Im-Politic: New Signs that Biden Will Lift the China Tariffs – & That Beijing is Counting on It

Tags

China, China tariffs, currency, election 2020, exchange rates, Im-Politic, Joe Biden, Kamala Harris, Mike Pence, Susan Page, tariffs, Trade, trade war, Vice Presidential debate, Xi JInPing, yuan

Between wall-to-wall coverage of the fly and the smirks, it was easy to lose sight of one of the most important reveals of Wednesday’s vice presidential debate: There’s now more reason than ever to believe that if Joe Biden becomes President, he’ll lift President Trump’s tariffs on China. And just as important, there’s now more reason than ever to believe that this is exactly what China is expecting.

Whether you believe that Trump-type China trade policies have been needed and/or have worked (two closely related but not identical matters), the likelihood that the tariffs would be toast is incredibly important because it begs the questions of whether the Democratic nominee has a coherent alternative China trade poicy in mind that can adequately serve U.S. interests (along with alternative investment and tech policies) and whether he’s capable of developing one.

As known by RealityChek regulars, I believe that on both scores, the answer is an emphatic “No.” But what’s more important right now is making clear that Biden running mate Kamala Harris’ debate performance strongly indicated that a major course change is coming.

First, though, a deserved swipe at moderator Susan Page’s China question. Page, the Washington Bureau Chief of USA Today, inadvertently reminded viewers (and should have reminded the Commission on Presidential Debates that organizes such events) why veteran campaign and White House reporters are almost uniquely unqualified to serve in these roles – at least if you’re looking for some minimally satisfactory discussion of issues.

For these journalists tend to be preoccupied with politics, not policy – and with the most superficial horse race or gossipy dimensions of politics at that. As a result, their substantive background is even less impressive than that usually boasted by colleagues who are supposed to know something about the issues they cover (a low bar).

So although Page deserves some credit for even bringing up the topic of China policy, no one should have been surprised by the Happy Talk nature of her question. I mean, here’s a country that’s been blamed across the American political spectrum for destroying huge numbers of American jobs with its wide-ranging trade predation, whose tech companies have been just as widely deemed as dangers to U.S. national security and American’s privacy rights, which increasingly is threatening U.S. allies and other countries in the “Indo-Pacific” region (foreign policy mavens’ latest name for the Asia-Pacific region, due to India’s, and which is treating its own population ever more brutally.

And Page’s question was dominated by claims that China is “a huge market for American agricultural goods” and “a potential partner in dealing with climate change and North Korea”? Not to mention suggesting that its role in bringing the coronavirus to the nation and world is nothing more than a charge leveled by President Trump?

All the same, Harris’ answer was what counted:

“Susan, the Trump administration’s perspective, and approach to China has resulted in the loss of American lives, American jobs and America’s standing. There is a weird obsession that President Trump has had with getting rid of whatever accomplishment was achieved by President Obama and Vice President Biden. For example, they created, within the White House, and office that basically was just responsible for monitoring pandemics. They got away, they got rid of it.”

Previously that evening, she argued that:

“You, [Vice President Mike Pence] earlier referred to, as part of what he thinks is an accomplishment, the President’s trade war with China. You lost that trade war. You lost it. What ended up happening is, because of a so called trade war with China, America lost 300,000 manufacturing jobs. Farmers have experienced bankruptcy, because of it. We are in a manufacturing recession, because of it. And when we look at this administration has been, there are estimates that by the end of the term of this administration, they will have lost more jobs than almost any other presidential administration.”

Let’s leave aside the accuracy or relevance of any of these points – like the 300,000 manufacturing jobs claim loss claim that apparently comes from an economist who admits his 2016 predictions about economy’s performance during the Trump era were completely off-base; or the plainly nutty insistence that the Trump China policy cost American lives.

If Harris believes any of this, and especially that the trade war has been “lost,” then clearly the only important question about the China tariffs isn’t whether they’ll be lifted by a President Biden, but how fast.

