Our So-Called Foreign Policy: Closer U.S. Taiwan Ties Must Become a Two-Way Street

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alliances, allies, CCP Virus, China, coronavirus, COVID 19, decoupling, East Asia-Pacific, foreign investment, Hong Kong, Huawei, national security, Our So-Called Foreign Policy, South Korea, Taiwan, tech, Trade, Trump, TSMC, Wuhan virus

As if its CCP Virus coverup and planned crackdown on what’s left of Hong Kong’s freedoms weren’t bad enough, China has been escalating its aggressive words and deeds throughout its East Asia/Pacific neighborhood, and one major sign has been new pressure exerted on Taiwan – which Beijing views as a breakaway province that needs to end its rebellion immediately and join the Communist People’s Republic.

This more worrisome Chinese posture understandably has sparked calls for the United States to retaliate by demonstrating stronger support for Taiwan in various ways. This impulse also seems reasonable to me. But if the Trump administration speeds up its march down this road, it handles a closer relationship with Taiwan a lot better than its predecessors for decades had handled security alliance relationships with Japan and South Korea. Specifically, it’s crucial that Taiwan share much more of the burden of resisting China’s ambitions than has long been the case.

The latest alarm bells about China’s Taiwan policies have been set off by China’s words – or, more accurately, a missing word. Although the PRC (People’s Republic of China) has never renounced using force to achieve its longstanding aim “reunifying” China (as it defines the issue), its rhetorical positions toward the island have long fluctuated between the conciliatory and the blustery. But for 40 years, when Beijing mentioned of reunification, the word “peaceful” has always preceded it.

Last Friday, though, China’s second most important leader dropped the “peaceful” – and did it at a major forum: the annual meeting of the country’s rubberstamp parliament.

So it seems clear that the China cloud over Taiwan has darkened. But U.S. steps to bolster Taiwan’s security will greatly underperform – and may actually increase the dangers posed to America by China itself – unless Washington starts demanding in return that Taiwan stop its longstanding practice of investing massively in manufacturing in China, including in high tech sectors.

Indeed, as of 2018, according to this report, the total value of Taiwanese investment in China hit $180 billion – ten times the value of Taiwan’s investment in the United States. The annual amounts have been going down, but mainly because of the Trump administration’s tariffs on China, which have made it much more difficult for any factories in China – Chinese or foreign-owned – to earn fat profits by exporting major shares of their output to the United States. Even so, such investment had reached massive proportions. Indeed, in 2017. China still attracted nearly 45 percent of all Taiwan’s outbound foreign direct investment. Moreover, so much of this investment has come in technology sectors that fears have emerged of the island hollowing out its own innovation sector – which has been so vital to Taiwan’s spectacular economic development. And of course, Taiwanese companies like contract semiconductor manufacturing giant TSMC have been major suppliers of microchips and other high tech products to Chinese tech companies like Huawei, the global leader in advanced telecommunications.

It’s important to recognize that Taiwan is hardly the only U.S. ally that’s promoted China’s economic – and therefore technological and military – development. It’s not even the biggest. (That dubious honor goes to Hong Kong, but most of this Chinese “Special Administrative Region’s” direct investment flows to China seem to be concentrated in lower-tech, labor-intensive sectors without significant national security implications.) Moreover, the United States remains complicit itself.

But even though his administration doesn’t use the word, decoupling from China does appear to be a major goal of President Trump’s. There’s certainly been a lot of it. I’m not big at all on the United States embarking on a full-fledged campaign to mobilize East Asia/Pacific countries to out-compete China for influence in the  region. Indeed, I’ve argued that disentangling the United States from China economically is vital to ensure American security and prosperity on its own merits. But if President Trump does want to go the full-court anti-China press route, what’s the point if supposed American allies aren’t all-in on decoupling asd  as well?

Im-Politic: In Case You Still Doubt It’s a China Virus

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China, China virus, coronavirus, COVID 19, decoupling, elites, globlalism, Hong Kong, Im-Politic, Iran, Italy, pandemics, Taiwan, The Epoch Times, Trump

Yesterday’s RealityChek post explained why Americans looking for current domestic scapegoats for the sluggish China Virus outbreak response are barking up the wrong tree. But despite the predictable criticisms from globalism- and political correctness-happy elites and the Mainstream Media journalists who follow their cues, the search for foreign scapegoats is absolutely legitimate – primarily because one country above all has unmistakably earned the title: China.

Skeptical? Then check out this editorial from The Epoch Times. As it compellingly demonstrates, “Where Ties With Communist China Are Close, the Coronavirus Follows.”

More specifically, although the editorial writers note that numerous drivers lie behind COVID19’s spread, “the heaviest-hit regions outside China all share a common thread: close or lucrative relations with the communist regime in Beijing.”

