(What’s Left of) Our Economy: Trump’s Real China Currency Blunder

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airstrikes, alliances, America First, chemical weapons, China, currency, currency manipulation, dollar, exchange rates, North Korea, nuclear weapons, predatory trade, Syria, Trade, trade barriers, Trump, Xi JInPing, yuan, {What's Left of) Our Economy

What was worst about President Trump’s decision yesterday to let China off the currency manipulator hook (for now) was not the scrapping of a long-time campaign promise it represented. What was worst about the decision was its geopolitical rationale – that is, Mr. Trump’s judgment that major Chinese cooperation in reining in North Korea’s nuclear program could be secured if his administration moderates or delays various efforts to counter Beijing’s trade predation.

Nonetheless, some recent developments also presage reasons for modest optimism that a sounder approach to currency manipulation by China (and other countries), at least, will eventually emerge if it becomes clear Beijing is welshing on this deal.

The president’s new China policy makes least sense from a pure negotiating tactics standpoint. After all, what course of action could now be more tempting than for China to keep stringing America along with promises to get tough on North Korea, and even with token actions suggesting that meat is being put on these bones? Think “Charlie Brown,” “Lucy,” and “football.” And how will the president decide that his gamble has failed?

Moreover, Mr. Trump’s own views of China’s clout with North Korea seem confused, at best. On the one hand, the president must (logically) believe that China can make much more of a difference in resolving the North Korea situation than it’s so far chosen to. Why else would he offer China the valuable benefit of better terms of trade than it would otherwise receive? On the other hand, Mr. Trump said in an interview with The Wall Street Journal “After listening for 10 minutes [to Chinese leader Xi Jinping at their summit a week ago], I realized it’s not so easy. I felt pretty strongly that they had a tremendous power [over] North Korea. … But it’s not what you would think.” So here he’s indicating that Beijing can’t help decisively at all.

Related Trump statements point to another major negotiating No-No: Rewarding interlocutors for steps they would take anyway. The president is now on record as stating that Xi “means well and wants to help” on North Korea. But this confidence raises the question, “Why?” It’s of course possible that Chinese policy has entered a new, more charitable phase. It’s more likely, however, that Beijing is becoming increasingly worried about the situation in its next-door neighbor spinning out of control and triggering a conflict that could go nuclear right on its borders.

Indeed, a recent editorial from its own government-controlled press clearly signals that those dire concerns are China’s main motivator: “China…can no longer stand the continuous escalation of the North Korean nuclear issue at its doorstep. Instead of accepting a situation that continues to worsen, putting an end to this is more in line with the wish of the Chinese public.”

Even more revealing, the same editorial made plain as day that official Chinese nerves have been frayed further by Mr. Trump’s willingness to go-it-alone militarily in Syria (when he ordered airstrikes in the middle of his meetings with Xi), by his threat to take a similar course of action against North Korea, and by his dispatch of a powerful American naval force to Korean coastal waters. In other words, the president’s apparent comfort with using force already has caught China’s attention.

Better yet, some concrete evidence of this success has appeared. China seems to be reducing its imports of coal from North Korea – one of Pyongyang’s few major sources of foreign exchange – and it abstained yesterday from voting on a UN resolution condemning Syria’s government for the chemical weapons use that prompted the U.S. cruise missile attack. Until then, China had vetoed similar UN resolutions. Why, therefore, would Mr. Trump sweeten the supposed deal further with trade breaks?

At the same time, these latest Trump decisions are sending signs about the president’s national security strategy and overall priorities that are equally disturbing. Principally, during his campaign for the White House, Mr. Trump displayed a keen awareness of the burgeoning nuclear risks being run by the United States by maintaining its defense commitments in East Asia. In numerous remarks that were pilloried by an ossified bipartisan American foreign policy establishment, candidate Trump quite sensibly suggested that the United States should transfer much of this risk to the local countries (like China) most directly threatened by the North Korean nuclear program. Yesterday, Mr. Trump endorsed America’s longstanding Asia strategy even though the North can increasingly call the U.S. nuclear bluff on which regional deterrence has been based with forces of its own that can strike American targets.

Even more striking, Mr. Trump’s new quid pro quo has demoted policy options that can deliver major economic benefits to his core voters and the entire U.S. economy (more trade pressure on China) back to their longstanding position subordinate to national security strategies that primarily help other countries (the Asian allies covered by the American nuclear umbrella). Far from the type of America First strategy he touted during his campaign and especially in his Inaugural Address, these new Trump moves add up to an America Last strategy.