Moreover, there’s abundant evidence that Biden fully agrees that these Trump measures have been seriously counter-productive. When asked in August if he’d “keep the tariffs,” he responded, “No. Hey, look, who said Trump’s idea’s a good one?” said Biden. “Manufacturing has gone into a recession. Agriculture lost billions of dollars that taxpayers had to pay.” In other words, most of the main anti-tariff arguments in two pithy sentences.

An aide to the former vice president tried to walk back these remarks, shortly afterwards, but Biden’s words perfectly fit journalist Michael Kinsley’s epic definition of what’s usually mischaracterized in American politics as a “gaffe”: an instance “when a politician tells the truth—some obvious truth he isn’t supposed to say.”

Equally interesting and important with regard to the Biden-Harris China policies – one clear and one possible new sign that Beijing is actively rooting for their success, and assuming the tariffs’ removal. The first came during the vice presidential debate, when Chinese authorities censored some of Pence’s critical comments on China just as Chinese audiences were about to hear them, and then restored the signal in time for Harris’ rejoinder.

The second came last night, when in its first announcement since the end of its Golden Week holiday of a new exchange rate for China’s currency, the yuan, versus the U.S. dollar, Beijing revalued (i.e., made it more expensive compared with the greenback) by the greatest amount in four and a half years. The main reason – at least as I see it: China believes that Biden will win, and is permitting its currency to strengthen because any competitiveness loss by its exports resulting from this and even significant further revaluation will be more than offset by the removal of U.S. levies that have typically hit 25 percent.

Of course, I could be wrong about Biden. So could China. But keep in mind that the former Vice President boasts that he knows Chinese dictator Xi Jinping well because of all the time he’s spent with him. Does anyone seriously think that, by the same token, Xi hasn’t learned a thing or two about Biden as well?

Glad I Didn’t Say That: The Voice of Experience on China?

Tags

China, election 2020, Glad I Didn't Say That!, Joe Biden, Xi JInPing

“I’ve spent more time with in private meetings with Xi Jinping than any world leader.”

— Democratic Presidential candidate and former Vice President Joe Biden, quoted on May 2, 2020

Xi Jinping “is a guy who wants to feel it and taste it, and he’s prepared to show another side of the Chinese leadership.”

— Democratic Presidential candidate and former Vice President Joe Biden, 2012

Xi Jinping “is a guy who doesn’t have a democratic — with a small d — bone in his body. This is a guy who is a thug.”

–– Democratic Presidential candidate and former Vice President Joe Biden, February, 2020

(Sources: “Biden Aims to Out-Tough Trump on China While Invoking His Obama Experience,” by Warren P. Strobel and Sabrina Siddiqui, The Wall Street Journal, May 2, 2020, https://www.wsj.com/articles/biden-aims-to-out-tough-trump-on-china-while-invoking-his-obama-experience-11588420801 and “‘This is a guy who is a thug’: how the US elite became hawks on Xi’s China,” by Demitri Sevastopulo, Financial Times, October 8, 2020, https://www.ft.com/content/75ce186e-41f7-4a9c-bff9-0f502c81e456)

Im-Politic: Bloomberg in China’s Pocket?

Tags

China, election 2020, Financial Times, Im-Politic, Ivanka Trump, Laura Ingraham, Michael Bloomberg, Michael Kranish, Trump, Washington Post, Xi JInPing

Boy! I thought Michael Bloomberg’s business’ dependence on China was worrisome when I first read this early January Financial Times report on the billionaire Democratic presidential candidate’s lucrative conference-holding business in the People’s Republic!

Then thanks to a segment last week on Laura Ingraham’s Fox News cable talk show, I checked out this Washington Post piece on the same subject – which I somehow missed – and I’ve gotten even more worried. And since Bloomberg has been rising steadily in the polls in recent weeks, and is spending a big chunk of his fortune on the campaign, you should be worried, too.

Now I know what at least some of you are thinking: President Trump and his family have done a lot of business with China, too. So why single out the former New York City mayor?

