(What’s Left of) Our Economy: Whose Trade Representative?

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America First, Biden, Donald Trump, Katherine Tai, middle class, positive sumn, supply chainsi, tariffs, Trade, trade talks, U.S. Trade rep, USTR, zero sum, {What's Left of) Our Economy

Since her appointment as President Biden’s U.S. Trade Representative (USTR), Katherine Tai has become known as a master of the “noncommittal interview style,” steadfastly remaining in the realm of lofty generalities “but never getting pinned down on specifics.” I’d add that this description has characterized her other public statements, too.

Last week, though, appearing on Marketplace radio, Tai appeared to let her guard slip – and in ways indicated that even moderate American liberals like her have turned as thoroughly, and in my view, worrisomely, ambivalent about the main purposes of U.S. trade policy as their more progressive counterparts.

As I’ve written, by the late-1990s, this ambivalence has long been a major obstacle to turning U.S. trade policy from an exercise in offshoring that had been devastating the productive heart of the American economy and its workforce into a drive to boost domestic employment and production. For although progressives agreed that trade policies were harming American workers, they also tended to claim that it had been harming their third world counterparts, too – which was critically important given the tight focus of pre-Trump U.S. Presidents and their allies in Congress on expanding trade with very low income countries.

As a result, their critiques of trade policy were continually debunked by convincing evidence that the era of rapid globalization had actually been a major boon to much of the “global south.” (See, e.g., here.) And they continually refused to acknowledge that, at least for some undefinable period of time, changing trade flows to channel more of the benefits to Americans would entail hard choices that came at the expense of developing countries. Not surprisingly, it wasn’t until a full-throated champion of America First-oriented trade policies emerged as a major force in American politics that public pressure finally brought the offshoring-focus of trade diplomacy to a resounding halt.

To their credit, early on in the last presidential campaign, candidate Joe Biden and his key aides recognized the importance of prioritizing of domestic interests – including worker interests – and their endorsement of Trump-ian economic nationalism has been most recently expressed in the President’s promise that “In everything we do, we will aim to make life better, safer, and easier for working families in America.”

The Biden administration’s record to date has been more mixed than its words – e.g., retaining every single dollar of Donald Trump’s China tariffs so far, but defining secure supply chains as including production nodes that are not only overseas, but locaed in many countries that haven’t remotely earned the designation of “trusted suppliers.” But it’s nonetheless revealing that even this position has some prominent globalization cheerleaders accusing the new President of neanderthal protectionism.

That’s why it was so surprising to see this exchange in Tai’s Marketplace interview:

[INTERVIEWER] “…l want to go back to that speech from a week or so ago that you gave about trade policy and environmental policy. And one of the things you aid was: ‘My job is to push for trade reforms that translate into meaningful change in the lives of farmers, ranchers, factory workers, parents and children, not just in the United States, but around the world.’ And I wonder whether you thought twice before you wrote that and you said that because to some in this country, that’s going to clang a little bit.

“Tai: Really, why is that?

[INTERVIEWER]: “Well, I think at this moment where we are a deeply polarized society, the idea that the United States trade representative would be worrying about workers, farmers, children and students in countries other than the United States might be problematic for some.

“Tai:  We don’t exist in a vacuum. And, you know, all you need to do is take a look at a map. We are all inextricably linked to each other and we are sharing this planet as a home in terms of climate and COVID-19. These are collective challenges, and we only get through them if we can get through it collectively.”

As I wrote previously, the point to keep in mind is not that global win-win solutions to trade problems are impossible to conceive, or should be ruled out of hand. The point to keep in mind is that someone who starts out in a negotiation over trade (which will be a big part of Tai’s job) or anything else assuming the best of all possible worlds doesn’t seem likely to recognize when the inevitable real world complications start intruding.

This kumbaya attitude shapes up as a tactical disaster for another reason, too: Tai can be sure that any international interlocutors will be focused like the proverbial laser beam on maximizing their own countries, not on achieving some hypothetical positive sum result. If that’s her starting point, it’s all too easy to imagine that she’d accept a final outcome much closer to other countries’ preferences than to America’s.