All the same, Trump’s new approach could set the stage for improved U.S. anti-currency manipulation strategies should circumstances require them. Although unmistakably disheartening to many trade policy critics, this latest American China currency decision was defensible on its own terms. It’s true that substantial evidence continues indicating that China’s yuan is significantly undervalued versus the U.S. dollar – and still enables producers in China (including those owned by or linked with U.S. and other foreign-headquartered companies) to offer their goods for artificially low prices in markets around the world. Nonetheless, it’s also true that China has permitted its (surely dollar-dominated) foreign currency reserves to drop by about 25 percent since 2011 – largely because it’s been selling those reserves and buying yuan in order to curb worrisome capital flight. In other words, Beijing has been trying to support the yuan versus the dollar, and keep its value higher than it would be were it freely traded.

Yet there’s absolutely no reason for trade policy critics – or the U.S. government – simply to conclude that ambiguous circumstances simply force America to accept the status quo. In fact, such shoulder-shrugging would amount to rewarding China currency cheating that the conventional wisdom now admits lasted for years, and whose cumulative effects continue to undercut the price competitiveness of domestic U.S. manufacturers and other producers.

So what to do? According to at least one press report, the Trump administration is considering revamping currency manipulation policy in ways that would appear to abandon the current, blinkered approach in favor of one that takes these cumulative effects into account. Specifically, a Reuters article last week suggested that one option that’s attracted the administration’s attention would involve lengthening “the time period for reviewing currency market interventions from 12 months to several years, capturing more past interventions by China….” At least logically, this shift would signal recognition that the impacts of these interventions (to suppress the yuan’s value) are dynamic, and long-lasting.

Even better, however, would be to recognize that, important as it’s been because of its effects on prices across the Chinese economy, currency manipulation is only one form of trade predation practiced by China, and that such individual policies can easily frustrate current legalistic countermeasures by virtue of the powerful and secretive Chinese bureaucracy’s ability to turn them on and off at will – often with little more than a phone call. More important, China has successfully used these ploys in the past. And P.S.: Other Asian economies are just as skilled as China’s at pulling off these scams.

In other words, the various mercantile measures used by China and others to distort markets are completely fungible. Dealing with them effectively therefore requires Washington to become much more agile and flexible in response. And the critics need to stop focusing so tightly on currency manipulation and keep the much bigger, more important China and global trade picture in mind.

For the entire U.S. economy has a big stake in the Trump administration putting these changes into effect before Chinese and other countries’ trade predation sucker punches even more of its most productive sectors – whether they interfere with the president’s new North Korea strategy or not. So, in all likelihood, does Mr. Trump’s political future.

Making News: A New NYC Radio Podcast, an In-Depth Look at that Border Adjustment Tax – & More!

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AM970 "The Answer", Boeing, border adjustment tax, China, Donimic Gates, Frank Morano, Lifezette.com, Making News, manufacturing, Populism, Seattle Times, summit, supply chains, Trade, Trump, Trump administration, Xi JInPing

I’m pleased to report that a podcast is now on-line of an interview I just gave to Frank Morano of New York City’s AM970 “The Answer”radio station. To listen to a great discussion of trade and other areas of economic policy in the Age of Trump, click on this link, scroll down to the April 9, “FiveAM” episode, and press the play button. My segment starts at about the 10-minute mark. And special thanks to Frank for a very generous introduction!

In addition, it was great to be quoted in a new Seattle Times article by Dominic Gates on the US aircraft industry and the proposed border adjustment tax. The subject could not be more important, as the tax could provide American domestic manufacturing across-the-board with the kind of intelligent protection that it’s long needed.

Moreover, Dominic, who has covered aerospace giant Boeing for years, is one of the nation’s very best manufacturing reporters. His article provides an impressively informative look at the politics and economics of a major industry’s supply chain, as well as at the border adjustment proposal. So it’s a must-read for anyone interested in the future of the American economy’s productive core.

Finally, my views were featured in two new posts at Lifezette.com.  The first, which can be read at this link, previewed last week’s summit between President Trump and his Chinese counterpart, Xi Jinping. The second, found at this link, explored the rumors swirling about here in Washington that Mr. Trump is about to replace many of his more populist advisers with figures from the establishment.

