U.S.-China | How will Chinese Digital Currency Help the Yuan vs Dollar

The People’s Bank of China (PBOC) started working on its digital currency (CBDC) in 2014. In April, the PBOC introduced pilot programs in four large cities. In July, China’s ride-hailing company said it was working with the PBOC to test the Chinese digital currency on its platform. In August, China’s Commerce Ministry said it would expand the program to Beijing and Hong Kong. The PBOC also indicated the plan to test the digital yuan’s capabilities and risks in cross-border transactions during the 2022 Beijing Winter Olympics. The digital yuan is known as “DC/EP,” or “digital currency/electronic payment.” Users will not require bank accounts. The digital wallet might allow touch payments without the internet. Unlike Bitcoin, it will be highly centralized. And the central bank seeks “controllable anonymity.” The CCP is will more likely use the digital yuan to replace all renminbi in circulation and increase surveillance on Chinese citizens. On August 7, the Treasury sanctioned 11 Chinese Communist Party and Hong Kong officials. And China’s large state-controlled banks are complying because the US dollar currently holds a dominant position. Apparently, the CCP intends to bypass the dollar system. Once complete, Beijing could share the digital currency technology with other countries and ask the Belt and Road participating countries to accept the digital yuan, creating a digital belt and road. A cheaper, faster payment system that avoids US sanctions would be a challenge to the US dollar dominance. According to the BIS, about 50 countries participated in the Central Bank Digital Currencies (CBDC) projects. The Federal Reserve has been researching on the digital dollar. On August 13, Governor Lael Brainard brought up some obstacles. Trust in the CCP has been deteriorating even among belt and road countries. Some have canceled, downsized, or postponed the projects to avoid debt traps. It is hard to say if they’ll adopt the digital yuan. That doesn’t mean ignoring challenges to the USD. Instead of merely catching the digital trends, the US government and the Fed should focus on responsible fiscal and monetary policies that protect the market’s confidence in the USD.

 