To be clear, I’m not troubled by Tai’s remark because I think she’ll be making any of the big calls on U.S. trade policy.  USTRs rarely do, and she simply doesn’t have the stature or the personal connection with the President.  I’m troubled by her remark because Tai’s many years as a Congressional staffer have surely taught her never to say anything that clashes with her boss’s official line. If as careful a bureaucratic operator as the new USTR doesn’t seem to understand that she’s the Trade Representative of the United States, not the world at large, maybe Mr. Biden needs to be reminded of his real job definition, too?

(What’s Left of) Our Economy: The Case that Phase One Passes the Enforceability Test

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China, enforcement, Phase One, tariffs, Trade, trade deal, trade talks, Trump, unilateralism, {What's Left of) Our Economy

Not only has the “Phase One” trade deal now been signed by the United States and China, but official texts have now been released. And my initial read indicates that the Trump administration just might have come up with an effective enforcement regime – though success here will depend on U.S. governments (including this one) displaying nerves of steel.

At the same time, the enforcement terms raise the question of why the President felt the need to reach this point via a treaty, rather than simply punish China unilaterally for economic transgressions – as his tariffs on hundreds of billions of dollars worth of imports from the People’s Republic (most of which remain firmly in place) already accomplish.

By way of background, from the beginning, I’ve doubted that any such agreement could be adequately verified from the U.S. standpoint. The main reasons: The bureaucracies China uses to implement the various features of its trade and broader commercial predation are too big and secretive for any outsider to monitor in any meaningful sense. (Further complicating matters – many of the worst culprits are provincial and city governments.) Therefore, documenting abuses in any kind of detail – or verifying any Chinese promises of structural change – has looked like an insurmountable obstacle to standard, legalistic dispute-resolution systems that could actually work satisfactorily for American plaintiffs.

As a result, I’ve argued that the best way to handle these transgressions is for the U.S. government to impose sweeping tariffs on China (because its predation is a systemic plan, not the product of individual entities’ decisions), and to deal with additional, individual complaints by acting as judge, jury, and court of appeals. And because of my conviction that the United States holds the clear upper hand in its relations with China, I saw no need to permit any Chinese involvement in these processes.

The Phase One deal certainly can’t be relied on to eliminate or even reduce Chinese opacity. But the way the treaty reads, it doesn’t need to. The key appear to be these passages (on page 7-3), which set out the procedures to be followed if the United States and China can’t, after a series of meetings and “consultations” agree on resolving a complaint. Here’s the first:

“…the Complaining Party may resort to taking action based on facts provided during the consultations, including by suspending an obligation under this Agreement or by adopting a remedial measure in a proportionate way that it considers appropriate with the purpose of preventing the escalation of the situation and maintaining the normal bilateral trade relationship.”

“Remedial measures” clearly means punitive tariffs, and just as clearly, they can unilaterally applied.

It’s true, as some trade policy critics have fretted, that the agreement gives the Chinese the same rights – as well as the option of retaliating if Beijing believes the United States has been acting in “bad faith.”

But here’s where the nerves of steel come in. The retaliation that’s permitted isn’t tit-for-tat – as in the case of World Trade Organization (WTO) rules. Indeed, even challenging such retaliation isn’t allowed – a right that can always frustrate justice by delaying it. Instead, the retaliation required is no less than exiting from the entire deal. The system can work in America’s favor if U.S. leaders either display confidence that China won’t take such a dramatic step (because the export-heavy Chinese economy still needs the American market much more than vice versa), or if they resolve to tariff China heavily if this U.S. bluff is called.

Incidentally, the language also makes clear that, in order to go ahead with tariffs, Washington won’t need much evidence any kind of Chinese failure to respond adequately to complaints. In fact, no meaningful evidentiary standards are specified at all. In other words, it’s entirely up to the United States to decide on the threshold for action.