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

 

 

 

Our So-Called Foreign Policy: A Non-Hysterical View of Trump’s Syria Strikes

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air strikes, America First, Bashir Al-Assad, chemical weapons, China, Middle East, Our So-Called Foreign Policy, Russia, summit, Syria, Trump, Vladimir Putin, Xi JInPing

I love the idea of the “procustean bed.” It’s a phrase inspired by Greek mythology that’s come to describe the deceptive practice of depicting every notable event or feature of reality as fitting into a preconceived view of how the world works. It’s become standard operating procedure in our highly balkanized, increasingly fact-challenged, and ever more hysteria-prone political culture, and it nicely explains most of the commentary and analysis that’s followed President Trump’s decision to attack a Syrian air base following chemical weapons use in that country’s tragic civil conflict.

I have absolutely no inside information here, but strongly believe that the likeliest explanation is one that can’t easily be spun to advance any particular agenda, and that focuses on a crucial variable bound to be neglected when the main objective is political.

Not that I’m ruling out any of the sets of talking points being pushed so aggressively by the nation’s chattering class. It’s entirely possible that the Syria decision shows that the president never intended to carry out the kind of broadly stand-aside foreign policy he most often (but not always) touted during his campaign, and that he has cynically betrayed his core, non-interventionist, voters. Or that he simply has a learning curve and is wisely admitting that the dangerous world he’s operating in doesn’t permit an America First approach to be carried out safely.

The Syria strikes could reveal how fundamentally incoherent his worldview and agenda are – and are likely to remain. Or how pragmatic he has become. Or how emotionally and thoughtlessly he reacts to perceived challenge or betrayal (specifically, by a client state of a Russian government he’s supposedly coddled until now). Or how cunningly he’s decided to undercut charges that he’s a puppet of Moscow’s. Or, given Mr. Trump’s utter unpredictability on so many fronts, the Syria attacks could simply underscore how he continues to be just as utterly unpredictable in the Oval Office as he was on the campaign trail – which could mean that the Trump move means absolutely nothing at all.

But although all these takes on Syria could in theory be true, I doubt their veracity mainly because they pay absolutely no attention to considerations that would weigh heavily on the mind of even the least competent chief executive (or presidential aides) – the international circumstances staring him in the face once the chemical weapons news came through.

That’s why there’s such a strong case for the following as the prime determinants of the Trump decision – and as reasons for interpreting its long-term effects with extreme caution. Specifically, when the president ordered the strikes, he was in the middle of a summit with the leader of a foreign power – China – that had rapidly emerged as America’s foremost economic challengers and as at least a potential strategic rival. The day before the summit with Xi Jinping began, North Korea conducted the latest of a series of ballistic missile tests it’s conducted since President Trump’s inauguration, and in defiance of multiple United Nations resolutions. And the day before that came the chemical weapons attack – which itself preceded a meeting in Washington, D.C. between Mr. Trump and King Abdullah of Jordan.

So during a week when the global spotlight shone on President Trump with unprecedented intensity came two apparent provocations. (I’m purposely leaving open the possibility that Syrian dictator Bashir Al-Assad is not to blame for the chemical weapons bombing, though I believe the evidence – particularly the reported flights of fixed-wing aircraft over the site – point to Syria’s guilt.) Further, both provocations came very early during the first Trump term – a period when foreign leaders would naturally feel strongly tempted to test a new president, and when all countries would view him with great uncertainty even were he a more conventional politician.

In my view, all these circumstances combined to convince the president that a forceful response of some kind was needed. And since North Korea can credibly threaten American allies with conventional military and even nuclear attacks, and Syria can’t, Assad was the inevitable target.

In other words, the Trump strikes right now are best seen as a simple message-sending exercise. And the messages itself were simple as well. Not that, “I’ve changed my foreign policy stripes” and not that “I’m ready to plunge much more deeply into the Syria and other Middle East conflicts” but that “I have my limits” and “I have no intrinsic qualms about using the vast military arsenal at my disposal.”

Because the extreme shortage of competent policy analysts with a Trump-ian worldview has left the president little choice but to rely heavily on conventional thinkers for briefings and advice on foreign policy and other matters, it’s entirely possible that his air strikes presage a more activist Middle East or overall international strategy. At the same time, nothing about the strikes makes such a transformation inevitable, and especially far-fetched (as they always have been) are claims that individual uses of military power are pointless (at best) unless carried out as part of a broader plan of action meant to win or acceptably resolve a foreign conflict.

