Trump Is Right to Battle China on Trade, But Now Comes the Hard Part

Discussion in 'Economics' started by bone, May 14, 2019.

  1. bone

    bone ET Sponsor

    Trump Is Right to Battle China on Trade, But Now Comes the Hard Part
    For many different reasons, now is the time for Washington to use certain advantages to level off the playing field.

    "On November 10, 2001, after fifteen years of tortuous negotiations, China joined the World Trade Organization. The WTO describes itself as a rules-based club whose “overriding purpose is to help trade flow as freely as possible.” If only that were true when it comes to China, then the Trump administration's so-called “trade war” would have been over before it started.

    China was only allowed to join the WTO after making several commitments to free trade, the most important of which was to “provide non-discriminatory treatment to all WTO Members.” Specifically, China promised that foreign companies would “be accorded treatment no less favorable than that accorded to enterprises in China” when doing business in the country.

    Tell that to Google, Facebook, Uber, and all the other American companies that have been forced out of the Chinese market.

    Eighteen years after joining the WTO and China still has not honored the most basic commitment it made upon joining. In fact, it has slid backward. Yet for all that time, China has reaped the benefits of WTO membership: low tariffs on its exports, access to WTO dispute resolution mechanisms, a voice on future global trade rules, and a free pass for its companies to operate in the United States.

    Now is the time to set things right. It may be the only time. China’s economy is slowing and its leaders are worried. After forty years of growth, the party is over. A country only makes the transition from quick catch-up to mature growth once in its economic development trajectory. China’s transition is now. It’s not going to come around again.

    Once China gets used to the kinds of pedestrian growth rates that prevail in other middle income countries, the window of opportunity will close. Attitudes will harden. People will come to expect mediocre results and a cycle of boom and bust. Slow growth will become the new normal.

    But right now, China’s population is restive, and its leaders are scared. There’s blood in the water. Now is the time to strike on trade with China. If China isn’t persuaded to meet its 2001 WTO commitments now, then it never will be.

    The Trump administration’s decision to raise tariffs effective May 10—while exempting goods already in transit to the United States—has set the clock ticking. Some Chinese exporters will take a chance and ship anyway, hoping that the dispute will be resolved in the four to six weeks it takes their goods to reach West Coast ports. Others will hold back to wait and see. Both groups will be pressuring the Chinese government to come to a deal as quickly as possible.

    Americans have a bad habit of thinking that China lacks internal politics, but that is completely incorrect. China’s ruling Communist Party forbids public expressions of dissent, but you can be sure that China’s major exporters are on the phone to their comrades in government and the Party. There’s big money at stake, and in China more than in most places, cash is king. The lack of democratic accountability makes China’s politics even more dependent on money, not less. In public, everything is quiet, but in private, the pressure is mounting.

    Opening Doors

    Yet there is no such thing as a U.S.-China “trade war.” A trade war happens when two countries compete to secure advantages for their own exports over those of another country. But US and Chinese exporters rarely compete head-to-head in the same sector. Trump is not seeking advantages for American cars or refrigerators over Chinese ones.

    The current U.S.-China negotiations are all about market access, and Trump’s tariffs are focused on opening markets, not closing them. Open markets have been at the heart of America’s Asia policy since before the Civil War. In 1899, Secretary of State John Hay gave the policy a name: the open door policy. But the United States has been pushing for a free and equal Pacific trading regime ever since it signed its first “most favored nation” agreement with China in 1844.

    China’s doors closed when the Communist Party took power in 1949, and these days they only open for companies that China thinks it can turn to its own advantage. That is nothing like the situation in the United States, and nothing like it should be under WTO rules.

    Subject to genuine national-security considerations, any Chinese company can come to the United States, set up shop, and take its chances in the U.S. market. It can freely repatriate any profits back to China. And if it feels aggrieved by anyone or anything, then it can pursue its case in U.S. courts without prejudice.

    None of that is true for U.S. companies in China, but it should be. In 2001, China promised that it would open all of its markets to foreign competition, reserving only a small number of highly regulated industries. Specifically, China committed to open its banking and telecommunications sectors by the end of 2006. More than twelve years later, these sectors are still completely closed.

    Stay the Course to Change the Course

    China has outright refused to live up to its 2001 WTO commitments, but the full picture is much worse than that. Over the last two decades, China has initiated a large-scale campaign of government-sponsored industrial espionage. It forces foreign companies to transfer mission-critical technologies to local partners as the price of doing business in China. And it continues to impede the repatriation of profits made by foreign companies operating in China.