Transcript

China’s digital currency (CBDC) being tested has caught the world’s attention. And a Foreign Affairs article painted a picture as such. In 2022, Iran is purchasing critical components for its nuclear and missile programs. The funds come from selling oil to China and Europe. And all transactions are done with the digital yuan that bypasses U.S.-controlled financial systems. America’s ability to sanction its enemies is significantly weakened. In this video, we’ll discuss whether the digital yuan can challenge the USD dominance. What risks will it bring? And how is it different from the current digital payments and cryptocurrencies? The Leader in Large-Scale Testing The People’s Bank of China, China’s central bank, started working on its own digital currency back in 2014. In May 2019, the BBC revealed Facebook was planning to launch its version of cryptocurrency, Libra, by the first quarter of 2020. This motivated the Chinese Communist Party to speed up the digital yuan’s development. And regardless of whether the Libra would be approved by western governments, the CCP wanted to win the race. In April 2020, the central bank introduced a pilot program in four of China’s large cities. And screenshots of the digital wallet mobile app were circulated on the internet showing functions of making and receiving payments. In Suzhou, a large city west of Shanghai, the government employees would start receiving half of their transport subsidies in digital yuan. In July, China’s ride-hailing company, Didi, said it was working with the People's Bank of China to test the digital yuan on its transportation platform. And in mid-August, China’s Commerce Ministry said it would expand the pilot program to regions that include Beijing and Hong Kong. The central bank also indicated the plan to test the digital yuan system’s capabilities and risks in cross-border transactions, which will take place during the 2022 Beijing Winter Olympics. Under the proposed timeline, a digital yuan-based international payment system will start running in about a year and a half. It will likely be the world’s first government-operated digital currency system. As an authoritarian regime, the Chinese Communist Party might not be concerned about violating people’s privacy when pushing for the digital yuan. Once the tests turn out successful, large scale adoptions might complete very quickly. So how will the digital yuan work? “Controllable Anonymity” The digital yuan doesn’t have an official name but is known internally as “DC/EP,” which is just short for “digital currency/electronic payment,” Unlike the current digital payment systems such as Alipay and WeChat Pay, digital yuan users will not require bank accounts. And according to Mu Changchun, the People’s Bank of China official in charge of digital yuan’s development, the digital wallet will allow some form of touch payments where transactions can occur even without the internet. Compared to Bitcoin, which is believed to be decentralized and anonymous, the digital yuan will be highly centralized. Although the central bank claimed the parties to the transactions will be anonymous, in practice, it seeks quote “controllable anonymity.” It will be able to track the users’ purchases. And therefore, the system could help fight money laundering, gambling, and terror financing. The People’s Bank of China has also claimed the digital currency was intended to replace some physical cash in circulation, also known as M0. That was not very convincing. China already has a very high level of cashless rate. According to the central bank’s report, by the end of 2018, 82.39% of China’s adults used digital payments. There are 900 million people that use Alipay. And, in 2019, cash only accounted for 4% of household financial assets versus 24% in the United States. It would be hard to believe all the resources spent are just to erase the 4%. “Actually, replacing the M0 would be just a start. It will not be limited to M0. Instead, it should replace all the currency and maximize the digital currency’s functionality and value. Otherwise, there will be issues with return on investment,” writes Wang Yongli, former vice president of Bank of China. Therefore, the CCP is will more likely use the digital yuan to replace all the renminbi in circulation and increase its surveillance on China’s economy and every Chinese citizen, especially political dissidents. When the central bank can create and issue money digitally, it can seize the citizens’ money with one push of a button. And will the digital yuan help the CCP challenge the US dollar? “The Digital Belt and Road” On August 7th, the U.S. Treasury Department sanctioned 11 Chinese Communist Party and Hong Kong officials. The targets included the director of the CCP’s liaison office in Hong Kong, Luo Huining, and Hong Kong’s chief executive, Carrie Lam. On August 12th, Bloomberg News reported that China’s largest state-controlled banks are taking steps to comply with U.S. sanctions. This might sound surprising to many people. Why would China’s banks do anything against their government by a foreign country’s order? But the reality is the U.S. dollar currently holds a dominant position in global finance. And in 2019, almost 90% of international transactions were conducted in US dollars. The U.S. government can ask all banks that process US dollar payments to stop providing services to those under sanctions. And, apparently, the CCP does not want to be put in such a position. It intends to bypass the dollar payment system. In the state media CGTN’s words, the digital currency provides quote “a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level.” Aditi Kumar and Eric Rosenbach at Harvard Kennedy School, authors of the Foreign Affairs article, believed once the digital yuan is successfully launched in China. Beijing could simply share this technology to countries with the same motives. For example, Iran could adopt the same technology and build a compatible digital currency system. And the trade between the two countries would technically be no longer trackable by the US government. And what might happen when the People's Bank of China does become the first central bank to introduce a digital currency that works? Matthew Graham is the chief executive officer of Sino Global Capital. He predicted quote: “It’s very possible that other countries adopt the China framework, and then a first-mover advantage turns into a strong network effect…This is the best-case scenario for China.” Beijing could ask the Belt and Road Initiative's participating countries to start accepting the digital yuan. And this might include using the digital yuan to make loan payments. It could pay to install infrastructures such as point-of-sale terminals and lower the transaction fees, effectively create a digital belt and road. As Bank of America’s analysts pointed out, Asian countries like Thailand, Singapore, and South Korea are assessing their digital currencies. Those currencies might be integrated with the yuan-based systems and quote “especially if it entails significantly lower transaction costs and real-time transfers.” In fact, the CCP has already been doing that under current systems. On August 3, China waived transaction fees between the yuan and 12 currencies, including the Russian Rouble, the Singapore dollar, the Korean Won, and the Thai Baht. According to the State Administration of Foreign Exchange, this move was to quote: “actively cooperate with the national belt and road development strategy.” A cheaper, faster payment system that can also avoid US sanctions would be viewed as a challenge to the US dollar’s dominance. Then what should the United States do about it? Obstacles to The Digital Dollar The People’s Bank of China is not the only central bank working on the digital currency. According to the Bank for International Settlement, about 50 countries participated in the Central Bank Digital Currencies projects in 2019. Michael Casey at CoinDesk believes there is a lot at stake. “A China victory in the digital currency race would have profound negative effects for the U.S., and Western capitalism generally,” he said. "If the U.S. doesn’t catch up soon, it’s going to lose.” Kumar and Rosenbach suggested the United States develop the dollar version of digital currency. And they hope it will quote: "combine the strength and stability of the US dollar with the convenience and efficiency of digital technology." The Federal Reserve has indeed been conducting research and tests on hypothetical digital dollars. But, on August 13, Governor Lael Brainard brought up some significant obstacles to having a digital dollar. Among them was whether the Fed can build a digital currency system that can resist cyberattacks. And another would be to settle the legal question of whether the over 100-year old Federal Reserve Act allows issuance of digital currency at all. On top of those, we should expect to see pushbacks from Americans who value privacy and limited government surveillance. It seems a lot of debate will take place before the Fed receives a go-ahead. And the chance the Fed will roll out a digital dollar before the digital yuan would be minimal. The Future of the Dollar “Remember that credit is money.” This was a quote by Benjamin Franklin. And it revealed the essence of modern currencies. Since 1971 when President Richard Nixon declared that the dollar was no longer convertible to gold, we lived in a world with only fiat currencies backed by the faith in their respective governments and economies. More importantly, a fiat currency's fundamentals depend on whether a country has checks and balances, the rule of law, and a market-driven exchange rate. The CCP provides none of those. Therefore, in reality, the Chinese yuan has very low credibility. And although China is the second largest economy, the yuan’s usage falls behind the EURO, the Japanese Yen, and the British Pound. The trust in the CCP has been deteriorating even among belt and road countries. Some of them have canceled, downsized, or postponed the projects to avoid potential debt traps. It is hard to say whether they will gladly adopt a digital yuan issued under the CCP’s control. But that doesn’t mean we can ignore challenges faced by the US dollar. We believe in the long run, the dollar's dominance will have to be secured by the US economy's strength, not the other way around. Therefore, instead of merely catching the digital currency trends, the US government and the Federal Reserve should focus on introducing responsible fiscal and monetary policies that protect the market’s confidence in the dollar. How much international acceptance do you think the digital yuan will receive? Leave your comments below. Thank you for watching Unseen Fortunes. If you enjoyed our content, please click like, subscribe, and share. We’ll see you next time!