Here’s why: First, I strongly agreed that it was unacceptable for presidential daughter Ivanka Trump to stay involved in any way with her fashion business after her father’s election, especially since it sourced products from China and sought to sell in the Chinese market. She finally agreed with this (widespread) view and shut down the brand in mid-2018. So that’s one big difference between the Trumps and Bloomberg, since the latter is still making big bucks in China.

More important, though – with Trump tariffs still in place on literally hundreds of billions of dollars worth of prospective Chinese exports to the United States, and the President having made life tough for China in numerous other major ways ranging from prosecuting telecommunications giant Huawei to strongly supporting Taiwan in word and deed, can anyone seriously believe that Mr. Trump has been soft on Beijing?

Bloomberg, by contrast, clearly has, and his record of panda-hugging is not only several years old, but has continued unabated during his run for the White House. The aforementioned Post article spells out in detail the pro-China positions he’s taken, which include opposition to the Trump tariffs (without explaining how he’d deal with Chinese trade abuses he’s acknowledged) and the insistence that China’s communist leader Xi Jinping “is not a dictator” (made as Beijing was cracking down on Hong Kong’s democracy protests and imprisoning on a massive, concentration camp-like scale members of the country’s Muslim Uighur minority group.

And when his ongoing business dealings with the Chinese are examined in detail, it’s easy to see why Bloomberg has worked so hard to remain in Beijing’s good graces. For example, as the Post reported, Bloomberg ”expanded one of his company’s financial indexes, which could steer $150 billion into China while earning his firm an undisclosed amount in fees.”

In effect, this move awarded the Chinese government and the various commercial and financial entities it controls a Good Housekeeping Seal of Approval valued immensely by big institutional investors who control trillions of dollars worth of savings around the world.

Moreover, according to Post reporter Michael Kranish, “mainland China accounts for 1 percent of Bloomberg LP’s [$10 billion in annual] revenue and Hong Kong for another 4 percent.”

As for those China conferences, the Financial Times revealed that

“live events now make up nearly 15 per cent of all revenues for the news division that sits within the billionaire’s financial data company.

“This has grown from less than 1 per cent in 2014, thanks largely to the success of one event: the New Economy Forum. Mr Bloomberg launched the conference last year, aimed at connecting global business leaders with the Chinese elite.

“Only in its second year, the NEF already makes up about 65 per cent of all live events revenue for Bloomberg Media, according to a spokesperson.”

And if you still doubt China’s importance to Bloomberg’s coffers, consider that, as Kranish wrote, Bloomberg “has led efforts since 2015 to make it easier for U.S. companies to trade in Chinese currency, a move embraced by China’s largest banks” – which are of course all run by the state.

Bloomberg’s successes in public opinion surveys anyway has led to charges that he’s trying to buy the presidency. At least equally important to ask is whether the Chinese have bought Bloomberg.

Im-Politic: How Trump is Letting the China Virus Crisis Go to Waste

Tags

CDC, Centers for Disease Control and Prevention, China, China trade deal, China virus, coronavirus, Im-Politic, National Institutes of Health, pandemics, pharmaceuticals, Phase One, Trump, Wuhan, Wuhan virus, Xi JInPing

As tragic as the coronavirus has been for victims in China and elsewhere and their loved ones, both the humanitarian and the Machiavellian in me can’t help but think that President Trump is squandering some great and closely related opportunities being created by the outbreak.

To be sure, the President hasn’t completely ignored the disease. He tweeted yesterday that “China has been working very hard to contain the Coronavirus. The United States greatly appreciates their efforts and transparency. It will all work out well. In particular, on behalf of the American People, I want to thank President Xi!.”

He stated at a January 22 press conference at the big global economy conference in Davos, Switzerland that the U.S. government has a plan to contain the virus in the United States. The federal Centers for Disease Control and Prevention (CDC) and National Institutes of Health say they’re working on a cure – in tandem with the U.S. pharmaceutical industry.

But given that the United States is the world leader in medical research, and given that the President has just (justifiably) eaten China’s lunch with the new Phase One trade deal, it seems like much more could and should be done, and in a much higher profile way.