One reason I found the editorial especially important was its explanation for the virus’ concentration in Italy. Some convincing explanations for high levels of Italian mortality rates have come out, but I’ve yet to run across any material on why China Virus became so common in Italy to begin with. The Epoch Times spotlights some major reasons:

“Italy, the most heavily affected country outside China as of March 10, was the first (and only) G-7 [“Group of 7” – an official organization of the world’s seven biggest economies] nation to sign onto the PRC’s Belt and Road Initiative (BRI, also known as One Belt, One Road). In an attempt to prop up its weakening economy, Italy has also sought to capture the Chinese market for selling its luxury goods….

“Italy also has signed scores of sister-city agreements with China, with the cities of Milan, Venice, and Bergamo included among them. These are the areas hardest-hit by the virus.”

China ties also seem largely responsible for the coronavirus’ outsize impact on Iran:

“The Iranian regime has had a comprehensive strategic partnership with China since 2016, and its ties with Beijing began years before that. In violation of international sanctions, Iran has imported embargoed materials from China, while continuing to sell oil to the PRC. The Islamic Republic allowed flights in and out of four major Chinese cities until the end of February.”

And reinforcing the case for a vital Iran-China connection is this Wall Street Journal piece. It reports that the Iranian city of Qom, which Iran’s government calls the country’s COVID19 starting point, has been the site of numerous infrastructure projects built by Chinese engineers and technicians as part of that Belt and Road program.

As the Times notes, even South Korea’s government – whose comprehensive and seemingly testing program has garnered widespread global praise – seems to have set itself up for China Virus troubles “for refusing to ban Chinese tourists at large and instead only barring entry for those who recently traveled to Hubei Province, the epicenter of the epidemic in China.”

Don’t forget, moreover, that one big reason surely has concerned South Korea’s long surging economic relations with China – which assembles lots of high-value manufactured goods containing numerous South Korean parts and components. The same goes for Japan, another coronavirus hotspot.

The Epoch Times‘ conclusion is also borne out by the experiences of two other places with extensive economic relations with China that seem to have the disease contained: Hong Kong and Taiwan. (And I don’t mean to suggest that the latter isn’t a “country.”)

The city, located right next to another China Virus epicenter, Guangdong Province, has basically shut its border with the People’s Republic. Taiwan “began to board planes and assess passengers on Dec. 31, 2019, after Wuhan authorities first confirmed the outbreak. In early February, Taiwan banned entry to foreign nationals who have traveled to the PRC.”

Of course, now that the virus has spread far beyond China, government authorities need to focus on more domestically focused strategies – although plugging remaining foreign travel gaps, as President Trump approved in his otherwise unsuccessful Wednesday night Oval Office address, can certainly be justified in many circumstances.

Moreover, China’s primo role in not only the coronavirus outbreak but the previous Bird Flu and ongoing Asian Swine Flu episodes indicates that there’s something about China that makes it particularly (if not uniquely) plague-prone. As a result, further curbs on commerce with the PRC seem imperative even leaving aside (as no one should) Beijing’s recent threat to cut off shipments of vital medicines and their chemical ingredients to the United States. In other words, keeping the focus on China’s responsibility will help American leaders keep and intensify their focus on desirable, broader economic decoupling.

And China’s disgraceful effort to place blame for the virus on the United States amounts to a major additional reason to spotlight the above transnational coronavirus links.

“Blame games” in politics and policy are often condemned, and surely they’re often wrongheaded or overdone. But they also serve the valuable purpose of clarifying thought, accurately identifying problems, and – as suggested above – speeding the discovery of effective solutions. That’s why The Epoch Times editorial gives me more reason than ever to keep calling the coronavirus the China Virus – and why the same should go for all Americans.    

(What’s Left of) Our Economy: Now What in the U.S.-China Trade War?

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agriculture, allies, China, decoupling, Democrats, election 2020, forced technology transfer, Hong Kong, Huawei, impeachment, intellectual property theft, National Basketball Association, Phase One, Steven Mnuchin, subsidies, supply chains, Taiwan, tariffs, Trade, trade talks, Uighurs, verification, {What's Left of) Our Economy

This is the second working day since the United States and China reached what the Trump administration is calling a “Phase One” trade deal with Beijing last Friday, and the questions surrounding the agreement still far outweigh what’s known. That alone should tell you that towering obstacles continue blocking any confident assessment of where the President’s so-called trade war stands, much less where the conflict is likely to go. Even so, here are some observations I hope are useful.  (Teaser:  One major point concerns tonight’s Democratic presidential candidates debate.)

First, the absence of any written statements or documents from the U.S. side describing or even summarizing what’s actually in the agreement justifies big doubts that anything deserving the term “deal” has been reached at all. Further reinforcing legitimate skepticism is China’s long record of broken promises on trade.