 

What is China’s Grand Strategy?

America’s foreign policy establishment believed that China’s economic ascent would lead to political liberalization, and that China in the long term would become a benign actor in world affairs. That view has been falsified, but there is no consensus about what China wants and what threat it might pose to American interests. China is seeking technological self-sufficiency and even superiority in key industries. It has concentrated military spending on advanced technologies. Its Belt and Road Initiative proposes a trillion-dollar investment program to project China’s influence across the world. What is China’s grand design, and how should the United States respond to it?

David P. Goldman is a columnist at Asia Times and a principal of Asia Times Holdings LLC. He contributes regularly to the Claremont Review of Books and other conservative outlets, including PJ Media, where he writes the “Spengler” column. During 2013-2016 he was a managing director at Yunfeng Financial, a Hong Kong investment bank. Previously he was global head of debt research at Bank of America and head of credit strategy at Credit Suisse. He is the author of several books including “How Civilizations Die” (2011).

U.S.-China Trade Standoff May Be Initial Skirmish in Broader Economic War

The United States is increasingly wary of China’s emerging role in the global economy and the tactics it uses to get ahead, including state-sponsored hacking, acquisitions of high-tech companies in the United States and Europe, subsidies to crucial industries and discrimination against foreign companies.

The Trump administration has begun trying to limit China’s economic influence in the United States and abroad, warning about China’s ambitions in increasingly stark terms. Mike Pompeo, the secretary of state, compared China’s ambitions to Russia and Iran in a speech in London last Wednesday, saying Beijing poses “a new kind of challenge; an authoritarian regime that’s integrated economically into the West in ways that the Soviet Union never was.”