For example, the President, who isn’t shy about broadcasting his achievements and intentions, should announce that’s he’s directing federal research agencies to treat the coronavirus threat as a top priority, as well as seek a similar commitment from U.S. medical schools and drug companies. And how about a summit of American medical research leaders from the public and private sectors to brainstorm both on addressing the present danger and the overall growing threat of pandemics resulting from the ever smaller world being created every day by increasing worldwide commerce and travel?

In fact, why even restrict this meeting to American participants? The President should think about either inviting their foreign counterparts to the session as well, or to a follow-up meeting.

That’s what my humanitarian instincts tell me.

And my more political self? It would advise the President explicitly and publicly to offer his buddy, Chinese leader Xi Jinping, whatever assistance the Chinese need. For good measure, he should propose sending a team of American scientists and public health experts from the government and private sector to China to assess the situation first-hand (including the status of the disease and China’s progress in combating it) and develop recommendations to improve the Chinese response.

Clearly, these actions would serve humanitarian ends. But they would also put Beijing’s dictators in quite the pickle. Right after having their clocks cleaned in the trade negotiations, they’d be put in a position of accepting American help (which would involve a huge loss of the face so critical in Chinese culture), or declining assistance (which can only further anger a Chinese public that’s already not thrilled with the crisis management skills of either the central government or local officials). In other words, either way, the United States scores political points with public opinion both worldwide and in China in particular.

Meanwhile, no one could legitimately criticize Mr. Trump for declaring that all agriculture imports from China are being banned, since the CDC admits that, although it lacks “any evidence to suggest that animals or animal products imported from China pose a risk for spreading 2019-nCoV [the technical name for the virus in question] in the United States,” that “This is a rapidly evolving situation.”

It’s become a well-worn cliché that the Chinese word for “crisis” combines the characters for “danger” and “opportunity.” But even though this specific claim seems questionable at best, the underlying idea and logic are compelling, and need to be applied to U.S. coronavirus policy liji (Chinese for “immediately”).  There’s no excuse, to quote former Chicago Mayor Rahm Emanuel, for letting the opportunity go to waste.

(What’s Left of) Our Economy: Trade War(s) Update

Tags

Argentina, Bloomberg.com, Brazil, business investment, China, CNBC, consumption, currency manipulation, debt, Democrats, digital services tax, election 2020, EU, European Union, export controls, Financial Crisis, France, Huawei, internet, investors, manufacturing, production, steel, steel tariffs, tariffs, Trade, Trade Deficits, trade enforcement, trade war, Trump, Wall Street, Wilbur Ross, Xi JInPing, {What's Left of) Our Economy

The most important takeaway from this post about the current status of U.S. trade policy, especially toward China, is that it may have already been overtaken by events since I began putting these thoughts together yesterday.

What follows is a lightly edited version of talking points I put together for staffers at CNBC in preparation for their interview with me yesterday. I thought this exercise would be useful because these appearances are always so brief (even though this one, unusually, featured me solo), and because sometimes they take unexpected detours from the main subject. .

Before presenting them, however, let’s keep in mind this new Bloomberg piece, which came on the heels of remarks yesterday by President Trump signaling that a trade deal with China may need to await next year’s U.S. Presidential election, and plunged the world’s investors into deep gloom. This morning, however, the news agency reported that considerable progress has been made despite “harsh” rhetoric lately from both countries. It seems pretty thinly sourced to me, and the supposed course of the trade talks seems to change almost daily, but stock indices are up considerably all the same.

Moreover, even leaving that proviso aside, what I wrote to the CNBC folks yesterday seems likely to hold up pretty well. And here it is:

1. The President’s latest comments on the China trade deal – which he says might take till after the presidential election to complete – seriously undermines the claim that he considers a deal crucial to his reelection chances because it’s likely to appease Wall Street and thereby prop up the economy. Of course, given Mr. Trump’s mercurial nature, and negotiating style, this latest statement could also simply amount to him playing “bad cop” for the moment.