    None of this is consistent with the rules-based multilateral system so resolutely endorsed by Chinese President Xi Jinping in his much-lauded 2017 speech to the World Economic Forum. At the time, Xi's internationalist commitment to liberal principles was widely praised as an antidote to Trump’s nationalist backpedaling on the global rule of law. But actions speak louder than words.

    Trump’s America remains committed to the rule of law, and Trump’s tariffs are the means to enforce it. China has amply demonstrated that it will not respect its commitments unless it is forced to. Now is the best time to exert maximum force to persuade China to change its course.

    Last week’s deal fell apart precisely over enforcement provisions. China is as willing as ever to make commitments on market access. It is not (yet) willing to see them enforced.

    The Trump administration should stay the course on enforcement. It shouldn't have to wait long. China is in trouble, and major Chinese exporters have already started moving to Vietnam. Once they go, they won’t come back, even when tariffs return to normal.

    The clock is ticking, and China’s Communist Party leadership knows that better than anyone. America can afford to wait. China can’t."
    Sprout, fan27, MKTrader and 8 others like this.
  2. I disagree with this sentiment. If Trump loses the election, China wins. Do you think ANY of the other chumps running for President are going to negotiate hard with China? Maybe Bernie.
  3. dozu888


    well written article to point!
    jl1575 likes this.
  4. dozu888


    China can't wait for 2 years... much less 6 years... can't see Trump loses in 2020... economy too good.
    smallfil likes this.
  5. bone

    bone ET Sponsor

    The question is, can China withstand two years of tariffs ? If there's a US executive branch administration change that will happen in January of 2021. When you have a $419 Billion trade surplus with another country, and your Country's entire economic expansion plans relies upon maintaining that surplus along with an artificially pegged dollar float (currency manipulation) - those are golden handcuffs.
  6. Good points fellas.
  7. piezoe


    There are valid issues re trade with China. Trump, however, is a dangerous, mentally ill lunatic. He is going about this all wrong. He's a fool when it comes to business and negotiating, but he's a masterful carnival barker, with the charisma, cadence and voice tone of a baptist circuit preacher. The absolute best! A genius of his particular racket. But do we want a carnival barker, a criminal one at that, to lead our nation? I hope not. He risks losing U.S. soybean markets that won't come back for a long, long time.

    We can't compete on manufacture of "copper fit" back supports and cheap non-stick frying pans, but we could compete well on soybeans. But not now. Trump's a danger to our nation. He is driven by his out of control narcissism. He craves insatiably the admiration of his uneducated supporters who will believe every spur of the moment lie. Trump is a dangerous criminal, and his foolish tariffs will create retaliation, they won't solve trade disputes, as ya'll are about to discover.

    In the end, it will bEdite Trump that caves not China, but the opposite picture will be painted for Murdoch's FOX viewers. Just as in the NAFTA "renegotiation", Trump will claim a great victory. Nothing of substance will be gained, however. In the meantime America's farmers will be forced to accept government handouts, and the risk of long term loss of market share looms large. Yes, there are issues with our trade relationship with China that need to be addressed. Trumps ham handed mafia approach is absurd however. China is a not cross town bully threatening to invade his shake-down territory.

    Trump is the beneficiary of increased government spending into a pseudo full-employment economy -- an innovation of unbridled, short-sighted greed. This leaves more money in the private sector than is withdrawn via taxes and fees and gooses savings and private investments, which, in the present case, is heavily weighted to favor the upper end of the economic spectrum . But there is never a free lunch. After Trump is long gone, we will pay the price for expansion of the money supply at a greater rate than growth in real GDP can support.
    Last edited: May 14, 2019
  8. Remember, this guy wants the government to have even more control over the economy through MMT. He masturbates to the wiki page every night and doesn't trade.
    Tsing Tao likes this.
  9. dozu888


    didn't Buffett say to win in negotiation you need to act half crazy?

    soy is one 1 chess piece in the whole thing right? big picture China has much more to lose... nobody ever said it's a cost-free trade war for the US.... the whole point is who has to suffer more pressure and has to cave in... the 500b surplus China has certainly puts more pressure on them.

    favoring the upper end of the spectrum - that I agree... the trickle-down thing hasn't worked too well... but I think 1 major factor is the technology advancement that has expedited the flow of information (hence wealth)... but that is a separate topic from the trade war.. for now.
    smallfil likes this.
  10. So true.
    #10     May 14, 2019