China, whose ambition is to dominate industries of the future, is pushing back. A column on Saturday in the Communist Party’s People’s Daily newspaper stated, “The United States is again waving the club of tariffs after misjudging China’s strength, capacity and will, further escalating trade friction between our two countries.”

The piece was written under the pen name Zhong Sheng — the “voice of China” — a name used when the paper publishes comments on foreign affairs that are authoritative.

Restraining China’s ambitions and methods is a tricky task — and there is concern that the Trump administration’s effort is creating a new red scare, fueling discrimination against China and its citizens that could ultimately hurt the United States. As many as 30 Chinese professors have had their visas to the United States canceled in the past year, or been put on administrative review, according to Chinese academics and their American counterparts.

“We’ve got decades of painful negotiating with China ahead,” said David Lampton, a China scholar at Stanford University. Mr. Lampton said a trade deal, if reached, would do little to resolve the bigger conflict. “It’s just a skirmish in an ongoing battle.”

.. While a trade deal could calm some tensions and establish more good will between the two nations, it is unlikely to achieve many of the ambitious goals that the administration has set for itself. Mr. Trump’s advisers, in particular the United States trade representative, Robert Lighthizer, have been focused on what the administration calls China’s practices of “economic aggression.”

But the administration has struggled to address the immensity of the problems in the text of a trade deal. People close to the talks say that the negotiators appear powerless to force any changes that aren’t in China’s interest.

Mr. Liu, who is leading China’s team in the trade negotiations, hinted at that uphill battle in a video statement released by the official Xinhua news agency.

Instead, a trade deal between the two countries seems more likely to bring change around the margins — tens of billions of dollars of soybean purchases, some tariffs lifted and changes to the text of Chinese laws or regulations that the country might ultimately disregard, particularly once another administration occupies the White House.

This is a decades-long endeavor,” said Robert Daly, the director of the Wilson Center’s Kissinger Institute on China and the United States. “This can’t be waved away over cake at Mar-a-Lago.”

The notion that the United States has one last shot to change China’s behavior is held by an array of people on both sides of the political spectrum. But it is an aggressive notion of American power to upend a rival system that has delivered prosperity for its people and put China on course to be the world’s largest economy.

Many in China see the United States as a declining power bent on enforcing its will on a world that no longer cowers before its hegemonic might. The troubles in American democracy and the long economic slump after 2008 persuaded many in China that its instincts to chart its own course were correct. In the eyes of many Chinese, their country is simply reclaiming its historic status as a dominant regional power in Asia.

It has also projected power across Asia, Africa and elsewhere while the United States has, on many fronts, retreated from its post-World War II commitment to the global order. But it has done so with little application of military force, in sharp contrast to what many in China see as American militarism.

Many in China have sought to avoid a trade conflict, which could have a larger impact on their economy than the United States’. But they have long thought the United States would have a difficult time accepting a true peer in economic, technology and military power, so consider the management of conflict with the United States to be an inevitable result of their own rise.

While the Trump administration accused China of breaking a trade deal, China’s resistance to the emerging terms stemmed from its belief that the United States was asking too much and offering too little in return. Many of the changes the United States seeks would limit what Chinese officials regard as a tried-and-true approach of using tens of billions of dollars from state-owned banks and government investment funds to turn previously small industries like car production or solar panel manufacturing into the largest industries of their kind in the world.

And the Chinese view some of the Trump administration’s demands as infringing on their sovereignty and giving America too much power over their economy — including requiring the country to codify changes through legislation in the National People’s Congress. To the increasingly nationalistic public in China, the American requests are reminiscent of 19th century history of unequal treaties forced on the country by foreign powers.

Mr. Trump on Saturday suggested China was simply delaying a deal in the hopes that a Democrat would win election in 2020 and continued his pugilistic approach, saying “the deal will become far worse for them if it has to be negotiated in my second term. Would be wise for them to act now, but love collecting BIG TARIFFS!”