2. His relative pessimism about a quick “Phase One” deal also seems to reinforce a suggestion implicitly made yesterday by Commerce Secretary Wilbur Ross when he listed verification and enforcement concerns as among the obstacles to signing the so-called Phase One deal. I have always argued that such concerns are likely to prevent the conclusion of any kind of trade deal acceptable to US interests. That’s both because of China’s poor record of keeping its commitments, and because the Chinese government is too secretive and too big to monitor effectively even the most promising Chinese pledges to change policies on intellectual property theft, illegal subsidies, discriminatory government procurement, and other so-called structural issues.

3. Recent reports of the United States considering tightening (or expanding) restrictions on tech exports to Chinese entities like Huawei also support my longstanding point that the US and Chinese economies will continue to decouple whatever the fate of the current or other trade talks.

4. In my opinion, the President is absolutely right to play hard-to-get on China trade, because Chinese dictator Xi Jinping is under so much pressure due to his own weakening economy, and because of the still-explosive Hong Kong situation.

5. I’ll be especially interested to learn of the Democratic presidential candidates’ reactions to Mr. Trump’s latest China statement, as well as the announcement of the reimposed steel tariffs on Argentina and Brazil, and the threatened tariffs on French “digital services” [internet] taxes. With the exception of Massachusetts Senator Elizabeth Warren and Vermont Senator Bernie Sanders, the candidates’ China policies seem to boil down to “Yes, we need to get tough with China, but tariffs are the worst possible response.” None of them has adequately described an alternative approach. The reactions of Democratic Congress leaders Nancy Pelosi in the House and Charles Schumer will be worth noting, too. The latter has been strongly supportive of the Trump approach in general.

6. The new steel tariffs, as widely noted, are especially interesting because they were justified for currency devaluation reasons, with no mention made of the alleged national security threats originally cited as the rationale. Nonetheless, I don’t believe that they represent a significant change in the Trump approach to metals trade, because the administration has always emphasized the need for the duties to be global in scope – to prevent China from transshipping its overcapacity to the US through third countries, and to prevent third countries to relieve the pressures felt by their steel sectors from Chinese product by ramping up their own exports to the US. Obviously, all else equal, countries with weakening currencies (for whatever reason) will realize big advantages in steel trade, as the prices of their output will fall way below those of competitors’ steel industries.

7. Regarding the tariffs threatened in retaliation for France’s digital services tax, they’re consistent with Trump’s longstanding contention that the US-European Union (EU) trade relationship has been lopsidedly in favor of the Europeans for too long, and that tariff pressure is needed to restore some sustainable balance. In this vein, I don’t take seriously the French claim that the tax isn’t targeting U.S. companies specifically. After all, those firms are the dominant players in the field. Second, senior EU officials have started talking openly about strengthening Europe’s “technological sovereignty” – making sure that the continent eliminates its dependence on non-European entities in the sector (including China’s as well as America’s). The digital tax would certainly further the aim of building up European champions – and if need be, at the expense of US-owned companies.

By the way, this position of mine in no way reflects a view that more taxation and more regulation of these companies isn’t warranted. But it’s my belief that these issues should be handled by the American political system.

Also of note: Trump’s suggestion this morning that the French tax isn’t a big deal, and that negotiations look like a promising way to resolve the disagreement.

Finally, here are two more points I wound up making. First, I expressed agreement that the President’s tariff-centric trade policies have created significant uncertainties in the economy’s trade-heavy manufacturing sector in particular – stalling some of the planned business investment that’s essential for healthy growth. But I also noted that much of this uncertainty surely stems from the on-again-off-again nature of the tariffs’ actual and threatened imposition.

As a result, I argued, uncertainty could be significantly reduced if Mr. Trump made much clearer that, whatever the trade talks’ fate, the days of Washington trying to maximize unfettered bilateral trade and investment are over, and a new era marked by much more caution and many more restrictions (including tighter export controls and investment restrictions, as well as tariffs), is at hand.

Second, at the very end, I contended that President Trump deserves great credit for focusing public attention on the country’s massive trade deficits in general. For notwithstanding the standard economists’ view that they don’t matter, reducing them is essential if Americans want their economy’s growth to become healthy, and more sustainable. For as the last financial crisis should have taught the nation, when consumption exceeds production by too great a margin, debts and consequent economic bubbles get inflated – and tend to burst disastrously.