Second, especially strong skepticism is warranted about U.S. claims that any meaningful progress has been made on the so-called structural issues focused on from the very beginning by the Trump administration. For it as I’ve long argued, China’s government is so vast and secretive, and leaves such scanty written records of key decisions, that it will simply be impossible for the United States to monitor and enforce even the most promising Chinese commitments on intellectual property theft, technology extortion, discriminatory Chinese government procurement, and Beijing subsidies that shaft U.S.-owned and other foreign businesses vis-a-vis their Chinese rivals.

Third, even if China currently means to keep its alleged promises to binge buy American agricultural products, any number of external events could upset the apple cart. They include the Hong Kong picture becoming uglier (its becoming prettier can’t be totally ruled out, but seems highly unlikely); new Chinese crackdowns on other protests that may emerge (especially among the Uighur Muslim population) or revelations of new Chinese atrocities against the Uighurs or other minorities or other protesters; more attempted Chinese bullying of high-profile U.S. businesses like the National Basketball Association; a major flare-up of tensions over Taiwan or China’s aggressive moves in the South China Sea; a step forward in the Huawei case that increases the chances that the CFO daughter of the founder of this Chinese telecommunications giant will be extradited to the United States from Canada for sanctions-busting; and Chinese moves that persuade Washington that Beijing has no intention of keeping its perceived agriculture or other promises.

Moreover, the longer China takes to ramp up its buys from American farmers, the greater the potential for these kinds of shocks to bring this “Phase One” agreement crashing down.

Fourth, the less impressive the “mini-deal” keeps looking, the more convincing my view that its apparent modesty reflects President Trump’s belief that his domestic political position has weakened significantly – both because of the new impeachment threat and signs of an economic slowdown.

It’s true that Treasury Secretary Steven Mnuchin has suggested that if the deal hasn’t been finalized by December 15, the Trump administration will go ahead with a previously vowed 15 percent increase on $156 billion worth of levies on Chinese imports. But that’s anything but a concrete threat. In addition, it’s important to note this report suggesting (the specifics are really sloppily described) that China wants the sequencing to work in the opposite way:  First, tariffs get rolled back (or frozen in place?), then the agriculture buys begin. 

Moreover, no one in the administration has said anything about reversing its Phase One-related decision to suspend a big tariff increase (to up to a formidable 30 percent on some products) previously announced to begin on October 15. So even though U.S. duties on some $360 billion worth of Chinese goods would still remain in place if China blows Mr. Trump off, there’s a real chance that Beijing won’t incur any further punishment – doubtless because the President believes that tariffs above and beyond current levels and coverage could panic investors again and further soften economic growth.

Some kind of blow-up in Hong Kong or elsewhere could yet change Mr. Trump’s calculations. But the more important point so far is that events, not the President, are now in charge of the trade talks track of his China policy.

Fifth, at the same time, none of the above means that the United States is devoid of leverage versus China and in particular the kind of clout that can keep advancing its economic as well as closely related technology and national security interests, and this is where a second, arguably more important, track of the Trump China policies needs to be remembered. As I’ve written, the President has sought not only to end the threat of China’s economic predation by forcing Chinese policy changes through tariff pressure. Although he rarely speaks of it, he’s also been trying to repel Chinese threats to U.S. security and prosperity through a series of unilateral measures aimed at decoupling the United States from China economically.

By crimping trade, investment, and technology flows, these decoupling steps are reducing America’s vulnerability to China by significantly reducing the access to the U.S. market so crucial to the success of China’s advanced industries; by shrinking the footprint of China’s state-controlled economy in America’s largely free market system; and by cutting off a Chinese tech sector that could be become highly dangerous from critical supplies of U.S. components.

Decoupling has also been advanced by those tariffs so far imposed on $360 billion worth of Chinese products (amounting to nearly 86 percent of all goods imports from China last year). They haven’t done much to achieve their stated aim of improving China’s behavior, but they have decreased China’s importance to the U.S. economy by prompting an exodus of global manufacturing supply chains out of the People’s Republic.

Further, the Trump decoupling campaign has also helped awaken many foreign governments to the China tech and broader economic threat – though because so many other countries (including major American treaty allies), were profiting so handsomely from the pre-Trump globalization status quo, progress on this front has been uneven and disappointing. (See here for why Germany, for example is so conflicted.) 

Sixth and finally, one major set of actors in this drama, though, hasn’t been very woke on China issues:  most of the Democratic presidential candidates. Sure, many have supported a policy of “doing something” on China (though rarely involving tariffs – or any other concrete measures). But so far, none seems to view China’s multi-dimensional challenge to America as a major concern – and all the top-tier contenders and most others now support impeaching the President. 

Consequently, they could greatly strengthen not only Mr. Trump’s position, but the American position, with firm declarations in tonight’s debate that China will stay squarely in Washington’s cross-hairs if they win the White House, and that therefore there’s no point in stonewalling in hopes of easier post-2020 U.S. policies. Not that any confidence looks well founded that any of them will.        