Can China take advantage of the same provisions? In theory, yes. But nothing in the deal would prevent the United States from treating as treaty violations any Chinese complaints it regards as unmerited – and credibly threatening to retaliate by withdrawing unless Beijing backs down.

The deal also could well prevent a big potential problem from emerging – fear of Chinese retaliation (which itself might be tough even to identify because of Chinese bureaucratic secrecy) by U.S. victims of Chinese predation (and especially by victims that are operating in China). Such fears have prevented many of these victims from complaining publicly about Chinese abuses in the first place.

But the text on pages 7-2 and 7-3 appear to permit Washington to keep the name of the plaintiff’s business confidential. So, at least in theory, problem preempted.

As suggested above, however, the deal looks so promising, and permits so much implicit U.S. unilateralism, that it’s difficult to understand why President Trump decided to proceed bilaterally t begin with. Was he worried about being criticized for being reckless and not going the extra mile to deal with the Chinese respectfully and accommodate their legitimate concerns? Perhaps. But I strongly suspect that, at least if the agreement works out as I expect, he’ll face such accusations anyway. And by negotiating, he’s lost precious time to provide tariff relief for U.S.-based producers who need it, and to permit other companies to adjust their supply chains to a new tariff-heavier era sooner rather than later (and to make adequate progress well before November, 2020).

Clearly, however, the negotiating train has left the station. And between this effective enforcement system, Chinese promises of big import increases from the United States, and steep tariffs remaining on most imports from China (which cope with the systemic issue), it looks like a major and important economic and political win for a self-proclaimed master negotiator, and the entire domestic economy – if he makes full use of it.

Our So-Called Foreign Policy: Signing the Hong Kong Democracy Bill Should be a No-Brainer for Trump

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China, Congress, democracy, Hong Kong, Hong Kong protests, human rights, Our So-Called Foreign Policy, sanctions, trade deal, trade talks, Xi JInPing

Full disclosure: I don’t believe that promoting human rights and democracy abroad should be a high priority for U.S. foreign policymakers. (My most detailed explanation comes in this late-1994 article in FOREIGN POLICY magazine, which is available on-line here and here.) All the same, there’s no doubt in my mind that President Trump would be making a big political and substantive mistake if he, as he’s (very obliquely, to be sure) hinted that he might veto the Hong Kong Human Rights and Democracy Act of 2019 just passed overwhelmingly by both the House and Senate.

Don’t get me wrong: I’m under no illusion that the legislation will do anything in the foreseeable future to promote human rights and democracy in Hong Kong – and you shouldn’t be, either. In fact, there’s every reason to believe that it’s a classic example of political virtue-signaling. For example, even the sponsors of the bill don’t seem to believe that any plausible official American words or deeds can affect the fate either of Hong Kong generally or of the huge numbers of protesters who have been challenging China’s determination to keep eating away at the special freedoms enjoyed by its residents since its hand over by the United Kingdom to Beijing in 1997.

If they did, you’d think that they’d have included in the bill some economic sanctions against the Chinese economy. But not only are such provisions entirely missing. The only measures resembling economic sanctions or potential sanctions are directed against the economy of Hong Kong – in the form of requirements that the various ways in which U.S. policies and other laws that treat Hong Kong differently from China (based on the assumption that this “Special Autonomous Region,” as Beijing calls it) really still is autonomous – remain justified by the facts on the ground in Hong Kong.

The bill does contain some sanctions instructions directed at China – but not at any sectors of its economy. Instead, they’re to be applied against “foreign persons” determined to be “knowingly responsible” for any “gross violations of internationally recognized human rights in Hong Kong.”

To which the only serious response is “So what?” The Hong Kong officials who give the specific orders to the police to fire tear gas or crack some heads or shoot rubber bullets into crowds are nothing more than tools of the dictators in Beijing. Concentrating punishment on them amounts – knowingly – to punishing the little fish and letting the prize catches get away. And P.S. – they’re as easily replaceable and interchangeable as any ordinary functionary.