Particularly in the case of the Middle East, where history and recent American experience clearly teach that no constructive solutions are possible (or at least not at acceptable cost and risk), and where due to developments such as the U.S. domestic energy production revolution, the national interests at stake are no longer unquestionably vital, individual military actions that send uncomplicated messages can have significant value in their own right – and all the more so as they inevitably will be heard in many other regions, including those that matter more.

So everyone is best advised to hold their horses as they go about interpreting the Trump Syria strikes and especially about what futures they supposedly guarantee and rule out. Indeed, no one should heed this kind of advice more closely than President Trump.

Making News: Podcast of Laura Ingraham Show Interview on Trump China Summit On-Line Now

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China, Making News, national security, North Korea, The Laura Ingraham Show, Trade, Trump, Xi JInPing

I’m pleased to announce that the podcast of my interview this morning on Laura Ingraham’s nationally syndicated radio show is now on-line.  Click on this link for a great discussion of President Trump’s summit with Chinese leader Xi Jinping, and what it could mean for America’s national security and economy.  My segment begins at about the 25-minute mark.

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

Our So-Called Foreign Policy: A Genuinely 21st Century Approach to Asia

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alliances, allies, Asia, China, Cold War, coupling, defense spending, East Asia-Pacific, extended deterrence, free-riding, Japan, Lifezette.com, North Korea, nuclear weapons, Our So-Called Foreign Policy, South Korea, Trade, trade surpluses, Trump, Xi JInPing

Yesterday in a piece for Lifezette.com, I argued that President Trump should ignore the advice he seems to be getting from his more establishmentarian advisers, and from conventional thinkers outside his administration, and focus on economics and not security when he meets Chinese leader Xi Jinping starting tomorrow.

Today, I’d like to spell out some of the assumptions about America’s priorities in the East Asia-Pacific (EAP) region that lead to these conclusions – and why genuinely bringing America’s grand strategy in the region into the twenty-first century is essential to reduce the nation’s vulnerability to nuclear attack and to strengthening its economy.

First, as I’ve long maintained, since the Cold War has been over for nearly three decades, the geopolitical basis for the current American approach to the EAP has simply disappeared. Until 1990, Washington provided a nuclear umbrella for the region and set up alliances for two main reasons. First, the United States was determined to keep Asia’s vast economic power and potential out of communist hands. Second, America resolved to prevent Japan from needing to conduct an independent foreign policy – which U.S. leaders believed would lead to its rearmament and likely reversion to 1930s- and ’40s-style militarism.

Since 1990, America’s goals have remained essentially the same, but one of the rationales shifted. Preventing Japanese rearmament was still (secretly) treated as an imperative. But with the Soviet threat gone and China increasingly integrated into the world economy, the United States began justifying its continued military presence as essential for buttressing the stability needed to keep the region’s economically dynamic countries functioning as major cogs of an increasingly close-knit global trade and investment system. Also reinforcing regional stability would be the continuing protection of South Korea from its bellicose northern neighbor.

The most dangerous problem with this approach is that, although it arguably made sense from the U.S. standpoint when America’s main actual and potential rivals in the region either had no nuclear weapons (North Korea), or vastly inferior and relatively primitive nuclear forces (China), it has become ever more suicidal more recently. For whereas once Washington could credibly brandish a nuclear threat to keep powerful enemy conventional forces at bay while incurring almost no risk of nuclear retaliation against the American homeland, the Chinese and even North Korean have now made major progress towards fielding nuclear weapons both capable of reaching American shores and of surviving U.S. nuclear attacks. As a result, they can now place American cities in mortal danger.

To modify a common Cold War-era saying, Washington has promised to sacrifice Los Angeles in order to save Seoul and/or Tokyo. Has anyone explained to the American people why this potential tradeoff is remotely acceptable – or even sane? Quite the contrary. A literally suicidal strategy keeps getting dressed up in terms that sound either comfortingly technical and abstract (like “extended deterrence”) or even warm and fuzzy (like “coupling”).

Indeed, the latter phrase, upon examination, reveals what has now become by far the least forgivable aspect of American strategy given current nuclear circumstances: The “coupling” of America’s security to its allies’ security was designed to force the United States to risk nuclear attack to protect Japan and South Korea. This aim was accomplished mainly by stationing major American forces right along the North-South Korea border – the Demilitarized Zone – to ensure that they would die during a North Korean invasion and thereby give an American president no real choice but to respond with nukes. The presence of the U.S. Seventh Fleet in Japanese bases and on patrol through regional waters serves the same purpose. That is, the United States surrendered one of the paramount goals of genuine national security since the Atomic Age began – the power to choose whether to involve itself in a nuclear war, or to avoid one. And Washington stubbornly clings to this strategy even though the nuclear landscape has been decisively transformed.