(What’s Left of) Our Economy: Why This Trade War Hasn’t Been “Easy to Win”

Tags

China, Hong Kong, Huawei, One Belt One Road, Taiwan, tariffs, Trade, trade war, Trump, Xi JInPing, {What's Left of) Our Economy

Friday’s U.S.-China trade war escalation leaves little doubt that I was wrong about the conflict in one major respect. So was President Trump.

Just as Mr. Trump was first unilaterally tariff-ing Chinese products in response to Beijing’s wide-ranging economic predation (which of course extended far beyond trade flows into intertwined investment and technology issues), I confidently stated that Beijing wasn’t about to risk antagonizing its most important market by far with any retaliatory moves. Indeed, although I didn’t agree with his near-blanket statement that “trade wars are good,” I was fully on board with his claim that they’re “easy to win” – or at least reasonably so.

China’s announcement yesterday of new tariffs on $75 billion worth of American goods in response to the most recent round of Trump trade levies was just the latest evidence that Chinese leader Xi Jinping in fact has little compunction about risking American official ire and even believes he might prevail.

Even so, the President and I have an excuse. Our mistake wasn’t maintaining that the bilateral economic balance of power didn’t overwhelmingly favor the United States. Just check out the new claim by the founder of Huawei that U.S. national security sanctions – which could cut the Chinese tech giant off from access to the  U.S.-brand semiconductors central to its products operations – has confronted this entity with a “life and death” crisis. Moreover, trade flows remain as grotesquely lopsided as ever, meaning that the export-heavy Chinese economy still remains much more dependent for adequate growth on selling to the United States than vice versa.

Instead, our mistake has been underestimating just what a delusional bonehead Xi is, and how he can’t seem to resist the temptation to overestimate China’s power and prospects. He’s clearly overreaching in his treatment of Hong Kong, in the process courting a global public opinion backlash that’s likely to dwarf that following the Tiananmen Square massacre of 1989 – and turn him into a rival and even replacement for President Trump himself as a worldwide punching bag. He’s clearly overreaching regarding Taiwan, even given Beijing’s longstanding view of the island as a renegade province and equally longstanding practice of threatening it militarily. As a result, the United States will be selling the Taiwanese armed forces $8 billion worth of advanced fighter jets. He’s also clearly overreaching in connection with his ballyhooed One Belt One Road global infrastructure project – which is increasingly being recognized as at best the biggest potential white elephant in world history and at worst an equally gargantuan engine of pollution and corruption.  (See, e.g., this post for a typically negative review.)

Even more noteworthy are the signs that Xi’s trade war overreaching is seriously damaging China’s own economy. Just a few of the recent signs: the lowest overall economic growth rate in 27 years; the worst industrial production growth (which includes mining and utilities as well as manufacturing) in 17 years; and all-time record official unemployment in China’s cities.

That last milestone is especially important, since keeping people at work is the top economic priority for China’s leaders. The reason: jobless Chinese workers could turn into politically restive Chinese workers, and pose big dangers to the employment status of Xi and the rest of the ruling Central Committee.

And surely more worrisome for Xi: He must know better than most that China’s official economic data strongly tend to overstate China’s economic performance. In other words, the domestic economic picture is likely even worse than Beijing is letting on.

Why then does Xi keep standing on his high horse? Of course, I have zero inside info. But the only answer that makes sense to me is that he and his colleagues have decided that if they can prick enough American economic fingers (whether among consumers or farmers or investors), the resulting complaints will be amplified through a deafening chorus of gloom-mongering from the staunchly anti-Trump Mainstream Media. Eventually, Americans could talk themselves into a recession that would ensure the election in 2020 of a much more pliable Democrat – chiefly, former Obama Vice President Joe Biden.

That’s not a crazy plan by any means, especially since the President is no slam dunk to win reelection. At the same time, it’s far from clear that Xi or whoever’s advising him on American politics are such whizzes on the subject. If they were, would China under his rule have acted belligerently enough on trade, national security, and human rights to have helped elect Mr. Trump in the first place?

Our So-Called Foreign Policy: The Globalist Blob Wants the U.S. to Keep Looking for Trouble

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alliances, Blob, China, Council on Foreign Relations, East Asia-Pacific, extended deterrence, globalism, Japan, North Korea, nuclear weapons, Our So-Called Foreign Policy, Project-Syndicate.org, Richard N. Haass, South Korea, Taiwan, Trump

I’d like to offer a deal to anyone in America’s bipartisan globalist foreign policy establishment: You come up with defenses of the pre-Trump strategies and approaches you support that aren’t transparently ridiculous, and I’ll start portraying them as something other than sick jokes.

Judging by Richard N. Haass’ latest column for the Project Syndicate website, it’s clear that even if these members of the Blob (a wonderful nickname for this crew of former officials, genuine scholars, think tank creatures, Mainstream Media journalists, and business and finance leaders) cared about what I think, they’d flunk this test.