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

Tags

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.

(What’s Left of) Our Economy: The Offshoring Lobby Admits Americans are Standing Tall in the China Trade War

Tags

2020 elections, capex, Charles Koch, China, CNBC.com, consumers, Democrats, inflation, manufacturing, national security, recession, slowdown, Trade, trade war, Trump, Xi JInPing, {What's Left of) Our Economy

Another trade war myth bites the dust! And its demise is especially big news, given that its killers are some of the leading myth-makers.

Specifically, as reported by CNBC,com, top officials of a major lobbying campaign aimed at forcing President Trump to overturn his tariff-heavy trade policies, and in particular, to make nice with China, have openly admitted that the ace-in-the-hole they thought they held turned out to be joker. According to a CNBC posting yesterday, the political network funded partly by billionaire libertarian Charles Koch has concluded that their efforts to restore the pre-Trump, offshoring-happy, U.S. trade policy status quo have failed because it completely misread the American public’s willingness to pay an economic price for combating China’s trade predation.

This news comes on the heels of ongoing evidence that, contrary to widespread predictions from economists, think tank hacks, globalist politicians, and the Mainstream Media reporters who keep taking their cues from all these trade zealots, raging American inflation has not been ignited, business investment has not been paralyzed, domestic manufacturing has not suffered a death blow (though it’s been in a shallow recession for a year), and the economy has not plunged into recession (though growth has slowed).

The advertising-focused Koch drive sought to convince President Trump to back off his strategy of trade pressure by exploiting the selfishness of U.S. consumers in particular and the supposed vulnerabilities of the U.S. political system. The apparent central assumptions (and they’ll be familiar to anyone who’s been following Mainstream Media coverage of trade issues): Affluent, and indeed spoiled, Americans have much less tolerance for economic pain than their long impoverished Chinese counterparts; and China’s dictators will find it much easier to resist any public pressure that did develop than American leaders. Therefore, the Koch operatives reasoned, stoking fears that Mr. Trump’s tariffs would supercharge retail prices in particular and kill jobs by prompting retaliatory Chinese measures and slumping American capital spending would set off a political firestorm that the President would need to extinguish if he hoped to win reelection.

But at a briefing it held in New York City yesterday, a Koch official told reporters that “The argument that, you know, the tariffs are adding a couple thousand dollars to the pickup truck that you’re buying is not persuasive. It doesn’t penetrate with the people that are willing to go along with the argument that you have to punish China.”

Nor did the Koch campaign make this decision lightly. The CNBC.com piece noted that “the network came to this conclusion after conducting weekly focus groups on trade policies.” Also cited in the post was a recent national poll showing that “63% of registered voters believe tariffs will ultimately hurt the United States more than China, but 67% of the electorate is convinced it’s necessary to confront China over its trade practices.”

In other words, the American public is wiser and more farsighted than the U.S-owned businesses that have worked overtime to help strengthen the Chinese economy – including by voluntarily transferring to the Chinese the technology they need to upgrade their mechanisms of repression and modernize their military. And everyday Americans are much smarter than those companies that China has begun victimizing once Beijing concluded they’d outlived their usefulness, but that keep hoping against hope that enough boot-licking will save their corporate skins in the Chinese market. Because the American public evidently understands that U.S. prosperity and national security alike require reversing these China-enabling policies, and that slightly more expensive imports from China are a small price to pay for preserving and achieving these goals.

Ironically, the poll indicates that the Koch campaign (along with similar efforts) has succeeded in one respect: It represents some evidence that Americans believe that their country is more vulnerable to a trade war than China – even though the Chinese economy is much more trade dependent, and even though, as noted above, the United States keeps growing (albeit more slowly), and its overall inflation remains subdued by any reasonable standard.