In the United States, China’s unwillingness to bow to America’s demands is uniting lawmakers like the Democratic Senate leader, Chuck Schumer of New York, and Senator Marco Rubio, Republican of Florida.

That is a significant shift from the prevailing view in the United States since the death of Mao Zedong in 1976 that close economic engagement with China would produce an increasingly democratic country that would be closely tied to an international economic order founded mainly on Western liberal ideals.

That has not happened.

China has indeed grown in prosperity, leaping into the ranks of what the World Bank defines as upper-middle income countries. Its economy is now bigger than any other country except the United States. Its manufacturing sector is now bigger than those of the United States, Germany and South Korea combined.

But in the last five years, China has veered toward increasingly repressive authoritarianism at home and a rapid military buildup. The State Department estimates that Beijing has put 800,000 to two million Muslims in hastily built internment camps ringed with barbed wire in northwestern China. The Chinese government has built an archipelago of air bases on artificial islands in the South China Sea in between Vietnam, Malaysia, Indonesia and the Philippines. And China now has the world’s largest navy and has conducted

China has indeed grown in prosperity, leaping into the ranks of what the World Bank defines as upper-middle income countries. Its economy is now bigger than any other country except the United States. Its manufacturing sector is now bigger than those of the United States, Germany and South Korea combined.

But in the last five years, China has veered toward increasingly repressive authoritarianism at home and a rapid military buildup. The State Department estimates that Beijing has put 800,000 to two million Muslims in hastily built internment camps ringed with barbed wire in northwestern China. The Chinese government has built an archipelago of air bases on artificial islands in the South China Sea in between Vietnam, Malaysia, Indonesia and the Philippines. And China now has the world’s largest navy and has conducted military exercises as far away as East Africa and the Baltic Sea.

On the economic front, the competition is even fiercer. Trump administration officials warn that China is trying to dominate the global 5G infrastructure that will be the basis for future mobile communications and is competing to set other technological standards that will determine which global companies win.

China is extending low-cost loans and building infrastructure around the globe through its One Belt, One Road program, which critics warn is making poorer countries beholden to China. It is out-investing the United States in some high-tech industries, and is gaining dominance in certain segments, like mobile payment, new energy vehicles and areas of artificial intelligence.

While American companies have long hankered for access to China’s growing market, their position has begun to shift as they see China’s practices and treatment of foreign companies. A survey released by the American Chamber of Commerce in China in February showed that the majority of its members favored retaining tariffs on Chinese goods while trade negotiations continued.

China’s own experts say that the Beijing leadership has been caught off guard by the pace of change in American perceptions of Sino-American relations.

“Even if there is some kind of agreement between Xi and Trump, in the long run the strategic bilateral relationship is already in trouble,” said Zhang Jian, a professor in the School of Government at Peking University. “There is no coming back, even if there is a deal.”

China is Losing the New Cold War

At first glance, it may not seem that China is really engaged in an arms race with the US. After all, China’s official defense budget for this year – at roughly $175 billion – amounts to just one-quarter of the $700 billion budget approved by the US Congress. But China’s actual military spending is estimated to be much higher than the official budget: according to the Stockholm International Peace Research Institute, China spent some $228 billion on its military last year, roughly 150% of the official figure of $151 billion.

In any case, the issue is not the amount of money China spends on guns per se, but rather the consistent rise in military expenditure, which implies that the country is prepared to engage in a long-term war of attrition with the US. Yet China’s economy is not equipped to generate sufficient resources to support the level of spending that victory on this front would require.

If China had a sustainable growth model underpinning a highly efficient economy, it might be able to afford a moderate arms race with the US. But it has neither.

On the macro level, China’s growth is likely to continue to decelerate, owing to

  • rapid population aging,
  • high debt levels,
  • maturity mismatches, and the
  • escalating trade war

that the US has initiated. All of this will drain the CPC’s limited resources. For example, as the old-age dependency ratio rises, so will health-care and pension costs.

Moreover, while the Chinese economy may be far more efficient than the Soviet economy was, it is nowhere near as efficient as that of the US. The main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment.

