US President Donald Trump has set the scene for an escalating trade confrontation with China, with all of its weighty and unforeseeable geo-strategic implications. But, for the rest of the world – and especially the European Union – the best outcome might be a long Sino-American conflict.
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.”
A Sensible Version of Donald Trump
They looked at the results of a Clinton-era program called Moving to Opportunity, which took poor families and moved them to middle-class neighborhoods. At first the results were disappointing. The families who moved didn’t see their earnings rise. Their kids didn’t do much better in school.
But as years went by and newer data accumulated, different and more promising results came in. Children who were raised in better environments had remarkable earnings gains. The girls raised in the better neighborhoods were more likely to marry and raise their own children in two-parent homes.
The first implication of this research is that neighborhood matters a lot.
.. Then we’ve got to get integrationist, to integrate different races and classes through national service and school and relocation vouchers. And finally, we have to get a little moralistic. There are certain patterns of behavior, like marrying before you have kids and sticking around to parent the kids you conceive, that contribute to better communities.
But, as the revamp of the United States-Korea Free Trade Agreement and the “reform” and renaming of the North American Free Trade Agreement (NAFTA) demonstrate, most countries need to offer only minor concessions to appease Trump. The only country Trump really cares about – his “public enemy number one” – is China.
The scene is thus set for a Sino-American showdown, with all of its weighty and unforeseeable geo-strategic implications. But, for the rest of the world, this might not be such bad news. In fact, economic theory suggests that there is truth in the old adage: “When two quarrel, the third rejoices.”
.. the most recent attempt at universal tariff reduction – the so-called Doha Round – never came to fruition, mainly because India (not China) opposed opening up some of its key markets.
.. With the US imposing higher tariffs on Chinese goods, European producers will enjoy a competitive advantage over Chinese producers in the US market. Likewise, in the Chinese market, both European and Asian producers will have a competitive advantage over US producers.
.. A substantial share of US-China trade is thus likely to be diverted to Europe, Japan, and other Asian economies close to the Chinese market. The European Union is likely to reap particularly large benefits, because it remains one of the largest trading partners of both the US and China, and because European producers are often US companies’ closest competitors.
.. Next year, that tariff may be increased to 25% (ten times the US average tariff on imports from other countries) and expanded to include a broader range of imports. This implies that trade diversion could be substantial.
.. the transatlantic economy’s high degree of integration could act as a mitigating factor
.. more than one-third of the value-added of an Airbus aircraft is contributed by the US. This is one reason why Trump might choose to prolong the truce with the EU agreed in July.
.. it seems likely that the Sino-American confrontation will shift global trade significantly. This may benefit most of the world’s economies, but it will also have serious consequences for the US and China, where consumers and enterprises relying on imported machinery will have to pay more.
.. The losses are likely to be larger for the US than for China, because Chinese imports from the US include a larger share of agricultural commodities for which alternative suppliers are relatively easy to find. For example, China can import soybeans from Brazil instead of the US, at little additional cost.
.. the Sino-US trade war may lead to some losses for China, but those losses will likely be dwarfed by the costs incurred by the US itself. Meanwhile, the rest of the world may well have reason to wish both sides a long and fruitful conflict.