Maybe that’s why the Koch network says it’s far from giving up, and is considering delivering the same message with different tactics. Two seem especially promising to these Friends of China:

>“putting together a team of almost 100 business leaders to call on the Trump administration and lawmakers to end the trade war with China”; and

>educating “100,000 activists in at least 35 states about the potential negative impact of using tariffs to battle China. Those volunteers will then be expected to start reaching out to their congressional leaders. The network hopes these activists can convince lawmakers on Capitol Hill to stand up against the administration’s current trade policy. The latest phase of the Koch campaign is expected to cost the network millions of dollars.”

Of course, short of a major economic downturn, if the Koch network has already established that the public is rejecting its advertising-carried China fear-mongering, it’s unclear why President Trump would be more responsive to the 100 business leaders than he’s been to date? And why would most Members of Congress not already backing China coddling pay more much attention to the 100,000 activists?

That’s a question that also needs to be asked by some other major actors in the U.S.-China trade war: the majority of current Democratic presidential candidates, who clearly believe that there’s lots of voter China-related trade whining that they can turn into votes, and ultimately into victory over Mr. Trump; and Chinese dictator Xi Jinping himself, who just as clearly believes that if the President is defeated, he’ll be back to dealing with Uncle Sucker on trade – and so many other fronts.

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

Tags

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

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

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

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

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

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

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

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

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

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

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

(What’s Left of) Our Economy: Trump’s Latest China Tariff Moves – & Why They’re Mistaken

Tags

China, consumer goods, consumers, Hong Kong, inflation, producer goods, tariffs, Trade, trade war, Trump, Xi JInPing, {What's Left of) Our Economy

If you’re confused by President Trump’s latest China tariffs moves, don’t feel bad. They’re really confusing!

Much clearer is their main implication: Once more, the President has needlessly let China off the trade war hook – and significantly reduced the odds of U.S. success no matter how it’s defined.

To summarize the chain of announcements and decisions that have produced the present situation: As of August 1, in various stages, the United States had imposed 25 percent tariffs on $250 billion worth of goods imports from China based on the latest data. And on May 5, Mr. Trump threatened to place tariffs of 25 percent on the rest of China’s merchandise shipments to the United States (about $300 billion worth).

That announcement was seen as especially significant because the previous tariffs mainly hit what businesses and economist call “producer goods” or “intermediate goods.” They’re the parts, components, and materials that companies use to produce final products, including consumer products. As a result, even when they do lead to higher consumer prices, the role played by these duties is difficult for consumers (i.e., voters) to identify, much less complain about to the politicians responsible.

In addition, as I’ve frequently noted (e.g., here), tariffs on these producer goods often don’t lead to any inflation, or much inflation, at all, for a variety of reasons and combinations of reasons. In many instances, retailers and other businesses simply lack the needed pricing power. As a result, they often seek to persuade their entire supply chain to preserve market share by eating some or all of the higher prices and accepting lower profits. Alternatively, various parts of the supply chain – including the final customer – can try to offset tariff-induced price increases by boosting productivity. That’s actually good for the economy in the long run, as improved efficiency not only enables companies to absorb cost increases while maintaining and even increasing margins. Such better productivity tends to spur the development of new efficiency-enhancing products, services, and technologies – a great way to boost living standards in a healthy, sustainable way.

Yet the May Trump $300 billion threat – which stemmed from the President’s unhappiness with the lack of progress in the trade talks with China – would have finally hit most consumer goods imports. Therefore, it would have created the risk that shoppers would blame the President for any price increases they did encounter. Even worse, the timing of the threat practically ensured that these higher prices would start appearing just as holiday shopping heated up – or typically heats up.

In late June, however, after meeting with Chinese leader Xi Jinping at a global summit in Japan, Mr. Trump agreed to a trade truce and to hold off on the $300 billion threat. Two weeks later, though the threat was back on the table, according to a Trump tweet.

On August 1, following a new round of apparently unsuccessful trade negotiations and the President’s belief that China had broken a promise connect with the late June trade truce to buy more American farm products, Mr. Trump specified that ten percent tariffs on the $300 billion worth of consumer goods-dominated imports from China would begin on September 1. Just four days later, his administration announced another “hawkish” trade war decision – officially designating China as a country that manipulated its currency to gain trade advantages (by keeping its products artificially cheap and therefore making goods and services from trade competitors artificially expensive in comparison). At the same time, the currency decision by law doesn’t automatically result in new tariffs, although it could eventually bring about some other penalties.

