Break­ing China

Newsweek - - NEWS - BY BILL POW­ELL

STEVE BAN­NON may be gone, but some of his ideas could live be­yond his short time in the White House—namely, his provoca­tive views on trade with China. The in­stant re­ac­tion when Pres­i­dent Don­ald Trump fired his much­ma­ligned chief strate­gist was that Ban­non and his al­lies had been van­quished. The victors, many as­sumed, were those like Gary Cohn, the head of Trump’s Na­tional Eco­nomic Coun­cil, who don’t want to dis­rupt the sta­tus quo with China, fear­ing that Bei­jing wouldn’t help the U.S. stymie North Korea’s nukes pro­gram, among other is­sues.

But the so-called glob­al­ists haven’t won yet. In what ef­fec­tively be­came his exit in­ter­view, Ban­non told The Amer­i­can Prospect in Au­gust that there is no re­al­is­tic mil­i­tary op­tion when it comes to the North. That un­der­cut the ad­min­is­tra­tion’s pub­lic po­si­tion (“Ev­ery­thing’s on the ta­ble’’), but it also hap­pens to be true. Ban­non then shocked every­one with his stance on trade. “We’re at eco­nomic war with China,” he said. “It’s in all their lit­er­a­ture. They’re not shy about say­ing what they’re do­ing. One of us is go­ing to be a hege­mon in 25 or 30 years, and it’s gonna be them if we go down this path.”

The rhetoric was over­heated, but Ban­non the bomb thrower—un­ques­tion­ably bet­ter suited to run Bre­it­bart News (again) than he was to run the West Wing—is not en­tirely wrong. Set aside the word war and that much be­comes clear. In their lit­er­a­ture and else­where, the Chi­nese say they are in­tent on sur­pass­ing the United States as the world’s lead­ing eco­nomic power. And at the high­est lev­els of the rul­ing Com­mu­nist Party, its lead­ers have given con­sid­er­able thought about how to ac­com­plish it.

Con­sider the Made in China 2025 pro­gram,

which Bei­jing an­nounced in 2015. In less than eight years, the rul­ing Com­mu­nist Party wants China to be a world leader in ad­vanced in­for­ma­tion tech­nol­ogy, new en­ergy ve­hi­cles, au­to­mated ma­chine tools, aero­space and a host of other ad­vanced in­dus­tries.

Those in­dus­tries are vi­tal. They will drive in­no­va­tion, cre­ate mil­lions of good-pay­ing jobs and make the coun­tries that dom­i­nate them the most eco­nom­i­cally com­pet­i­tive in the world.

By dint of its pop­u­la­tion alone, China al­ways seemed des­tined to be­come the world’s largest econ­omy. It has 1.3 bil­lion peo­ple, com­pared with 325 mil­lion in the U.S. But hav­ing this many peo­ple doesn’t mean China will be­come the world’s dom­i­nant econ­omy. As the 2025 plan il­lus­trates, how­ever, that’s Bei­jing’s aim. In the in­dus­tries it’s tar­get­ing, China wants com­pa­nies to pro­duce 40 per­cent of the core com­po­nents and ma­te­ri­als in the coun­try’s man­u­fac­tur­ing chain by 2020, and 70 per­cent by 2025. Many econ­o­mists and for­eign busi­ness ex­ec­u­tives be­lieve those fig­ures are lu­di­crously am­bi­tious. But if Bei­jing reaches its goal, the global econ­omy, and who makes its rules, will look rad­i­cally dif­fer­ent from how it does to­day.

China’s plans shouldn’t sur­prise any­one. Ask Michael Pills­bury, a for­mer De­fense De­part­ment of­fi­cial and the au­thor of The Hun­dred-year Marathon: China’s Se­cret Strat­egy to Re­place Amer­ica as the Global Su­per­power. His book that draws largely from doc­u­ments pub­lished in Chi­nese, as well as his own meet­ings and in­ter­ac­tions with Bei­jing of­fi­cials.

In one pas­sage, Pills­bury re­lates how a prom­i­nent Chi­nese de­fec­tor told him about how the Chi­nese gov­ern­ment thinks about the coun­try’s eco­nomic rise. Se­nior cadres must at­tend strat­egy ses­sions at the party’s Cen­tral Com­mit­tee School in Bei­jing, she told him. The fac­ulty used six books to ex­plain how the U.S. ex­panded over a cen­tury and a half to be­come the world’s eco­nomic su­per­power.

China was ap­ing some of the meth­ods, the de­fec­tor ex­plained to Pills­bury, and ac­cel­er­at­ing the process: “The U.S. strate­gies ex­am­ined in­cluded the pro­tec­tion of the do­mes­tic mar­ket, fi­nan­cial sub­si­dies of do­mes­tic com­pa­nies and ex­port pro­mo­tion.” In other words, Amer­ica was do­ing a lot of the things China does now.

This isn’t a hereti­cal mis­read­ing of his­tory, an­a­lysts say. “Our first trea­sury sec­re­tary, Alexan­der Hamil­ton, laid out some ba­sic rules that fore­shadow China’s poli­cies of the last cou­ple of decades,” says James Mcgre­gor, the China CEO of APCO, a con­sult­ing com­pany. “In his 1791 re­port to Congress, Hamil­ton pro­posed pro­tec­tive tar­iffs, im­port bans, sub­si­dies for en­cour­aged in­dus­tries, ex­port bans on key raw ma­te­ri­als, prizes and patents for in­ven­tions, the reg­u­la­tion of prod­uct stan­dards and the de­vel­op­ment of in­fras­truc­ture for fi­nance and trans­porta­tion. This ba­sic blue­print lasted in the U.S. for about the next 150 years.”

The global eco­nomic rules—which, Bei­jing points out, it had no role in writ­ing— at­tempt to con­strain some of those tac­tics, with vary­ing de­grees of suc­cess. But will Trump do more to stop China’s rise? He was harsh on Bei­jing dur­ing the 2016 presidential cam­paign, then met Chi­nese Pres­i­dent Xi Jin­ping at Mar-aLago this spring and had a bit of a bro­mance, say­ing he would back off on trade in re­turn for help in rein­ing in North Korea. But he doesn’t be­lieve that help has been forth­com­ing, and he is once again amp­ing up the pres­sure on trade. The U.S. has is­sued sanc­tions against a cou­ple of Chi­nese com­pa­nies do­ing busi­ness with Py­ongyang. And on Au­gust 14, Trump also an­nounced an “in­ves­ti­ga­tion” into China’s theft of in­tel­lec­tual prop­erty.

Do such moves por­tend a tougher Amer­i­can line on China? The con­ven­tional view of Ban- non’s ouster is no, be­cause the “glob­al­ists” are now on top in Trump-land. But that con­clu­sion could be pre­ma­ture. Trump’s trade rep­re­sen­ta­tive, Robert Lighthizer, worked in the Rea­gan ad­min­is­tra­tion in a sim­i­lar role. He’s been a trade lawyer ever since, and he’s ar­gued that go­ing easy on China be­cause we want help on big­ger is­sues was fool­ish; it down­plays the eco­nomic dam­age caused by Bei­jing’s trade prac­tices. Plus, China doesn’t ac­tu­ally do much to stop the North from de­vel­op­ing nukes.

Trump likes those ar­gu­ments. So Ban­non may be gone, but in the White House the bat­tle over China has only be­gun.


THE BLUE­PRINT: China is try­ing to be­come the world’s dom­i­nant econ­omy by ap­ing Amer­ica’s rise. The ques­tion now: Will Trump do more to try to stop Bei­jing?

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