Losers will be abundant if the new administration follows through on an aggressive, ignorant anti-China policy.
A school of history holds that the Cold War was all Harry Truman’s fault. This is demonstrably untrue. Soviet leader Joseph Stalin’s paranoia and determination to impose communist governments by force onto the nations of Eastern Europe — and perhaps beyond — brought on the “long twilight struggle.” For all his faults as a mass murderer, Uncle Joe was at least well read, being a former seminarian.
Now comes Donald Trump to the presidency of the United States. He doesn’t read books (“I never have. I’m always busy doing a lot.”). Armed with this knowledge, he has made no secret of his antipathy to China. Climate change is a hoax invented by Beijing “in order to make U.S. manufacturing non-competitive,” said the man whose branded products are made in at least 12 nations. That Americans are getting a raw deal in trade with China has been a consistent position. He promised to pursue tariffs as high as 45 percent.
China boasts the world’s second-largest economy (while the Soviet Union was always an economic basket case). Chinese President Xi Jinping just spoke to the World Economic Forum at Davos (The Soviets never would have darkened the leading capitalist gathering). Xi said, “Pursuing protectionism is just like locking oneself in a dark room. While wind and rain may be kept outside, so are light and air. No-one will emerge as a winner in a trade war.”
Almost everything about Trump’s transition has deviated sharply from modern American democratic norms, particularly considering that he lost the popular vote and is trailed by conflicts of interest and serious allegations of Russian meddling to aid him. But none of it may prove as ominous going forward if he trashes 40-plus years of American policy to encourage the peaceful rise of China.
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Remember his call to the president of Taiwan? China considers it a renegade province. China, the United States and Taiwan’s Kuomintang party have all subscribed to the “One China Principle.” If Trump intends to abandon this, or thinks he can use it as “deal leverage” against Beijing, this could turn things into much worse than a trade war.
At its worst, China is a rising power with its own nationalistic blind spots, as shown by expansionism in the South China Sea and ignoring international law there. What happens when Donald Trump gets the 3 a.m. phone call that China is invading Taiwan? Has he read about Anti-Access/Area Denial? Any book on China’s nuclear capability?
At the least, gamesmanship and uncertainty would be very bad for American companies, workers and standing in the world.
China bought $116 billion in merchandise exports from the United States in 2015 ($19.5 billion from Washington state). It bought much more in services. Beijing owns more than $1 trillion of U.S. Treasurys. Ill-conceived tariffs would bring higher costs to American buyers with no guarantee of new manufacturing jobs to replace those lost to Chinese retaliatory tariffs. Decades-long relationships for companies such as Boeing would be badly battered. China would turn elsewhere for business, especially with its New Silk Road. America could be the loser in this Cold War, despite the bravado of a Trump aide.
There’s no doubt that China’s entry into the World Trade Organization in 2001 hurt many American workers. China often plays by its own rules and employs a host of stealth protectionist measures. But any workers who supported Trump need to look at how many Chinese products they bought over the years, how easily they fell for anti-union propaganda. And what, with a cabinet stuffed with the kind of oligarchs who offshored jobs, do they really expect from the new administration?
It’s a scary time. Not normal.
Today’s Econ Haiku:
At Davos they fear
The pitchforks are gathering
Small, for caviar