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agriculture, China, election 2016, election 2020, export controls, extradition, farmers, G20, G20 Summit, Huawei, Meng Wangzhou, national security, Osaka G20 Summit, rural areas, soybeans, tariffs, technology, telecommunications, Trade, trade war, Trump, Xi JInPing, {What's Left of) Our Economy
Did President Trump sell U.S. national security down the river at his meeting with Chinese dictator Xi Jinping in order to make American farmers happy and, he hopes, ensure his reelection? Could be – even though there’s still much that’s not known about the U.S.-China deal reached between the two leaders on the sideline of a big international economic summit meeting in Osaka. In fact, I haven’t even seen any official U.S. government documents describing the agreement in detail. (A further complication: Whatever official Chinese documents come out describing the deal could differ significantly from the American portrayal.)
At the same time, I’ll venture that the major, and from the U.S. standpoint, urgently, needed course change in China policy begun by Mr. Trump hasn’t yet been altered fundamentally. And I still don’t consider that outcome likely, even though events of the last few days reveal that some important loopholes in America’s approach need to be closed, pronto.
From what I can glean from the just-released official White House transcript of the President’s Osaka press conference is that (as I predicted), Mr. Trump and Xi agreed to resume formally negotiations that fell apart in early May, apparently because China began reneging on commitments it had already made. The quid pro quo that seems to have revived the talks evidently comes down to this:
The President agreed to refrain from imposing threatened tariffs on U.S. imports from China that don’t already face duties or new duties (a little more than half of Chinese goods entering the American market fall into this category), and to make it easier for American tech companies to sell, seemingly on an ongoing basis, parts and components vitally needed by Chinese telecommunications giant Huawei.
In return, China agreed to boost greatly purchases of agricultural products that it had all but shut out of its own large market to retaliate for Trump tariffs, thereby denying U.S. farmers major rivers (not just streams) of revenue. Since rural America went so notably for Mr. Trump in 2016, the political appeal of that approach is easy to see.
The chief uncertainty remaining: What exactly will Huawei be able to buy from U.S. firms? The issue is crucially important to China because, notwithstanding its commanding position in many global markets for advanced telecommunications systems, these Huawei products still depend vitally on information technology hardware and software from American-owned tech companies that have no adequate (if any) substitutes from other suppliers. And if, as was likely, Huawei suffered major damage because these U.S.-origin goods and services weren’t available, a major blow would be dealt to China’s ambitions to gain preeminence in a wide range of advanced technologies – and turn itself into a military superpower in the process.
Factors contributing to the uncertainty? To start, the so-called U.S. ban on selling to Huawei wasn’t technically a ban. It was an announcement that any proposed U.S. sales to Huawei needed to be approved by the American government because Huawei had been placed on a list of “entities” deemed dangerous to U.S. national security. So in principle, some American firms’ products and services could still be sold to Huawei (and several dozen affiliated entities also added to the list). But presumably, the truly valuable inputs would be denied.
Second, President Trump told the Osaka press conference that Huawei would only be permitted to buy from American-owned business “equipment where there’s not a great national-emergency problem with it.” That’s somewhat comforting, but only somewhat. The reasons? First, there’s reason to believe that, even before the Trump-Xi agreement, Huawei could have bought even equipment that did raise national security concerns as long as those computer chips or whatever else consisted mainly of foreign content (which is often the case because production of these goods has become so globalized, and because – irony alert! – some of the non-U.S. content now comes from China itself).
That qualification was shaping up as a huge problem because, if it’s present, then Huawei would still retain access to many of the high tech products it needs; and because the result could be even stronger incentives for American high tech companies to manufacture and develop even more of their most sophisticated offering offshore, including in China.
Third, as Mr. Trump specified, Huawei has not been taken off the “bad entities” list. Nor has there been any change in the U.S. extradition request to Canada for Meng Wangzhou, the CFO of Huawei (and daughter of its founder) to enable her trial for violating America’s export control laws. Why, then, do anything to make life easier for this entity?
Fourth, the Huawei-centric nature of this policy could signal that the President is falling into a China policy trap: Assuming that measures focused on specific entities (remember: nothing in China that’s routinely called a “business” or “company” deserves that label, in terms of how they’re used in most of the rest of the world, because China’s economy is so thoroughly controlled by the state) are adequate to cope with the intertwined China tech and national security challenge.