Two related developments make Washington’s acceptance of this risk even less acceptable. First, America’s Asian allies have become more than capable of defending themselves from their enemies. Yet even South Korea, with a possibly deranged dictatorship for a neighbor, has understandably decided to rely on American blood and treasure for its security, and skimped on its military spending. And although Japan has increased its own defense budget and capabilities significantly in recent years, its far greater economic power still justifies the label “free rider.”

Second, precisely because current nuclear circumstances make the American defense guarantee so literally non-credible despite the coupling strategy, the likelihood of Japan and South Korea acquiring nuclear weapons for their own defense rises with each new North Korean missile test and each new Chinese thrust into the South or East China Seas. In other words, if that train hasn’t already left the station, its engines are firing up.

There is, however, an immense silver lining that the supremely unconventional President Trump – unlike many of his advisers – should be quick to recognize: Because the Cold War threats are gone, and because the whole of the EAP relies so heavily on net exports – especially to the United States – for its growth, America no longer needs to worry about a foreign power controlling the region politically.

This development is of course most relevant to America’s China strategy. It means that even if Beijing established unquestioned hegemony in its backyard, China and all of its supposed new vassals would still desperately need to access the U.S. market. The flip side of this proposition is just as crucial: America’s paramount interests in the EAP are economic – ensuring adequate access to Asian markets, and safeguarding American domestic businesses and their employees from predatory Asian trade practices. Further, the best way to achieve these goals is by wielding economic, not military, power.

A U.S. China and Asia policy reflecting these trends – and other generally ignored regional realities that increasingly have been staring obtuse establishment analysts in the face – would make for a dramatically different agenda for this week’s China summit than has apparently been laid out. For example, President Trump has indicated that he will press China’s Xi harder to use his leverage on North Korea to curb or even end the latter’s nuclear weapons program, threaten to attack the North militarily if China doesn’t step up, but ease up on trade pressure if Beijing goes with the American Korea program.

Far better would be for Mr. Trump to recognize that this position raises the prospect of accepting continued Chinese trade predation as long as China even holds out the prospect of providing a North Korea assist; that even if North Korea’s nuclear weapons can’t hit American territory yet, a war with its regime could terribly bloody America’s conventional forces in the Pacific along with allied civilian populations; and that whatever nuclear threat to the United States faces from the North stems not from any intrinsic desire to attack America, but from continued U.S. military involvement in a decades-long Korean civil war that has only been suspended since 1953.

Modernized American priorities would enable the president eventually to tell his Chinese counterpart that the United States is greatly lowering its military profile in Korea, and that however China decides to deal with its dangerously predictable neighbor will be fine with Washington. But since both the Chinese and especially American allies would need time to prepare for this transition, and since a premature announcement would only embolden North Korea, Mr. Trump should simply downplay the subject at the summit, convey these messages privately as soon as Xi leaves, and let the transition begin before going public. A similar approach should be taken toward territorial disputes in the East and South China seas.

Having freed himself to focus on trade and other economic issues, the President should tack away from the conventional wisdom in this sphere, too. Specifically, he should acknowledge that the main lesson of long years of U.S. China trade diplomacy is that there’s no longer any point in negotiating trade agreement with Beijing. The Chinese record of breaking their promises is too long, and even an administration determined to monitor and enforce trade deals would face a formidable challenge in keeping track of conditions in China’s gargantuan industrial complex.

Instead, Mr. Trump should keep the discussion general and thank Mr. Xi for coming such a long way. Then once all the photo-op moments are finished, and he’s departed, the administration should develop a list of Chinese goods that represent especially egregious examples of trade predation (either in the Chinese market or the U.S. market, and impose unilateral tariffs on them. The president should specify that the list will keep growing until he receives reliable information that the Chinese have not only dropped trade barriers, but have compiled a serious track record of keeping them low – which will of course take several years to demonstrate. He should make clear that his own administration will be judge, jury, and court of appeals for any Chinese claims of compliance. And he should then let Mr. Xi know that he’s looking forward to their next meeting – and would of course be happy to come to Beijing.