.. The problem for the CPC is that SOEs play a vital role in sustaining one-party rule, as they are used both to reward loyalists and to facilitate government intervention on behalf of official macroeconomic targets.

Dismantling these bloated and inefficient firms would thus amount to political suicide. Yet protecting them may merely delay the inevitable, because the longer they are allowed to suck scarce resources out of the economy, the more unaffordable an arms race with the US will become – and the greater the challenge to the CPC’s authority will become.

The second lesson that China’s leaders have failed to appreciate adequately is the need to avoid imperial overreach. About a decade ago, with massive trade surpluses bringing in a surfeit of hard currency, the Chinese government began to take on costly overseas commitments and subsidize deadbeat “allies.”

Exhibit A is the much-touted Belt and Road Initiative (BRI), a $1 trillion program focused on the debt-financed construction of infrastructure in developing countries. Despite early signs of trouble – which, together with the Soviet Union’s experience, should give the CPC pause – China seems to be determined to push ahead with the BRI, which the country’s leaders have established as a pillar of their new “grand strategy.”

An even more egregious example of imperial overreach is China’s generous aid to countries – from Cambodia to Venezuela to Russia – that offer little in return. According to AidData at the College of William and Mary, from 2000 to 2014, Cambodia, Cameroon, Côte d’Ivoire, Cuba, Ethiopia, and Zimbabwe together received $24.4 billion in Chinese grants or heavily subsidized loans. Over the same period, Angola, Laos, Pakistan, Russia, Turkmenistan, and Venezuela received $98.2 billion.

Now, China has pledged to provide $62 billion in loans for the “China-Pakistan Economic Corridor.” That program will help Pakistan confront its looming balance-of-payments crisis; but it will also drain the Chinese government’s coffers at a time when trade protectionism threatens their replenishment.

Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American Cold War has barely started, yet China is already on track to lose.

China is Losing the New Cold War

In contrast to the Soviet Union, China’s leaders recognize that strong economic performance is essential to political legitimacy. Like the Soviet Union, however, they are paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race with the US.

When the Soviet Union imploded in 1991, the Communist Party of China (CPC) became obsessed with understanding why. The government think tanks entrusted with this task heaped plenty of blame on Mikhail Gorbachev, the reformist leader who was simply not ruthless enough to hold the Soviet Union together. But Chinese leaders also highlighted other important factors, not all of which China’s leaders seem to be heeding today.
.. But overseeing a faltering economy was hardly the only mistake Soviet leaders made. They were also drawn into a costly and unwinnable arms race with the United States, and fell victim to imperial overreach, throwing money and resources at regimes with little strategic value and long track records of chronic economic mismanagement. As China enters a new “cold war” with the US, the CPC seems to be at risk of repeating the same catastrophic blunders.
.. China spent some $228 billion on its military last year, roughly 150% of the official figure of $151 billion.
.. the issue is not the amount of money China spends on guns per se, but rather the consistent rise in military expenditure, which implies that the country is prepared to engage in a long-term war of attrition with the US. Yet China’s economy is not equipped to generate sufficient resources to support the level of spending that victory on this front would require.
If China had a sustainable growth model underpinning a highly efficient economy, it might be able to afford a moderate arms race with the US. But it has neither.
.. China’s growth is likely to continue to decelerate, owing to rapid population aging, high debt levels, maturity mismatches, and the escalating trade war that the US has initiated. All of this will drain the CPC’s limited resources. For example, as the old-age dependency ratio rises, so will health-care and pension costs.
.. while the Chinese economy may be far more efficient than the Soviet economy was, it is nowhere near as efficient as that of the US. The main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment.
.. the CPC is that SOEs play a vital role in sustaining one-party rule, as they are used both to reward loyalists and to facilitate government intervention on behalf of official macroeconomic targets.
.. Dismantling these bloated and inefficient firms would thus amount to political suicide. Yet protecting them may merely delay the inevitable, because the longer they are allowed to suck scarce resources out of the economy, the more unaffordable an arms race with the US will become – and the greater the challenge to the CPC’s authority will become.
.. The second lesson that China’s leaders have failed to appreciate adequately is the need to avoid imperial overreach. About a decade ago, with massive trade surpluses bringing in a surfeit of hard currency, the Chinese government began to take on costly overseas commitments and subsidize deadbeat “allies.”
.. Exhibit A is the much-touted Belt and Road Initiative (BRI), a $1 trillion program focused on the debt-financed construction of infrastructure in developing countries.
.. An even more egregious example of imperial overreach is China’s generous aid to countries – from Cambodia to Venezuela to Russia – that offer little in return.
.. from 2000 to 2014, Cambodia, Cameroon, Côte d’Ivoire, Cuba, Ethiopia, and Zimbabwe together received $24.4 billion in Chinese grants or heavily subsidized loans. Over the same period, Angola, Laos, Pakistan, Russia, Turkmenistan, and Venezuela received $98.2 billion.
.. Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American Cold War has barely started, yet China is already on track to lose.