Haass is an especially important Blob-er because he not only served as a top policymaker under three Republican presidents (and in a more junior position during Jimmy Carter’s administration). He’s the President of the Council on Foreign Relations – the Blob’s oldest and most prominent think tank. (Truth in advertising: He also preceded me by two years at our Long Island, N.Y high school, but we had no personal dealings.)

But we should all hope that the advice he dispensed in government was much better than that he seems to have offered in “Asia’s Scary Movie.” Because his arguably underlying message – that the United States should reinforce its commitment to militarily defending the East Asia-Pacific region even though the region shows signs of fracturing on the economic and security fronts – is nothing less than a recipe for increasing America’s exposures to perils it can’t possibly control.

Especially and dangerously nutty is Haass’ clear belief that the United States should maintain its security relationships with Japan and South Korea even though the two countries are engaged in a literal trade war that’s disrupting interactions between their two gigantic clusters of information technology hardware manufacturing – which are so big that global trade and production in these critical sectors could take a major hit if the feud escalates further.

After all, as noted in that post linked just above, American ties with these two countries are “vital to its aims of balancing China and addressing the threat from North Korea” – both of which threats Haass correctly describes as growing and as worrisome as ever, respectively. In other words, in the event of trouble that may require a military response, the United States is relying on help from Tokyo and Seoul – which, in turn, are going to need to be working together.

But military relations between these two Asian countries have long been threadbare at best. Worse, their latest dispute – amid the backdrop of the rising China challenge and the ongoing peril from North Korea, which endanger both – has broken out because of grievances and grudges dating from Japan’s long and brutal occupation of the entire Korean peninsula in the decades preceding the end of World War II.

Given the history, it’s easy to understand why there’s no love lost between these two peoples. But alliances make sense only when the participants can count on each other for effective assistance if and when the shooting starts. Can anyone seriously believe that Japan and South Korea are going to get their act together suddenly if North Korean forces barrel across the Demilitarized Zone, or if Beijing moves against Taiwan? Or that responsible American defense planning should assume this rosy scenario?

Even worse, if trouble does break out on the Korean peninsula, nearly 30,000 American troops will be right in the middle. As I’ve written repeatedly, their vulnerability to superior North Korean conventional forces means that a U.S. President might need to use nuclear weapons to save them. For many years, North Korea’s inability to hit the American homeland with its own nukes made this threat (known as “extended deterrence”) credible and helped keep the peace. Given the North’s major progress toward precisely this capability, the current U.S. strategy could soon amount to risking the complete destruction of a big American city – or two. That may even be the case now.

In other words, given all these major, worsening Asia problems, the logical U.S. response is not stubbornly staying seated atop a powder keg. It’s to disengage ASAP. But any disengagement is such anathema to Haass and the rest of the Blob that he’s actually portrayed President Trump’s various statements criticizing the wisdom of America’s alliances as major contributors to East Asia’s stability.

Ironically, though, despite the Blob’s complaints, Mr. Trump’s biggest mistake along these lines clearly has been to continue his predecessors’ alliance policies, and even to double down in Eastern Europe – a region that could be as dangerous as East Asia.

That is, Haass and the rest of the Blob should be resting a lot easier. What a tragedy that there’s no reason to say that for the rest of us.

(What’s Left of) Our Economy: Time to Investigate China’s Enablers in the Trade War

Tags

China, customs fraud, Malaysia, Mexico, Nikkei Asian Review, Taiwan, tariffs, Trade, transshipment, Trump, v, Vietnam, {What's Left of) Our Economy

For decades (decades!), when describing how U.S. trade policy should be overhauled, I’ve emphasized that Washington’s approach needs to be not onl “tougher” or “stronger” — as per the favored terms of politicians and reporters.  It needs to be smarter and more nimble as well.

So here’s to the Japanese publication Nikkei Asian Review. It’s just shown exactly why – and why such smarts and agility are especially important for an administration more than willing to use tariffs on China and other economies to achieve its policy goals. (And thanks also to my Twitter follower “DeSaram-MAGA” for calling my attention to the piece.)

For a team of Nikkei journalists has investigated a key subject that no one in the Trump administration, the Congress, or the American media (at least to my knowledge) has bothered to look at: How much of the falling U.S. imports from China are being replaced by supplies genuinely produced in other countries (like Mexico and Vietnam), and how much are being replaced by goods from China being shipped through other countries either simply by putting them in different boxes and containers, or by slapping a coat of paint on them or making some other superficial change before sending them on to the United States?

The answers matter because if it’s mainly or significantly the former, then it becomes clear that the Trump tariffs really are hurting China by denying it sale opportunities that are being snapped up by other competitors. True, the final result per se won’t achieve the major Trump-ian goal of reducing the overall U.S. trade deficit. But China will be weakened – clearly another one of the President’s objectives – and the beneficiaries at least won’t be a huge, wealthy, powerful dictatorship acting like it wants to expand its influence in East Asia and perhaps the world over at America’s expense.