Making News: New Lifezette Column Calls America-First Approach Key to Trump China Summit Success

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Asia, China, foreign policy establishment, Lifezette.com, Making New, national security, North Korea, Trump, Xi JInPing

I’m pleased to announce the publication of my latest op-ed article:  a column on Lifezette.com that previews this week’s summit between President Trump and Chinese leader Xi Jinping.  The piece, which you can read at this link, argues that Mr. Trump and the United States will achieve the best results if the president rejects promptings from the foreign policy establishment (including some of his own top aides!) to stay the course on America’s security-focused Asia strategy. Instead, it urges the president to return to the America-First economics and trade emphasis that marked his campaign.

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

Following Up: Can Climate Change Challenge be Met Without Curbing China’s Trade?

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China, climate change, coal, Following Up, greenhouse gases, Nature Climate Change, Obama, Peterson Institute, The New York Times, Trade, Xi JInPing

Time for a little back-patting – which also has the virtue of presenting a crucial link between issues that’s way too often ignored by policymakers, especially in Washington. It’s the link between U.S. trade policy on  the one hand, and China’s responsibility for mounting world levels of greenhouse gas emissions and widespread concerns about global warming on the other. More specifically, the case has just been strengthened for an argument I made years ago that fending off the global warming challenge didn’t seem possible without major limits on exports of China’s emissions-intensive products.   

For years it’s been evident that China’s jaw-dropping economic development has been a major contributor to global greenhouse emissions in recent decades. That’s not grounds for condemning Chinese practices per se. After all, even though Beijing’s environmental policy record is unmistakably terrible, strong grounds existed for believing that China was simply behaving similarly to the United States and other currently wealthy countries – which had the undeserved good fortune to enjoy their own industrialization takeoffs, and the high living standards they made possible, way before such climate concerns emerged.  As a result, they could emit to their heart’s contents without any apparent costs to the planet’s future.

But there’s been another crucial difference between the U.S. emissions record and the Chinese emissions record, and one that can’t justify continued passivity over the latter: America’s 19^th century industrialization stemmed mainly from the operation of free market forces. China’s ongoing industrialization phase has been planned and carried out overwhelmingly by government, meaning that its course and structure have reflected national policy choices.

The point here isn’t to tout the superiority of markets. Instead, it’s to note that, as a result, China’s modernization is an especially artificial creation, along with the resulting volumes of emissions. They’re not the consequence of the kind of natural economic evolution undergone by earlier generations of developed countries, even when – as has been the case especially in Europe – government was hardly an economic bystander.

I was thinking about these patterns of development several years ago when I came across a research report that documented my instincts. Moreover, this Peterson Institute study emphasized not only the state-directed nature of Chinese industrialization. It showed how the nation’s move into emissions-intensive heavy industries like steel and cement and chemicals clashed violently with how free markets would have shaped China’s economy. For China’s overwhelming natural, competitive advantage – the assets from which early industrial success should have originated – was a huge pool of low-cost labor.

As a result, a freer China both would have started off in labor-intensive industries and stayed largely in those sectors for many years. The kinds of industries China rushed into, however, were capital-intensive industries – where China had major natural disadvantages that Beijing tried to offset with a wide range of trade barriers to fend off foreign competition, and with subsidies aimed at speeding up progress whether much demand existed for Chinese products or not.

In fact, the study found, these heavily emitting industries had grown so enormous that their greenhouse gas-boosting role greatly exceeded even that of China’s breakneck adoption of personal cars, air conditioners, and other signs of growing consumer prosperity.

Most important for U.S. policymakers, because these and other parts of China’s economy were so export-oriented (since like other low-income countries, China lacked the wealth to finance its own development adequately mainly by supplying its own demand), China’s stunning export success had turned into a major engine of global warming. And this engine’s immense scale, and carbon footprint, also owed mainly to Chinese government interventions that flouted not only free market norms but free trade norms – typically at the expense of U.S. and other foreign industries and workers.

So in early 2008, I wrote an article for a syndication service that advocated using trade policy to fight global warming by slowing the Chinese export machine with tariffs on Chinese imports. Seven years later, I’m pleased to report the emergence of new evidence linking China’s emissions growth to its export growth. As this New York Times article summarizes, economists and climatologists now agree that up to a third of China’s total emissions come from its exports. But a September study in the journal Nature Climate Change also found that China’s exports generate eight times the emissions levels of its imports. For the United States, the ratio is 0.5, and even for India, another very low-income country, it’s only 1.3. Therefore, consuming goods from China adds much more to climate change dangers than consuming goods from elsewhere.