And yesterday came the latest turnaround: Mr. Trump decided to postpone tariffs on an estimated $160 billion of the $300 billion from September 1 to December 15. Not coincidentally, as his remarks on benefiting holiday shoppers made clear, many of the items on the postponement list included particularly popular gift items like toys and smartphones.

In addition, tariffs on some $30 billion worth of imports from China would be lifted permanently (at least for now!). But new duties on some $110 billion worth of imports from China are at this point slated to go into effect at the beginning of next month, and this group, too, is dominated by consumer goods.

Commentators focusing on the postponed goods called the latest Trump move a cave to China spurred by the President’s fears of a falling stock market, weakening U.S. economy, and angry consumers. Others, pointing to the products that will be slapped with new levies, and to the continuation of previously announced tariffs, insisted that Mr. Trump was keeping considerable pressure on the Chinese.

I lean toward the former interpretation, for these reasons. First, there’s no sign that the President’s forbearance has won any concessions from China. Second, the tight Trump focus on appeasing holiday shoppers can only signal weakness to Beijing, and feed its hopes that it can prevail in the trade and broader economic conflict by waiting for the President to be replaced by a more conventional, more pliable chief executive in 2020. Third, the delay announcement came just before a batch of absolutely terrible economic data was released by China. And given Beijing’s history of publishing overly bullish figures, it’s a safe bet that its economy is even weaker than most recently indicated. Fourth, Xi Jinping is under pressure not only economically, but politically, due to the rising unrest in Hong Kong.

Fifth, it’s true that from the standpoint of China’s longer-term prospects, maintaining the tariffs on its producer goods matters crucially. For this category includes most of the high tech and other advanced manufactures that represent any economy’s hope for continued technological progress, and therefore faster, healthier growth and a stronger military. But the consumer goods matter politically – because since they’re largely labor-intensive in nature, they’re mass employers. And China’s dictators view high unemployment as a mortal danger to their rule.

Sixth, although it’s clear that U.S. investors hate the trade war, the President needs to remember that, however much he likes to tout the stock market as a barometer of his economic performance, these markets and the real economy are by no means identical. We’ll be getting some key economic data tomorrow, when the Federal Reserve releases its new report on industrial (including manufacturing) production. But so far, the manufacturing numbers have shown that, after a soft patch in the winter, both inflation-adjusted output and capital spending are trending upward again. So unless these and other upcoming data break notably from their most recent patterns, recession – and even further slowdown – predictions will keep looking far-fetched.

Importantly, none of the above analysis means that I’ve changed my view that no China trade deal acceptable for U.S. interests is possible because of insurmountable verification obstacles. Instead, America’s only realistic option is to keep disengaging economically from China – both to reduce U.S. economic reliance on an increasingly hostile power, and to weaken further the only country capable of posing noteworthy national security threats. As a result, however, Washington should pass up no opportunity to inflict pain on China’s economy. And although no one would be shocked if he reversed course yet again before too long, that’s exactly the mistake that President Trump just made with his latest China tariffs delay.

Following Up: Latest National Radio Interview on the China Trade War Now On-Line!

Tags

China, Following Up, Gordon G. Chang, manufacturing, The John Batchelor Show, Trade, trade war, Xi JInPing

I’m pleased to announce that the podcast is now on-line of my interview Wednesday night on John Batchelor’s nationally syndicated radio show.  So click here for a timely discussion among John, co-host Gordon G. Chang, and me on the latest escalation(s) of the U.S.-China trade conflict.  (I come in at about the 3 minute-30-second mark.) And of course feel free to listen if you’ve already heard it!

BTW, see if you can spot the sentence in which I inadvertently called the U.S. manufacturing trade deficit with China a surplus.  And the reason why Chinese leader XiJinping’s advisers aren’t likely to let him listen to the segment.

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