Unless you can think of many U.S. politicians in either party who would back imposing sanctions on Chinese kingpin Xi Jinping or any of his senior cronies? Fat chance – assuming you could even locate any of their assets vulnerable to America’s reach. After all, how many American elected officials genuinely doubt that China’s top leaders are ultimately responsible for the harsh repression of the Hong Kong protests – or for the extradition law that triggered this uprising?

Nonetheless, the politics alone argue compellingly for presidential signing of the Hong Kong measure. It attracted nearly unanimous support on Capitol Hill, so a veto override is likely. And although the President won’t win much praise for enacting the bill into law, he’ll generate a hail of brickbats for any opposition.

And for what? As I argued in the article cited at the beginning, human rights interests generally should take a back seat in U.S. foreign policy for any number of reasons, but chiefly because other interests are usually more important for America’s security or prosperity (since foreign governments’ human rights practices as are almost completely incapable of undermining these objectives). Moreover, American actions can sometimes backfire, and it’s far from far-fetched to worry that a Trump approval of the Hong Kong bill and more frequent and stronger expressions of official outrage will only further convince China’s dictators (and much of the nationalistic Chinese public) that the unrest in Hong Kong stems from foreign meddling, not legitimate concerns.

Yet U.S.-China relations these days are so bad that it’s difficult to imagine a Trump signature on the Hong Kong legislation significantly worsening them. It’s possible that Beijing could retaliate with still higher tariffs or other curbs on American exports, especially farm products, but China remains much more vulnerable to U.S. economic pressure than vice versa. Nor is the President likely to suffer much politically from such measures during the upcoming election year, since nearly all of his political opponents have spoken out much more emphatically against China’s record in Hong Kong than he has. As for “outside agitator” claims – the Chinese are already making them, including against the United States.

Which leaves us with the one stated presidential reason for considering a veto of the Hong Kong bill – that an obstacle could be created to reaching a trade deal. The problem here is that a trade deal that serves U.S. interests (as opposed to a cosmetic deal that, e.g., results in increased American exports to China in exchange for American tariff reductions with no commitments from Beijing to end its most important predatory trade practices) simply isn’t possible. As I’ve written repeatedly, even a complete Chinese cave-in on paper to every demand the administration has ever made can’t possibly be verified adequately – because the Chinese government is so big and so secretive.

In fact, if there’s any relationship between trade policy and Hong Kong policy, it surely works the other way: More human rights pressure from Mr. Trump would be added to the economic pressure that’s already making Xi’s life hard enough. And whatever throws the Chinese off balance by definition helps the United States. For it would force Beijing to spend more time putting out fires and playing defense generally across the board, and leaves less time for pursuing offensive economic and geopolitical goals that undermine American interests.

As I’ve always seen it, claims that these interests (properly defined, of course) and ideals are always ultimately compatible are among the most fatuous made by practitioners, scholars, and historians of American foreign policy. But especially for a country with America’s range of geopolitical and economic choice (by dint of its high degree of built-in security and economic self-sufficiency, and potential for even more), there’s also no question that the United States can afford to promote its admirable values on a regular basis.

Hong Kongers’ struggle for more freedom and democracy represents one such case, meaning that a Trump-ian failure to sign the Hong Kong bill would call into question not only his support for these ideals, but his pragmatic instincts as well.

Making News: Podcast On-Line of Radio Interview on the China Trade Deal (Or No Deal?)

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China, Making News, Market Wrap with Moe Ansari, Phase One, trade talks

I’m pleased to announce that the podcast is now available of a short-notice interview I did yesterday Moe Ansari’s syndicated Market Wrap radio program on the U.S.-China trade conflict.  To access this timely update on the on-again-off-again reports of a “Phase One” trade deal, click on this link.  Scroll down till you see “Listen to Market Wrap Online”  the left-hand column, and you’ll see a recording of the show.  My segment comes in a little after the halfway mark.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: Trump-Like China Trade War Advice – from China!