China’s outlier status, the Nature Climate Change authors conclude, results overwhelmingly from China’s coal-based energy mix and the very high emissions intensity (emission per unit of economic value) in a few provinces and industry sectors.” Therefore, they’re optimistic that the greenhouse gas dangers created by China’s trade can be reduced with targeted efforts to improve production technologies.

But they also allow that “reducing trade volumes” from these sources may be needed, and one major finding suggests that broader trade curbs may be needed: the fact that “production in China is several times as carbon intensive as the same production in other countries” regardless of product. In fact, although the emissions intensity of Chinese exports from wealthier provinces is much lower than that for products from poorer provinces, even these levels are three, four, and even five times higher than U.S. levels.

President Obama seems to have other ideas. His summit last month with Chinese leader Xi Jinping produced a statement that Beijing would launch a national cap-and-trade system by 2017, saw a reaffirmation of an earlier Chinese promise to stop the rise in its emissions by 2030 at the latest, and elicited a promise by China to spend more than $3 billion helping other developing countries to deal with climate change. Mr. Obama and Xi also offered a “common vision” for progress at an upcoming United Nations meeting to create a framework for a new international climate change agreement. But given China’s penchant for breaking international agreements, it’s still clear to me that if you’re serious about attacking climate change, you need to be serious about dramatic curbs on China’s exports.

Making News: Podcast of Last Night’s John Batchelor Radio Interview on U.S.-China Relations

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2016 elections, AFL-CIO, China, Gordon Chang, Joe Biden, Making News, Richard Trumka, The John Batchelor Show, Trade, unions, Xi JInPing

I’m pleased to present the link to the podcast of my appearance last night on John Batchelor’s nationally syndicated radio show.  Click here for a great discussion among John, me, and co-host Gordon Chang on the politics of U.S.-China trade relations in the context of Chinese President Xi Jinping’s current visit to the United States.  Our segment starts at the top of the hour.

Making News: Talking China Tonight on John Batchelor’s Nationally Syndicated Radio Show…& More!

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aerospace, Boeing, China, Dominic Gates, Gordon Chang, Making News, manufacturing, The John Batchelor Show, The Seattle Times, Xi JInPing

I’m pleased to announce that I’m scheduled to appear on John Batchelor’s nationally syndicated radio show tonight to discuss U.S.-China relations in light of Chinese President Xi Jinping’s visit to the United States.  Click on this link to listen live at 10 PM EST to what I’m sure will be a timely discussion with John, co-host Gordon Chang, and me.  And if you can’t tune in, I’ll post a link to the podcast as soon as one is available.

Also, it was great to be quoted today in Dominic Gates’ Seattle Times article on Boeing’s decision to build its first overseas factory in China.  In fact, it was my conversation with Dominic about U.S. policy options to fight China’s investment and technology blackmail that inspired today’s post on new American approaches to the China economic challenge.

(What’s Left of) Our Economy: If Washington Was Serious About the China Economic Challenge….

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aerospace, allies, Boeing, China, Cisco, cyber-security, Edward Snowden, forced technology transfer, imports, investment, lobbying, manufacturing, multinational companies, national security, offsets, offshoring, South China Sea, subsidies, telecommunications, Trade, Xi JInPing, {What's Left of) Our Economy

However understandable, the intense administration and media focus during Chinese leader Xi Jinping’s U.S. visit on Beijing’s cyber-hacking has overshadowed several other major Chinese threats to American national security and economic well-being – and the need to fix U.S. strategies that are failing badly to cope with them. High on the list is China’s widespread practice of extorting corporate investment and technology transfer by threatening to shut uncooperative companies out of its large and potentially bigger market. And this blackmail deserves special attention this week because two big examples of it have made it into the news recently.

The first involves Boeing, which apparently will build its first foreign factory in China – a move that not so coincidentally coincided with China’s announcement that it would buy 300 Boeing jets. The second was Cisco Systems’ decision to start cooperating with a Chinese server company on projects that reportedly could include developing new telecommunications hardware products. This deal has followed several years in which Cisco has encountered big trouble in China due to fall-out from Edward Snowden’s techno-spying revelations and charges, and to Beijing’s policy of punishing American companies after Congress in effect froze China’s version of Cisco out of the U.S. market due to espionage concerns.