Trump is so obsessed with winning that he might make America lose

In his zero-sum universe, you’re either victorious or you’re defeated.

 “I win against China. You can win against China if you’re smart,” he said at a campaign event in July 2015.
.. “Vast numbers of manufacturing jobs in Pennsylvania have moved to Mexico and other countries. That will end when I win!”
.. “China, Japan, Mexico, Brazil, these countries are all taking our jobs, like we’re a bunch of babies. That will stop,”
.. In Trump’s view of the world, there is a finite amount of everything — money, security, jobs, victories — and nothing can be shared.
.. It’s a universe where the strong do what they can and the weak suffer what they must, as Thucydides said.
.. The problem is that the triumphs that Trump craves — strength, safety, prosperity — cannot be achieved alone.
.. They require friends and allies, and they require the president to see those people as partners, not competitors.
.. other governments don’t like to be punching bags, the only role he appears to envision for them.
.. In real estate, relationships often take the form of one-off transactions: You can cheat people you’ll never do business with again.
.. Winners have trade surpluses, and losers have trade deficits.
.. The United States is the biggest economy with the biggest military, and therefore the United States has leverage to get the best deals. If we don’t emerge from negotiation with a clear advantage, that’s because our negotiator was a soft-headed, do-gooder globalist who didn’t put America first.
.. Washington has the most leverage when it deals with countries one on one, which is why, he says, “we need bilateral trade deals,” not “another international agreement that ties us up and binds us down.”
To abide by the same rules as less-powerful countries would be to sublimate American interests to those of lesser nations.
..  Trump seeks to begin negotiations with a threat that forces the other side to defend its smaller piece. He pledges to tear up NAFTA, rip up the Iran nuclear deal and revisit America’s relationship with NATO — unless he gets concessions.
.. he gains advantage not by telling the truth but by saying things he believes will boost his bargaining power and sell his vision: China has been allowed to “rape our country.”
.. He’s just an alliance-hating unilateralist.
..  he sees three kinds of immigrants:
  1. smart guys from smart countries, like Norway,
  2. undeserving charity cases from “shithole” countries and
  3. terrorists/gang members who threaten ordinary Americans.

.. The zero-sum cosmology touches everything. Obamacare supposedly sticks us with the bill for people who should pay for their own insurance — or a find a job that provides it.

..  he doesn’t exercise, because “the human body was like a battery, with a finite amount of energy, which exercise only depleted.”

..  China is more a strategic competitor than a real partner linked by shared values.

.. “after more than four decades of serving as the nation’s economic majority, the American middle class is now matched in number by those in the economic tiers above and below it.” That’s a real problem, and Trump is right to point it out.

.. He could have demanded that NATO members pay more without signaling that he might abandon the mutual-defense agreement that undergirds a treaty to contain Russia.

.. Relations among nations are not like real estate deals. The president has to negotiate with the same people again the next month, and they’ll remember how they’ve been treated.