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America First, Asia, China, Clyde V. Prestowitz, free trade, globalism, Japan, Long Tongyu, managed trade, protectionism, South China Morning Post, Trade, trade talks, trade war, Trump, {What's Left of) Our Economy

When I first entered the trade and manufacturing world, I worked for a fellow named Clyde V. Prestowitz, Jr., who was shaking up American attitudes on international economic policy (in a good way) with sharp critiques of the prevailing dogma and often ingenious ideas for reform and even transformation. (The most complete statement of his views – this 1988 book.) 

And one of his most intriguing thoughts held that died-in-the-wool protectionist Asian governments like Japan’s would much rather deal with an openly economic nationalist U.S. President than with a standard preacher of free trade. So imagine my (pleasant) surprise to see this morning that a former senior Chinese economic official who still clearly retains much influence express substantial agreement – and in the process light the way for an American approach toward China’s trade transgressions that moves from what might be called a “Trump Lite” strategy that only partly reflects the President’s sharpest instincts to a much more thoroughly America First-oriented policy.

These views can be found in an interview in Hong Kong’s South China Morning Post describing the views of Long Yongtu. This retired Vice Minister led China’s successful decade-and-a-half effort to join the World Trade Organization (WTO) – a top Beijing priority because membership provided the People’s Republic with valuable insulation from unilateral and other foreign efforts to retaliate against its wide range of predatory practices. And although he’s no longer on active duty, he would never, ever make public statements at odds with the beliefs of current Chinese leaders. In fact, folks in his position often float trial balloons for the regime and serve in other ways as unofficial spokespeople.

According to the Post, Long stated that “We want Trump to be re-elected; we would be glad to see that happen.” And why would Beijing prefer to deal with a President who’s imposed tariffs on hundreds of billions of dollars worth of exports on which China depends to achieve adequate growth rates, rather than with Democratic rivals who oppose such measures?

As Long explained, “Trump talks about material interests, not politics.” Further clarifying, he contended that “He makes the US decision-making process efficient and transparent, because he basically says what it is. The pros of [having Trump] outweigh the cons. We don’t need to spend so much time figuring out what Americans want any more, or search for each other’s real thoughts in the dark, like we used to.”

Even more specifically, according to the Post‘s paraphrase, “Despite his fickleness, Trump is a transparent and realistic negotiator who is concerned only with material interests such as forcing China to import more American products, on which Beijing is able to compromise….”

Although Long didn’t use this phrases, it’s clear that he was lauding a Trump trait denounced by the President’s globalist critics – an approach to foreign policy described as “transactional.” In other words, Mr. Trump is more interested in securing relatively immediate, tangible, specific goals when dealing both with allies and adversaries than with more ambitious objectives valued by globalists for their supposed potential to promote U.S. interests most effectively over the long term, whatever the short-term risks or costs – like preserving American alliances and international institutions, and keeping other relationships (i.e., with China) on an even keel. (See this early post-Cold War article of mine for a more complete analysis of such conceptual differences.)

In the process, it’s clear that Long was also endorsing Prestowitz’ belief (which he based on his own personal experiences as a U.S. trade negotiator during the 1980s) that Washington could not hope to succeed with fundamentally different systems like Japan’s (his interlocutor) or, by extension, China, by demanding that these governments agree to American demands for more openness to imports, or broader structural changes that would lead indirectly to better sales for U.S. products and services.

Instead, Washington was much better advised to seek less grandiose but more concrete commitments – specifically, to increase imports by specific amounts.

This shift to “managed trade” or “results-oriented trade” ostensibly horrified the U.S. policy establishment. But the Prestowitz proposal was adopted by former President Ronald Reagan in 1986 in negotiations with Japan over semiconductors, and achieved its objectives of expanding American companies’ share of Japan’s market.

Further, Prestowitz’ main rationale was also echoed in Long’s remarks. He didn’t justify managed trade mainly for the relatively easy verification challenge it presented – although he did emphasize that Washington would be much better able to monitor promises to boost buys of specific products than foreign promises to convert to free trade principles. Nor did Prestowitz stress that such sweeping U.S. demands were unrealistic, and that protectionist countries would respond by simply stonewalling.