Since aerospace and telecommunications are clearly central to military strength, these American corporate cave-ins could easily endanger national security – unless you believe that they’ll forever remain in their current limited form. So more effective responses are urgently needed – unless Washington wants to face ever more harmful Chinese cyber-hacking (see this article of mine on how American firms have undoubtedly shared advanced cyber-war-related technologies with China), or ever better armed Chinese forces in possible future military showdowns in the South China Sea and other disputed Asian waters.

The companies themselves explain their agreement to China’s trade and investment conditions with the “half-a-loaf” argument, and it’s not completely unreasonable. They’re obviously not thrilled to be helping create likely new competitors (whether they care about American security is another matter entirely), but they point out that any China business they preserve or gain via their cooperation is more than they’d have without the China market. In fact, Beijing has used its leverage to string them along effectively enough that they’re reluctant even to complain about their China troubles to Washington – for fear of becoming targets for Chinese retaliation, and of excessively rocking the boat of bilateral economic relations generally.

But although the companies’ behavior may be justifiable from their own individual standpoints, their unavoidably narrow, self-interested perspectives make clear why they can’t be relied to protect or advance broader U.S. interests. Washington needs to take the lead. But can it do so without imposing heavy costs on these firms? To me, the answer clearly is “Yes” – and not just because China’s economy is slowing down. The key to success is understanding that a case-by-case approach inevitably leaves China in the driver’s seat, and that the United States can and should capitalize on position as an export market desperately needed by China to ensure adequate growth.

Severely restricting China’s access to this American market would grab Beijing’s attention not only for economic reasons. Chinese leaders would begin worrying about their political futures – and their own personal well-being – since their hold on power depends so strongly on delivering jobs and rising incomes to the country’s increasingly restive population. Moreover, even keeping in mind that short-term costs for the U.S. economy are inevitable – because policy shifts of this magnitude are always disruptive, and because it may take Beijing a while to get the message – the most obvious objections are surprisingly easy to dismiss.

Where will affected companies find customers to replace those they may temporarily lose in China? In many cases, in the American market, because the smaller U.S. trade deficit with China that would result from import curbs would spur more American growth overall. Moreover, so much U.S.-China trade nowadays is “head-to-head,” (in which the same goods compete with each other), that many American firms could fill the gap left by missing Chinese imports. And when it comes to U.S. companies that can’t make up China losses this way, government compensation seems appropriate.

Given Washington’s willingness to bail out Wall Street and auto-makers for blunders largely of their own making, subsidies look defensible for firms in the line of fire of whatever trade conflict develops. (One possible caveat: Many larger, multinational companies rely on China business heavily because they lobbied so effectively for the U.S. China trade policies that have created their vulnerabilities – and other major damage to the American economy – in the first place. So there’s also a case for letting them take their lumps, at least to some extent.)

If such subsidies don’t pass muster politically in the United States, another alternative is available to Washington: using the power of the American market to dissuade non-Chinese competitors to U.S. firms from seizing the opportunities created by these new American policies to boost their own China sales. Although the American firms’ China sales would remain lost, they at least wouldn’t lose competitve ground to foreign rivals.

Further, giving these third-party companies and countries the choice of doing business with China, or with the far bigger – and more reliable – United States would have the added benefit of adding international support to American efforts to fight Chinese protectionism and economic predation.  Working with Washington would also aid foreign governments and companies by reducing China’s scope to play trade partners off against one another. 

Finally, it’s true that the kind of jobs and even technology extortion used by China are standard operating procedures – especially in aerospace and in military aerospace – for many foreign governments, including those of U.S. allies. So how could Washington justify singling out China for counter-measures? Yet when it comes to allies and their policies (called offsets), the answer couldn’t be more evident: They’re allies and China manifestly is not. It makes no sense whatever to treat all foreign governments and economies the same when their relationships with the United States are so dramatically different, and this kind of foolish consistency certainly shouldn’t hamstring America’s approach to China’s economic transgressions.

There is, however, one obstacle to this kind of revamp of U.S.-China economic relations that I don’t see being overcome anytime soon – the continued domination of China policy-making in Washington by those aforementioned multinational, offshoring-happy business interests. The China policy status quo has undermined the American economy’s productive core, and increasingly threatens national security. But the offshoring lobby believes it’s worked well enough for its members. So until a critical mass of national political leaders decides to reject their lavish campaign contributions, expect China to keep taking America to the cleaners. And when Chinese actions sting enough, expect a few grumbles from the multinationals – no doubt mainly for show.