit by changing the economy. The amount of money that the Chinese have been saving in the U.S. is significant because it results in a surplus in capital, which then produces a decrease in exports (thus the deficit). China’s trade advantage is due in large part to its decreasing consumption. That’s how it racks up savings, which it then deposits into the U.S. Chinese households earn very little relative to GDP, which results in this low level of consumption.

So instead of focusing solely on the trade relationship with China, the Trump administration should reexamine the way it has encouraged foreign investment—a term that’s always enjoyed a positive connotation in the neoliberal age. This is very counterintuitive, particularly since Trump has already said that he welcomes foreign investment from Japan and China. Again, this would just help increase the trade deficit and thus possibly result in a loss of jobs.

A change in the U.S.-China trade relationship would mean a change in many years of exchange in both capital and goods. It’s unclear whether the Trump administration actually sees this and is willing to follow through at the negotiating table. The answer is probably not, which is another signal that for all the tough talk, Trump’s China strategy will actually be an extension of business as usual.

Steven Zhou is a writer and analyst based in Toronto, Canada.

5 Comments (Open | Close)

5 Comments To "Trump’s Muddled China Strategy"

#1 Comment By Whine Merchant On April 10, 2017 @ 2:38 am

Hey – this is The American Conservative, what is this piece doing here? Are you suggesting that Chairman Trump isn’t conservative? Next you will accuse him of being interventionist. Oh, wait… sorry.

#2 Comment By Kevin On April 10, 2017 @ 10:37 am

“China has agreed to restructure the current trade relationship in order to reduce its surplus as a way of dealing with inflation back home. Also, according to the Financial Times, “China will offer the Trump administration better market access for financial sector investments and US beef exports to help avert a trade war.”

Given that China spent the last 2 years supporting the Yuan against the dollar- and thus making Chinese imports more expensive – it seems they have sold Trump a “concession” which they have already made regardless.

#3 Comment By Will Bondage On April 10, 2017 @ 10:58 am

Candidate Trump said that China would agree to reduce the US trade deficit and cease currency manipulation out of self-interest, since an impoverished America could not buy its goods. If China did not see this, there was always the tariff. Every responsible opinion source (NR, TAC, Economist, NY Times)screamed that Mr. Trump’s policies would lead inevitably and immediately to a “trade war,” which is worse than a real war, since globalist financiers still get richer from real wars. President Trump met with President Xi and we the beginning of opening China’s markets and keeping a strong yuan. The London Times explicitly notes the promised trade war will not take place. Do these people admit they were wrong? No. They hire liars to lie for them.

#4 Comment By Kevin On April 10, 2017 @ 1:59 pm

“Every responsible opinion source (NR, TAC, Economist, NY Times)screamed that Mr. Trump’s policies would lead inevitably and immediately to a “trade war,” which is worse than a real war, since globalist financiers still get richer from real wars. ”

Um, no. What every responsible piece knew is that China already ceased manipulating its currency downwards, while Trump kept screaming about it. Which meant that, logically, to get what Trump wanted, the United States needed China do something more drastic. Apparently, someone finally explained to Trump what’s up, as he climbed down from the tree and is now pursuing the same China policy as everyone else. Someone here is a liar indeed, but it’s not the prestige publications.

#5 Comment By kalendjay On April 10, 2017 @ 7:38 pm

The neoliberal trade argument (repeated in this article, and trumpeted lately in the financial press, and Mercatur and other institutes) is not to worry about trade deficits, because they bring a financial surplus, which is a form of expansion in the service economy.

Like saying that your indebtedness to credit card companies has made you wealthier in terms of goods, and your ability to commandeer increasingly unaffordable financial services, even as your ability to produce those goods and services yourself diminishes.

Trump has been free to hold as a priliminary and innocuous meeting as he wants, the bulk of whose agenda still hasn’t been revealed to the press. You’re naive to think that artificial, upward valuation of the Yuan to prevent overall capital flight from China is not manipulation? It is a desperate cover for China’s version of stimulus, which has turned out worse than the Obama kind, and has been and will be coupled with Chinese threats to the rest of the world.

It is naive to think that China would not be asked to ‘help out’ in North Korea in a manner inconsistent with the rest of its hostile policies. I would think that with Xi’s Putinesque rattle of Sovietism, he might be quite willing to invade North Korea. Would Trump give cover and technical assistance on the grounds the two countries be allowed to unify by referendum? That’s friendship, if you can keep it.

Then there is the waiver on beef import restrictions that Xi has promised. Nothing new here: With the help of Jack Ma, Beijing seems to be big on food imports lately, although many countries like Argentina and Australia will be pitted against us for political favoritism. And we’ll see whether the land of roast pig in burning huts will actually move fast enough for our favor.