Rather, Prestowitz contended that Asian protectionists were genuinely bewildered and frustrated by standard American positions, primarily because the ideas behind them were so alien to their experiences. Similarly, and in line with Long’s views, they didn’t comprehend how negotiations could resolve or bridge differences that ultimately are philosophical or ideological. They much more clearly understood pragmatic haggling over quantities, and Prestowitz argued quite sensibly that superior U.S. leverage could be counted on to persuade these export-dependent economies to treat American imports more generously.

As a result, the implications for Trump trade policy couldn’t be clearer. The United States should drop its demands that China change its policies fundamentally, whether on the intellectual property front or the technology extortion front or the illegal subsidy front or various other non-tariff barrier fronts. (As I’ve previously written, there’s no chance of verifying even genuine Chinese compliance satisfactorily.)

A much better response would be a combination of (1) severely punitive tariffs to make sure that Chinese products benefiting from these practices don’t enter the American market, and harm American-owned producers; and (2) other threatened or imposed tariffs aimed at obliging Beijing to purchase much greater amounts not only of agricultural products, but the full array of advanced manufactured products.  The first set of tariffs would center on those advanced manufactures, the second on more labor-intensive Chinese products – which Beijing relies on heavily to keep employment high enough to keep China’s masses content economically.  

That first set of tariffs would not only prevent U.S.-owned producers from having to deal with heavily subsidized and/or copycat Chinese competition. It would surely prompt China to send these exports elsewhere – and finally pressure the rest of the world to get its own act together in responding to China’s excess capacity building and dumping, rather than relying on the United States to soak up these surpluses.

The second set of tariffs would need to be accompanied by a resolve not to let Beijing off the hook with claims that its own economy simply can’t absorb greater supplies of American goods across the board. Rather than enable China to use free market-oriented excuses after decades of (continuing) state planning and other interventionism, Washington should tell Beijing that, for all the United States cares, it can stick these products into warehouses if genuine customers can’t be found.

This new approach shouldn’t represent the totality of a smarter new U.S.-China economic policy. In particular, the Trump administration should keep sharply restricting Chinese purchases of American hard assets, whether defense-related or not – because why should a basically free market economy welcome state-controlled and bankrolled entities that can only further distort free market forces? And controls on exports or other transfers of advanced technology to Chinese entities will need to be further tightened.

But a shift to managed trade is nothing less than essential. And assuming that Long Tongyu reflects Beijing’s thinking, with enough American consistency and resolve, China would go along before too long.

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

Tags

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.        

Following Up: CNBC Interview Video Now On-Line…& More!

Tags

China, Following Up, i24News, Phase One, Trade, trade deal, trade talks

I’m pleased to announce that the video is now on-line of my appearance today on CNBC‘s “Power Lunch” program focusing on the latest developments on the U.S.-China trade front.  Click here for a timely discussion of one of today’s biggest headline stories.

In addition, here’s the link to an interview I did last week for the Israeli-American TV network i24News last Friday night on the “Phase One” agreement reached that day by U.S. and Chinese negotiators.  I did this over the phone, but I hope you’ll find it equally interesting.

To access it, click on the link and then press the download button.  But be sure to do it soon, since the recording will only be available for a week more.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

 

 

(What’s Left of) Our Economy: What the Mini-Deal Says About Trump’s China Policy

Tags

agriculture, business investment, censorship, China, decoupling, democracy, Democrats, election 2020, Elizabeth Warren, Hong Kong, Hong Kong protests, human rights, impeachment, Populism, Republicans, tariffs, Trade, trade talks, trade war, Trump, Uighurs, Ukraine, Ukraine Scandal, {What's Left of) Our Economy

The “Phase One” min-deal reached by the United States and China tamping down bilateral trade tensions for the moment, speaks volumes about the three major forces that are now driving President Trump’s China policy, and that will keep shaping it through the next U.S. election – though not always in consistent ways. They are:

>the President’s evident belief that his reelection hopes are being threatened mainly by revived impeachment threats but also by an economic slowdown that has unmistakably been influenced by the so-called trade war with China;

>his consequently increased need for political support from the establishment Republicans so numerous in Congress who have never boarded the Trump Tariff Train and who are worried about their own reelection chances next year; and

>Mr. Trump’s consistent (though generally unstated) belief that no matter how the formal trade talks proceed, America’s national security as well as economic interests require the U.S. economy to continue steadily decoupling from China’s.

