Why China Won’t Yield to Trump

China may give Donald Trump some face-saving way out from the trade war he has started, but it won’t offer any substantive concessions. In other words, Trump’s tariffs will do nothing to improve America’s external balance, output, employment, or real wages.

.. some defend Trump’s actions as a  to impel China to adjust its trade policies, such as the requirement that foreign companies share their intellectual property (IP) to gain access to the Chinese market.

.. Trump does not understand the basics of such a negotiation: he thinks that a country with a trade deficit necessarily has the stronger negotiating position. In reality, the surplus country is often in the stronger position, because it has accumulated financial claims against its “opponent.”

.. China does not necessarily even have to sell to wield influence. With US debt expanding and interest rates on the rise, even rumors that the Chinese might stop buying Treasury securities could be enough to drive down US bond prices and accelerate the increase in US interest rates.

.. While industries and consumers in China would also be hurt by a trade war, that country’s leaders can overrule interest groups and stifle protests.

In any case, public opinion will largely back retaliation against the US.

.. The Chinese remember well the Opium Wars of the nineteenth century, when the Middle Kingdom tried and failed to resist the British campaign to force it to open its economy to opium and other imports.

.. Add to that Trump’s reputation for flip-flopping, and the odds that Chinese leaders would bother making a deal with Trump to change their country’s trade policies seem small.

.. Even if China did decide to concede something to Trump, it would not be meaningful.

.. China could export less merchandise to the US directly, instead routing products through Taiwan and other countries, where some final assembly could take place.

.. The result would be economically meaningless; but so is the concept of the bilateral deficit itself, as Chinese exports to the US contain a high proportion of intermediate inputs produced in South Korea, the US, and elsewhere.

.. What really matters is that China’s current-account has been falling since 2008, and now stands at a relatively small 1% of GDP.

.. America’s external deficit is growing, but that is the result not of trade policy; it stems from Republicans’ , which is blowing up the budget deficit and reducing national saving.

.. As for Trump’s complaints about China’s IP “theft,” there are some valid grievances on this front. But addressing this issue requires technical expertise and negotiating skill, not blunt threats based on inadequate knowledge.

Crucially, it would also require cooperation with other partners who have similar grievances with China, ideally including pressure applied through rules-based institutions like the World Trade Organization.

Trump is pursuing the opposite strategy, arguing that neither multilateralism nor bilateral negotiations work with China. Yet such tactics have helped to compel China to allow a 37% appreciation of the renminbi in 2004-2014 and to crack down on counterfeiting of US merchandise and theft of US software.

.. Trump may also want to avoid the WTO because the US doesn’t win all of the cases it brings there. But it does have a 90% success rate. And it is not as if the US has never violated international rules

 

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.

 

 

Bannon’s departure has huge implications for the U.S.-China relationship

“Bannon’s particular unique idea was that this is a civilizational challenge,” said Michael Pillsbury, who met with Bannon regularly on China over the past year. “His warning is, if they surpass us, they will have earned the privilege of redesigning the world order.”

.. Bannon believes the United States needs a long-term strategy for maintaining advantage over China similar to what Marshall helped devise for the Soviet Union, while acknowledging that the China challenge is much harder.

.. Behind the scenes, Bannon had been busily operationalizing his plan to win the economic war with China. He spent 50 percent of his time on China, he liked to tell colleagues. Several of his China agenda items will continue to have advocates, including National Trade Council Director Peter Navarro and Commerce Secretary Wilbur Ross.

.. he was opposed by other top officials, including National Economic Director Gary Cohn and Treasury Secretary Steven Mnuchin.

.. The Chinese government has also cultivated close ties with Jared Kushner and Secretary of State Rex Tillerson, with the help of former secretary of state Henry Kissinger.

.. The Kushner-Kissinger view holds that the U.S.-China relationship is too complex and important to risk throwing into disarray. They advocate cooperation over confrontation and integration over isolation. China shares that view and wants to set forth a new model of great power relations based on mutual respect and noninterference.

In Bannon’s view, the liberal international order the United States led since World War II has ceased to work in America’s interests. The theory that bringing China into that structure would transform China has failed and now the Chinese government abuses those systems to siphon huge amounts of wealth, technology and know-how from the United States and its partners, he believes.

He also sees a new China policy as a pillar of his plan to reorient American politics around economic nationalism. He views the rebalancing of the U.S.-China economic relationship as key to returning manufacturing jobs to the United States and vice-versa.

.. One of Bannon’s final acts before leaving the administration was to announce in an interview that to him, “the economic war with China is everything.” He argued the United States must marshal all elements of national power to confront China in various spheres or yield world hegemony.

“Bannon’s particular unique idea was that this is a civilizational challenge,” said Michael Pillsbury, who met with Bannon regularly on China over the past year. “His warning is, if they surpass us, they will have earned the privilege of redesigning the world order.”

 

Mr. McCain and The Mooch

Unlike the communications director and Mr. Trump, Mr. McCain does not equate service to country with service to the president.

.. Mr. McCain went on to call for qualities for which this White House has shown nothing but contempt, urging his colleagues to “rely on humility, on our need to cooperate, on our dependence on each other.” He extolled “the necessity of compromise.”

.. “Stop listening to the bombastic loudmouths on the radio and television and the internet,” he implored the Senate. “To hell with them. They don’t want anything done for the public good. Our incapacity is their livelihood.”

.. Mr. Trump has shown himself to be a small man, and he is engaged in shrinking the presidency to fit himself.