Israel’s Benjamin Netanyahu never forgave President Barack Obama for openly criticizing his approach to settlement-building;

imagine how every other leader feels about being constantly humiliated by Trump.

.. Other countries form judgments about whether American promises are credible and whether they can trust the president. Trump says he’s willing to talk with North Korea about its nuclear program, but surely Kim Jong Un is watching as Trump threatens to shred the Iran nuclear agreement.

..  The Belt and Road Initiative, China’s plan to blaze new commercial trails and cement new political ties via infrastructure investment in dozens of countries, is seven times larger than the Marshall Plan when adjusted for inflation.

.. More than 120 nations already trade more with China than with the United States.

.. China is investing in smaller European Union members like Hungary and Greece to alter official E.U. attitudes toward Beijing. That’s why the Trans-Pacific Partnership, which Trump quashed, was more than just a trade deal. By joining, Trump could have expanded U.S. ties with many of China’s neighbors, governments that fear overreliance on China’s goodwill for future growth.

.. Trump’s win-or-lose philosophy is most confused when it comes to immigration. Foreigners who want to become Americans are not charity cases. They participate in the labor force at higher rates (73.4 percent, according to the Bureau of Labor Statistics) than native-born Americans.

.. Trump’s tendency to hire foreign guest workers over Americans at his own properties suggests that he understands something about how hard they work.

.. The undocumented contribute $13 billion to the nation’s retirement fund each year and get just $1 billion in return.

.. “More than three out of every four patents at the top 10 patent-producing US universities (76%) had at least one foreign-born inventor,”

..  tourism has fallen 4 percent, with a resulting loss of 40,000 jobs. Foreign applications to U.S. universities are down, too.

.. he doesn’t seem to know that some of our country’s greatest success stories began in failure.

  1. Thomas Edison famously erred 1,000 times on the way to inventing the light bulb — it “was an invention with 1,000 steps,” he said.
  2. Henry Ford went broke repeatedly before he succeeded.
  3. Steve Jobs, a college dropout, was fired from the company he founded. Even
  4. Trump’s own businesses have gone bankrupt.

.. If he wants to track terrorists before they try to enter the United States, he needs support from foreign intelligence services.

.. Today, the United States doesn’t have that kind of leverage, and Trump’s aggressive criticism of other countries, including allies, poisons public attitudes toward the United States and makes it harder for foreign leaders to cooperate with Washington publicly.

.. Trump and his leadership at some of the lowest levels since Pew began tracking the U.S. image abroad in 2002. Almost three-quarters of those surveyed said they have little to no confidence in Trump.

.. if Trump wants to make the best deals, he’ll need to learn a few words:

  1. respect,
  2. cooperation and
  3. compromise.

These ideas won’t fire up a campaign rally. But they might help build an American strategy that works.

 

 

Myanmar’s Rohingya Crisis Opens Door for China to Regain Influence

Myanmar’s top leaders visit Beijing amid strengthening ties

For years China helped prop up Myanmar’s economy when it was ruled by a military junta. But ties between the two countries soured when Myanmar’s generals began introducing democratic overhauls in 2011, ultimately leading to the election of Ms. Suu Kyi, a former political prisoner ..

..  Chinese hydropower project was put on hold, and Japanese and Western investment began trickling into the country to displace Beijing from its role as Myanmar’s sole benefactor.

Now, China is regaining some of its lost influence. It is trying to revive stalled projects, including the hydroplant, and get access to Myanmar’s Indian Ocean coast through a $7.3 billion port and pipeline project.

.. China’s diplomatic and commercial moves are a part of President Xi’s trillion-dollar “Belt and Road” plan to build infrastructure and deepen trade ties across Eurasia. It will also lessen China’s dependence on oil shipped through the narrow and easily blocked Strait of Malacca.

.. The cost for the Rohingya, though, is that under the China-brokered repatriation deal, there might be little international supervision of how they are treated should they choose to return to Myanmar.

Among other things, Myanmar plans to bar Rohingya from the lands they farmed before the purges. It instead intends to settle them in “model villages,” which the U.N. has described as little better than internment camps.