If the answer is the mainly or significantly the latter, then it becomes clear that numerous other economies – including U.S. allies – helping China evade the American levies, and that unless they halt these practices pronto, the case for worldwide tariffs on lots of products becomes a lot stronger.

The Nikkei journalists present evidence for both propositions. But given the uproar that erupted over the global Trump metals tariffs (imposed precisely to prevent assistance given to the Chinese metals producers who had glutted global markets), signs of customs fraud, transshipment, and related practices are especially important.

The Nikkei team provides some anecdotal evidence on this score. But the data-based case described is much more compelling. For example, the journalists found that although exports of five categories of goods from China to the United States – machinery and parts; electrical equipment and parts; furniture; toys; and automotive equipment and parts – declined between January and March of this year declined by 16 percent, “exports from China to developing countries and from developing countries to the U.S. [of these goods] have generally climbed. Exports via Vietnam, Taiwan and Mexico have increased particularly steeply.”

The rising Chinese exports to these countries strongly suggest that Vietnam, Taiwan, Mexico and others aren’t simply filling the China gap in the U.S. market with goods originating in their own economies. To a great degree, they’re helping Chinese origin goods fill that gap on the sly.

Even more suspicious, according to the article:

“Since the U.S. first slapped punitive tariffs on a broad range of imports from China, the six major Southeast Asian nations and Taiwan have started shipping nearly 1,600 new categories of products to the U.S. that they had never exported to America before.

“Of these new U.S.-bound exports, about 1,000 items, or over 60% of the total, are on Washington’s blacklist.”

That is, unless you believe that in a matter of months, major production capacity for this huge number of products somehow suddenly appeared where little, if any, existed before, then circumvention has to be rife.

The Nikkei findings don’t mean that the Trump administration should build all-encompassing tariff walls immediately. But they do mean that Washington needs to demand prompt answers from the economies in question. U.S. leverage, moreover, in many cases isn’t only economic. It’s grounded in national security, too. Countries like Vietnam, Taiwan, and Malaysia aren’t official U.S. treaty allies, but are all quite pleased that the American military counters China geopolitically by basing lots of assets in their neighborhood.

President Trump plainly understands that the United States needs these countries much less than vice versa both economically and security-wise. But the trade policy overhaul he’s rightly pursuing still needs to do better at guarding against foreign efforts to game the system. In this case, that requites demonstrating one of the most reliable signs of intelligence – curiosity.

(What’s Left of) Our Economy: Why Trump Should Have Hung Tough with China

Tags

Applied Materials, ASM Lithography, Bloomberg, Bloomberg.com, China, electronics, forced technology transfer, Fujian Jinhua, G20 Summit, information technology hardware, intellectual property theft, KLA-Tencor, Lam Research, Made in China 2025, Micron Technology, Netherlands, semiconductors, Taiwan, technology, Trade, trade war, Trump, United Microelectronics Corporation, Xi JInPing, ZTE, {What's Left of) Our Economy

A U.S.-China summit on the sidelines of the global economic conference in Buenos Aires has produced what amounts to a three-month truce in the trade conflict the two countries have been waging since the early months of the Trump administration. I’ll have a detailed reaction coming out in a major newspaper op-ed piece tomorrow, so I don’t want to steal my own thunder here.

For now, it’s worth spotlighting a recent Bloomberg.com piece on America’s latest efforts to fight China’s intellectual property theft, and the dangerous progress and ambitions it’s been largely fueling. It’s so good, and so important, that it illustrates exactly why the President should have hung tough in his China trade diplomacy – and how much more thoroughly America’s China policies need overhauling before they can adequately serve U.S. national interests than even the Trump administration has been indicating.

Just to review, the Trump administration has imposed several rounds of tariffs on literally hundreds of billions of Chinese products typically headed for the American market, largely in response to China’s newly explicit ambition to achieve worldwide technological supremacy – and in the process become the world’s strongest economy and military power.

This Chinese goal – made clear in a program called Made in China 2025 – is anything but entirely new. Indeed, much of the blueprint has been in effect literally for many years, and certainly once Chinese leaders realized that the United States, Japan, South Korea, Taiwan, and Western Europe seemed happy enough to foster their country’s economic development by supplying in various ways the knowhow to make major tech catch-up a realistic goal. So China has long sought to secure such technology as fast as possible, by whatever means were needed – including those that violated various trade commitments it had made.

In the last few years, however, China’s often startling resulting advances, its reversion to a national economic strategy ever more reliant on government dictates and strong-arming and discriminating against foreign investors, and its mounting belligerence in world affairs, have woken up even many pillars of America’s free trade-happy establishment to the threat they’d been creating. And crucially, the crestfallen included many of the very companies that were handing over their crown jewels to China, along with the politicians and think tank shills they funded.

The Bloomberg article is so valuable because in one fell swoop, it illustrates how deeply involved American companies have been involved – and remain – in strengthening China’s tech capabilities, how consequently vulnerable China remains to American inputs of various kinds, and therefore why there is absolutely no reason for the Trump administration to relieve its tariffs’ pressures on China’s economy without major – and completely verifiable – concessions from Beijing.