The strength of the impeachment drive faced by the president is now indisputable. Some polls are even showing growing Republican support for not only impeachment by the House but removal by the Senate. Moreover, this political challenge comes at a time when the President’s strongest suit by far (at least according to polls) – his economic policy record – is looking somewhat weaker.

Few signs point to a recession breaking out by Election Day, much less during the preceding weeks or months. But growth has been slowing to levels that Mr. Trump himself has deemed unacceptable – in no small measure because they were the rates that prevailed for most of the Obama administration.

The tariff-heavy Trump trade policies hardly deserve all the blame. (See, e.g., this recent post.) But the failure of business investment to stay elevated following passage of major tax cuts for business is especially telling. It buttresses claims that both the President’s various sets of tariffs and the inconsistency with which they’ve been both threatened and applied have inhibited companies from approving big new expenditures on new factories and other facilities.

As a result, nothing that can reasonably be expected from Washington (in other words, ruling out a big infrastructure spending bill) is likelier to boost the economy more than a nerve-calming trade truce with China mainly featuring some Chinese market opening or re-opening (especially for agricultural products) in return for some U.S. tariff cuts, promises to refrain from new levies, or some some combination of such moves. At the least, such an agreement would in theory help growth maintain the momentum it has remaining.

A mini-deal along these lines would also please the Senate Republicans who might ultimately judge the President’s fate, and who generally have lagged far behind the GOP base in turning against pre-Trump China and broader trade policies. Moreover, as I’ve written, impeachment politics have greatly magnified their sway over Mr. Trump before. Despite his sky-high popularity with Republican voters, the President was heavily dependent on their political backing until this spring in order to neutralize any impeachment chances while his Russia ties were being investigated. That’s surely why his early policy initiatives were dominated by traditional Republican priorities, like tax cuts and repeal of former President Barack Obama’s healthcare overhaul, rather than by populist priorities like an infrastructure bill and the prompt imposition to tariffs.

Once the Special Counsel and other investigations flopped for various reasons, Mr. Trump had a much freer hand. But because of the emergence of “UkraineGate,” for now, those days are over. Probes growing out of those events are certain to last for months. Therefore, continued, much less higher, tariffs on China that could further drag on the economy and further frustrate the rural constituencies so crucial to the President and many other Republicans seem out of the question.

The President is so hamstrung that he’s been unable to marshal greater public support for staying the tariff course even though China is antagonizing American public opinion with its harsh suppression of the Hong Kong protests and the Muslim Uighur minority, and with its heavy handed efforts to extend its censorship practices to the National Basketball Association and other U.S. businesses. And don’t forget: These developments have placed China in a much weaker position, too.  

One reason that the President hasn’t been able to capitalize could well be his reluctance to declare publicly the functional equivalent of economic war, or his intent to decouple – presumably because any such statements would prompt the Chinese to crack down even further on American companies even doing business in the PRC that have nothing to do with job and production offshoring aimed at serving the U.S. market from super-cheap and highly subsidized Chinese facilities, as opposed to serving Chinese customers. And that reasoning has been entirely understandable.

Much less understandable – the President’s insistence that a trade war with China would be easy to win and inflict no economic harm on Americans, rather than choosing to challenge his compatriots to endure some sacrifices in order to beat back a mortal threat to their national security as well as prosperity. No wonder public support for so-called hard-line policies remotely strong enough to offset the opposition and reservations of the Congressional Republicans and most Democratic politicians is nowhere to be seen.

And don’t doubt that the Chinese fully understand. Whatever problems they initially experienced in figuring Mr. Trump out, they surely have concluded that they’re best advised to play the waiting game on the broader and deeper so-called structural issues dividing the two countries (e.g., intellectual property theft, technology extortion, massive subsidies) until the President is replaced by a Democrat who’s much easier to deal with.