In fact, such episodic approaches seem doomed to fail because the China challenge is a systemic challenge. The exact names of specific instruments comprising this China challenge don’t matter in the slightest. For instance – let’s say that a truly total Huawei ban did sink this organization. In time, what’s to stop Beijing from simply slapping another name on the same units, facilities, and employees? Would Americans really want their government to have to wait to impose an embargo on this new entity until it began endangering their national security? Wouldn’t it be much better to understand that every Chinese entity big enough to be permitted by the Chinese government to play in global markets is by definition an agent of Beijing’s and of its (distinctly dangerous) ambitions? And to treat the Chinese high tech sector – for starters – accordingly?
As for the Chinese promises of greater imports of U.S. farm products, they’re problematic, too, even if Beijing does keep its promises. Hopefully, American farmers will be smart enough to respond in a measured way, not by simply assuming that they’ve won a free pass back into China forever, and recklessly supercharging and distorting their planting patterns to satisfy this new demand (as was the case especially for soybeans). Instead, hopefully, they’ve learned that Beijing can close the doors whenever it wants to – and that President Trump is kind of mercurial itself.
The President also could well be selling his agricultural record short. For although farmers clearly don’t like the Chinese tariffs on their exports prompted by the Trump levies, they also no doubt recognize how they’ve benefited from his tax and regulatory policies. And those that are culturally and socially conservative probably like what they hear from the President on those subjects – and/or don’t like many Democrats’ statements. Finally, the passage of the Trump administration’s revamp of the North American Free Trade Agreement (NAFTA) – the U.S.-Mexico-Canada (USMCA) deal could ease many farmers’ trade worries.
In fact, the volatile Trump temperament – and his reelection hopes – look like the best guarantors that this shortsighted high-tech-for-soybeans trade-off won’t last long. Because the main obstacle to the kind of overarching trade deal the President still talks about still remains – the impossibility of verifying China’s compliance adequately. So the longer the Chinese hold out, and deny the President the chance he so clearly covets to claim a big victory, the more irritated with them he’s likely to become, and the greater the odds that some hammer comes down again.
Moreover, if the overall American economy and especially its manufacturing sector wind up slowing down, as some key indicators already suggest they are, increases in tariffs on Chinese manufactures could be the difference between Trump victories in the manufacturing-heavy Midwest states that (narrowly) helped key his 2016 triumph, and defeats.
In addition, it’s critically important to note that the Chinese products still facing tariffs are much more important to China’s economic future than the products that remain entirely or largely duty-free. That’s because the first group overwhelmingly consists of parts and components of industrial products that in turn are pretty advanced goods themselves. They’re the kinds of products that matter crucially to America’s industrial future as well.
So, as observed by this perceptive New York Times article, the China-links to the global supply chains that face such mortal threats from these tariffs still remain endangered, and the more-than-decent odds that these levies will remain in place, and even get raised further, will surely keep prompting multinational companies the world over to move at least partly out of China. And any developments that weaken China economically are by definition good for the United States.
Moreover, despite widespread predictions that Trump tariffs on these so-called intermediate goods would wind up raising consumer prices because their corporate buyers would need to pass along the tariffs’ cost to their final customers, little of such inflation has emerged, for numerous reasons I’ve written on previously.
By contrast, the still un-tariffed goods are consumer goods – like shoes and toys and apparel and consumer electronics products. For various reasons I’ve written about, their prices weren’t likely to budge much even with new Trump tariffs. But for now, the President has foreclosed any such possibility completely. The only drawback for the United States to leaving these goods largely duty-free – because they’re generally very labor-intensive products, they employ unusually large numbers of Chinese workers – is that any movement of production from China to anywhere else (even even it’s Chinese companies themselves doing the moving) would result in greatly increased Chinese unemployment. The regime has long viewed high joblessness as a mortal threat to its survival. So China’s labor-intensive industries, and by extension China’s dictators, have been let off the hook, too.
In all, then, so far it seems fair to conclude that President Trump handed the Chinese some genuinely important concessions in exchange for precious little from Beijing. But it’s also distinctly possible that this trade-off makes so little sense economically, national security-wise, and politically, that it will badly flunk the test of time. And at least as important, nothing in its seems capable of stopping or even greatly slowing the U.S.-China economic disengagement that, as I’ve written, is bound to serve America’s long-term interests, and that’s already underway.
RealityChek 