In the piece, a team of Bloomberg reporters make all these points with a detailed account of a Chinese (government-supported, of course) entity that sought to produce advanced versions of critical pieces of the semiconductors used in smartphones. The explicit goal: Reduce the Chinese electronics’ industry’s dependence on foreign semiconductors.

That objective per se is highly objectionable – that is, for anyone who takes seriously the supposed main purpose of the global trade system, which is to foster the most efficient possible global division of labor by freeing up trade flows to ensure that the output and provision of various products and services is concentrated in those countries that do these jobs best. But defenders of the global trade status quo never seemed to notice that China demonstrated no interest in passively accepting the verdict of market forces.

In fact, as the Bloomberg team makes clear, American technology companies have been all too ready to aid this Chinese ambition, even with Beijing’s ambitions ringing more and more alarm bells. Specifically, this Chinese entity (as usual, I refuse to call these outfits “companies” or “businesses” because Beijing’s effective control over them sharply distinguishes them from groupings in largely free market economy that actually deserve those labels), was being supplied by U.S. semiconductor manufacturing equipment firms KLA-Tencor, Applied Materials, and Lam Research – along with foreign counterparts like the Netherlands’ ASM Lithography and Taiwan’s United Microelectronics Corp.

But at the end of October, the U.S. government placed the Chinese entity – called Fujian Jinhua Integrated Circuits – on a list of economic actors whose operations are just to pose “significant risk of becoming involved in activities that are contrary to the national interest of the United States.” Several days later, Washington also indicted the entity for stealing the intellectual property of American semiconductor firm Micron Technology of stealing its intellectual property. As a result of the national security finding, American companies are in effect prohibited from supplying Fujian Jinhua. And since Fujian’s non-U.S. suppliers sell it goods that contain American-made parts, the restrictions cover them, too.

The result of the ban announcement? According to the Bloomberg article, Fujian Jinhua’s “dream is now in tatters with consultants from American suppliers gone, the factories silent and workers rattled.” And lest you think this is just one anecdote, recall that a similar American export ban on selling to Chinese telecommunications manufacturer ZTE would have doomed that entity had President Trump not let it off the hook in hopes of currying some valuable favor and negotiating leverage (so far, in vain) with Chinese leader Xi Jinping.

In other words, the United States enjoys decisive leverage over China in the struggle for technological, economic, and military power, and should continue ramping it up to extract whatever concessions it can get from Beijing. In this vein, it’s as shocking as it is disturbing that U.S. tech firms like those mentioned above are still allowed to contribute to China’s technological development months after the Trump administration has literally designated China as a power (along with Russia) that is challenging “American power, influence, and interests, [and] attempting to erode American security and prosperity.” Further, the same national security strategy document declared, more specifically, that “Part of China’s military modernization and economic expansion is due to its access to the U.S. innovation economy, including America’s world-class universities.”

But more important, as I’ve written, since verifiable concessions are so unlikely, this pressure should form one major element of a larger strategy that to disengage America from China economically, and this goal, and the stakes that justify it, should be declared by President Trump soon after his return from Buenos Aires.

(What’s Left of) Our Economy: Trump’s Globalization Promises are Already Producing Victories

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Canada, China, Digitimes, H1B visas, Immigration, India, Infosys, Mexico, NAFTA, Reuters, Taiwan, Trade, Trade Deficits, trade surpluses, trade wars, Trump, {What's Left of) Our Economy

America’s political and media establishments keep warning of the disastrous consequences of President-elect Donald Trump’s vow to conduct international economic policy by in effect telling U.S. competitor countries and offshoring multinational companies to “Jump.” And rather than responding indignantly by promising to resist or retaliate and touch off a series of international trade wars and other conflicts, businesses in these countries keep responding by in effect asking “How high?”

As a result, they keep adding to the already copious body of evidence indicating that the United States boasts more than enough leverage (thanks to the matchless power of its market) to achieve better terms of trade unilaterally. Here are two of the latest examples.

Yesterday, the reliable Taiwanese technology publication Digitimes reported that “US-based high-tech enterprises are expected to reduce their reliance on data centers abroad and add ones in the US.” In addition, the Digitimes piece quoted a Taiwanese tech magnate speculating – reasonably – that tech companies (like his) that have already built significant manufacturing capacity in the United States will have advantages over more foreign-centric competitors – who will “have to evaluate the feasibility of shifting factories from Mexico or other areas to the US….”

Meanwhile, on Sunday, Reuters quoted the COO of the Indian tech services giant Infosys as stating that because they expect Mr. Trump to curb significantly the visa programs that enable American tech companies to replace U.S. workers with low-paid imported Indian counterparts, companies such as his will “speed up acquisitions in the United States and recruit more heavily from college campuses there.”