Indeed, the evidence for this conclusion is abundant. China issues have played a small role in the Democratic primary campaign so far – even when it comes to long-time critics of pre-Trump trade policies like Democratic Socialist Vermont Senator Bernie Sanders, and Massachusetts Senator Elizabeth Warren. One likely explanation: In recent years, Democratic voters and leaners have markedly flipped on those pre-Trump approaches, from deep dislike to general approval. This shift in public opinion (matched in part by a trade flip in the other direction among Republicans and leaners) may also warrant some Chinese confidence that even a President Warren might prove a more acceptable interlocutor than Mr. Trump.

Nonetheless, the formal talks are not the only track on which the Trump administration’s China trade policies are running. And the other track – featuring unilateral U.S. moves to restrict Chinese involvement in the American economy, and thereby foster decoupling – is much less controversial than the trade talks and especially the tariffs and tariff threats clearly required to spur any meaningful progress.

Highly revealing on this score (in terms of the importance attached in Washington to decoupling): Even as a high level Chinese delegation was jetting to Washington, the President approved actions against Chinese tech companies and Chinese officials that were justified by human rights concerns, but that in the first case clearly advanced decoupling. Just as revealing (in terms of possible Chinese acceptance of a more skeptical new bipartisan U.S. consensus on China policy): Despite the provocative timing, the Chinese didn’t turn around and head back home once they heard the announcement.

Reinforcing the new American consensus on decoupling has unmistakably been the growing realization by the U.S. corporate sector that its heavy bets on China have dangerously increased its vulnerability not only to the whims of American politics, but to a Chinese regime that’s turned out to be much less hospitable than expected. As a result, “Phase One” is not only a suspiciously convenient-looking term being used by the President to describe his new deal. It also looks suitable for describing where his administration’s overall China policy stands right now.     

Making News: CNBC China Trade Talks Video Now On-Line; Piscopo Show Appearance Tomorrow Morning

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AM 970 The Answer, China, CNBC, Making News, Power Lunch, The Joe Piscopo Show, Trade, trade talks, trade war

I’m pleased to report that the video is now on-line of my interview today on CNBC’s “Power Lunch” program on the fast-moving U.S.-China trade talks currently taking place in Washington, D.C.  Click on this link to see a great discussion of the state of the negotiations – along with an examination of the key question of whether the two national economies are compatible to begin with.

In addition, tomorrow morning at 7:25 AM EST I’ll be appearing on The Joe Piscopo Show on New York City’s AM 970 The Answer radio station to update the state of the trade talks.  Listen live on-line here, and if you can’t tune in, I’ll post a link to the podcast as soon as one’s available.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

Making News: CNBC Interview on China Trade Talks Set for this Afternoon, New Podcasts…& More!

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aerospace, Boeing, China, CNBC, IndustryToday.com, Making News, manufacturing, manufacturing recession, Market Wrap with Moe Ansari, recession, The John Batchelor Show, Trade, trade talks, trade war

I’m pleased to announce that I’m scheduled to appear this afternoon on CNBC’s “Power Lunch” program in a segment focusing on the latest U.S.-China trade talks underway in Washington, D.C.  The interview is slated for 2 PM EST and, as usual, I’ll post a link to the video as soon as one’s available.

Speaking of podcast-like items, here’s a link to the one featuring my China trade policy interview on Moe Ansari’s nationally syndicated “Market Wrap with Moe” radio program.  Our discussion begins at about the 27:30 mark.

And this link will take you to my segment on the same subject last night on John Batchelor’s nationally syndicated radio show.

Finally, on Tuesday, IndustryToday.com re-posted (with permission, of course!) my RealityChek piece from earlier this week on how Boeing’s safety-related woes have helped drag U.S. domestic manufacturing into (a very shallow) recession for reasons having nothing to do with President Trump’s trade policies.  Click here to read.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.