Trump’s not so great deal with China

De­spite the dis­play of friend­ship, the Asian gi­ant is still more ri­val than part­ner

The Washington Times Daily - - COMMENTARY - By Peter Morici Peter Morici is an econ­o­mist and busi­ness pro­fes­sor at the Univer­sity of Mary­land, and a na­tional colum­nist.

Pres­i­dent Trump’s re­cent sum­mit with Chi­nese Pres­i­dent Xi Jin­ping was only mod­estly suc­cess­ful. The hard re­al­ity is that on both se­cu­rity and eco­nomic is­sues, the United States and China are ri­vals — not part­ners — and much tougher days lie ahead. Messrs. Trump and Xi reached no sub­stan­tive agree­ment to curb North Korea’s nu­clear pro­gram and on trade, the two lead­ers ini­ti­ated a 100-day re­view process whose ul­ti­mate ob­jec­tive is un­clear.

For sev­eral decades, China ac­com­plished dou­bledigit growth by ex­port­ing con­sumer goods to west­ern mar­kets while keep­ing its econ­omy tightly con­trolled. It im­poses high tar­iffs and ad­min­is­tra­tive bar­ri­ers to im­ports, com­pels west­ern com­pa­nies to man­u­fac­ture in China and trans­fer tech­nol­ogy in or­der to ac­cess its mar­kets, ag­gres­sively sub­si­dizes do­mes­tic firms, and dumps prod­ucts abroad in in­dus­tries plagued by ex­cess ca­pac­ity.

The United States ab­sorbed the brunt of this on­slaught. The $310 bil­lion U.S. trade deficit with China has shut­tered fac­to­ries, left mil­lions dis­cour­aged and per­ma­nently un­em­ployed, and im­poses slower growth and huge for­eign debt.

Man­u­fac­tur­ing has been hard­est hit and that cur­tails U.S. in­vest­ments in new tech­nol­ogy — both on the fac­tory floor and in next-gen­er­a­tion prod­ucts such as in­dus­trial ro­bots. With­out ad­dress­ing the bi­lat­eral trade deficit, Mr. Trump can­not de­liver 3 per­cent to 4 per­cent growth.

As ris­ing wages chal­lenge man­u­fac­tur­ers in Chi­nese coastal cities, the Com­mu­nist Party must demon­strate it can still de­liver sig­nif­i­cant growth. Bei­jing is be­com­ing more, not less, pro­tec­tion­ist and is tar­get­ing high-tech­nol­ogy ac­tiv­i­ties that strike at the heart of Amer­i­can pros­per­ity, sub­si­diz­ing star­tups and buy­ing west­ern busi­nesses. It is tight­en­ing its au­thor­i­tar­ian grip through con­trol of the In­ter­net and a so­cial credit rat­ing sys­tem that mon­i­tors per­sonal ac­tiv­i­ties to al­lo­cate ac­cess to jobs, hous­ing and the like.

Those tac­tics vi­o­late World Trade Or­ga­ni­za­tion rules and west­ern demo­cratic norms, but Bei­jing has no de­sire to con­form to west­ern ex­pec­ta­tions of a com­mu­nist state tran­si­tion­ing into an open, plu­ral­is­tic so­ci­ety. Rather, it of­fers state-di­rected cap­i­tal­ism and au­thor­i­tar­ian gov­er­nance to de­vel­op­ing na­tions as a su­pe­rior model to what the United States and Euro­pean democ­ra­cies of­fer.

As men­ac­ing, China is us­ing wealth amassed from huge trade sur­pluses to sub­stan­tially build up naval and air power, as­sert sovereignty over neu­tral wa­ters in the South China Sea, and project soft power in the Pa­cific and else­where through its Asian In­fra­struc­ture In­vest­ment Bank and other projects.

Pres­i­dent Obama did not heed U.S. de­fense lead­ers’ ad­vice to more force­fully chal­lenge China’s mil­i­ta­riza­tion of the South China Sea and North Korea, and Chi­nese mus­cle and money have en­cour­aged key U.S. al­lies, the Philip­pines and Malaysia, to shift their fa­vor to­ward Bei­jing.

Pres­i­dent Trump faces the un­en­vi­able task of per­suad­ing Bei­jing to con­strain Py­ongyang’s nu­clear am­bi­tions while push­ing back on its il­le­git­i­mate claims in the South China Sea and re­dress­ing the bi­lat­eral trade deficit.

By fail­ing to ad­e­quately co­op­er­ate on North Korea, Bei­jing has skill­fully di­verted Amer­i­can at­ten­tion from the lat­ter chal­lenges. The Mara-Largo dis­cus­sions did lit­tle to sub­stan­tively ad­dress China’s provo­ca­tions in the Pa­cific and for sev­eral decades, Bei­jing has tied up Amer­i­can pres­i­dents in end­less eco­nomic di­a­logues and dead-end ne­go­ti­a­tions.

The 100-day process ini­ti­ated in Mar-a-Largo sounds like a re­hash of the Strate­gic and Eco­nomic Di­a­logue, which ac­com­plished lit­tle dur­ing the Obama years.

Ad­dress­ing China’s chal­lenges will re­quire Amer­i­cans to re­build the mil­i­tary — ei­ther though higher taxes or re­duced gov­ern­ment spend­ing on other pri­or­i­ties — as Mr. Trump’s bud­get rec­om­mends.

On trade, ei­ther the United States ob­tains from China a blue­print with en­force­able bench­marks to re­duce and ul­ti­mately elim­i­nate the trade deficit or the United States should im­pose such an ar­range­ment uni­lat­er­ally. Abruptly im­pos­ing a 45 per­cent tar­iff would un­nec­es­sar­ily dis­rupt both the Chi­nese and U.S. economies. How­ever, ini­tially ap­ply­ing a 10 per­cent levy — or equiv­a­lent tax on the con­ver­sion of dol­lars into yuan, which would also im­pact on in­vest­ment into China — and then in­creas­ing it by 10 per­cent ev­ery six months would go a long way to­ward per­suad­ing Bei­jing to cur­tail its mer­can­tilist prac­tices. At the very least, it would ad­e­quately in­su­late the U.S. econ­omy while Amer­i­can busi­nesses ad­just to scaled-back bi­lat­eral com­merce.

Those are tough mea­sures — and Amer­i­cans would likely pay more for toast­ers and T-shirts at Wal-Mart — but the ben­e­fits of putting mil­lions of Amer­i­cans back to work and restor­ing growth would far out­weigh those costs.

Pres­i­dent Obama did not heed U.S. de­fense lead­ers’ ad­vice to more force­fully chal­lenge China’s mil­i­ta­riza­tion of the South China Sea and North Korea.


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