Specifically, according to this Indian executive, “We have to accelerate hiring of locals if they are available, and start recruiting freshers from universities [in the United States].”

Previously, it should be noted, both Canada and Mexico announced in the wake of the Trump victory that they would indeed be willing to renegotiate or “discuss” NAFTA.

China may still apparently believe it can bluff Mr. Trump. But good luck to Beijing and its still export-heavy economic growth strategy if it thinks it can find foreign markets to substitute for America’s, with which it ran a $367 billion goods trade surplus last year. Good luck also to China’s efforts to maintain political stability if, as likely, declaring a trade war on such a crucial foreign customer raises unemployment.

America’s economic competitors are fully aware that its enormous trade surpluses have fueled much of their own, and global, growth for decades. The biggest change on this front represented by Trump’s election is that now a U.S. president clearly understands – and has been publicly touting – this indisputable reality as well.  In otherwise, for the first time in decades, America is led by someone well versed in “the art of the deal.”   

(What’s Left of) Our Economy: New Obama Report (Unwittingly) Shows Why Trade Deals Need Currency Manipulation Bans

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China, currency, currency manipulation, Eurozone, exchange rates, Financial Crisis, free trade agreements, Global Imbalances, gross domestic product, Japan, Korea, KORUS, Malaysia, New Normal, Obama, recovery, Singapore, Taiwan, TPP, Trans-Atlantic Trade and Investment Partnership, Trans-Pacific Partnership, Treasury Department, {What's Left of) Our Economy

U.S. leaders keep showing us that they remain “The Gang That Can’t Think Straight” when it comes to international economic policy. Just look at yesterday’s Treasury Department report on exchange rate policies around the world – the department’s biannual assessment of whether America’s trade competitors are artificially keeping their currencies low to reap trade advantages. No countries were officially accused of this form of protectionism, but several had a Treasury finger wagged their way, including recent free trade agreement partner South Korea.

According to the report, although the Koreans have made international promises to refrain from competitive devaluations, the “sustained” rise in Seoul’s reserves and the country’s net forward position “indicates that they have intervened on net to resist won appreciation.” For good measure, Treasury noted Korea’s rising goods trade surplus with the United States and a July, 2014 International Monetary Fund judgment that the won “remains undervalued.”

In other words, Korea isn’t manipulating, but it looks suspiciously close. As a result, “Treasury has intensified its engagement with Korea on these issues. We have made clear that the Korean authorities should reduce foreign exchange intervention, limiting it to the exceptional circumstance of disorderly market conditions, and allow the won to appreciate further.”

Of course, here’s the rub: Seoul is completely free for all intents and purposes to ignore this “engagement.” For Korea’s currency interventions may clash with the international obligations it’s assumed (as in the World Trade Organization and the International Monetary Fund). But they don’t flout the only such commitment that could plausibly be enforced – that trade deal (KORUS) with the United States. After all, consistent with Washington’s reigning bipartisan consensus (especially between the last two presidents, and apparently now including Fed chair Janet Yellen), that enforceable currency manipulation bans don’t belong in trade deals, KORUS ignored the issue.

This gaping and damaging (by Treasury’s own admission) disconnect has big future implications as well. The president also staunchly opposes including an enforceable currency manipulation ban in the Trans-Pacific Partnership (TPP) trade agreement he’s seeking. This deal would already include countries widely accused of past manipulation: Japan (chided in the new Treasury report for its heavy reliance on yen weakening monetary policies to boost growth), Malaysia, and Singapore. Among likely follow-on countries: leading exchange-rate protectionist China, Korea, and Taiwan (which also just came onto Treasury’s manipulation radar).

Nor is the problem confined to East Asia, in the administration’s own view. President Obama is pursuing a lower-profile trade agreement with the European Union – even though Treasury’s report charges the Eurozone with a Japan-like easy money-led growth policy.

To be sure, the new Obama Treasury Department report doesn’t flag these or any other foreign currency policies as significant direct threats to America’s welfare – even though the rising trade deficits to which they contribute subtract from the gross domestic product’s expansion at a time when the nation remains growth-starved. But it does emphasize the potential for major indirect harm, warning that the world economy is once more becoming overly reliant on the United States as an engine of demand, and that “Doing so will not lead to a pattern of strong, sustainable and balanced global growth….” It should have added “and indeed helped set the stage for the last financial crisis and sorely inadequate New Normal that’s emerged in its wake.”

At the same time, the administration keeps insisting that new trade deals with net export-led regions will not only help speed up the historically weak U.S. recovery, but spur greater world-wide growth, too. Instead, as its own new foreign currency report makes painfully clear, it’s much likelier that if this approach to globalization succeeds:

>The United States will be more closely integrated than ever with economies determined to grow at its expense.

>It will have virtually no internationally authorized way to respond effectively.

>Therefore, slow-growth, lousy wages, surging debts, and greater financial instability will mark its future – if it’s lucky enough to avoid a new crash.