Picking a fight with China over Taiwan is about the worst way a new presidency could start out, short of actual warfare.
PRESIDENT-elect Donald Trump’s phone call earlier this month with President Tsai Ing-wen of Taiwan sent shock waves throughout China and much of the world.
For nearly four decades, it has been Washington’s official policy to diplomatically recognize only China and not Taiwan, an island the mainland considers a breakaway province.
Trump has indicated that by abandoning this policy and, in effect, threatening China, he’ll be able to bargain for concessions from the Asian power.
In reality, though, the call will be remembered as one of the worst diplomatic miscalculations of all time. Trump’s team also deserves blame, as apparently the long-distance chat wasn’t just another foot-in-mouth Trump moment but was in fact a deliberate strategy shaped with lobbyist influence.
And while the Chinese government responded with stern messaging, its actions have been relatively subdued. But don’t be fooled: Chinese leaders are giving Trump a chance to chart a different course before he takes office Jan. 20.
Bullying may have helped Trump in his real estate career but it is not going to move China.
The Chinese economy is now bigger than ours on a purchasing power parity basis, which is what matters when we are talking about such things as military expenditures.
The cost of a Chinese-made plane or a Chinese pilot is considerably less than its U.S. dollar equivalent at current exchange rates in America.
Trump’s ostensible reason for the hard line against China is that he wants to negotiate a better deal for U.S. manufacturing, including for workers stateside.
The big complaint here is that China has manipulated its currency, keeping it undervalued against the U.S. dollar. This would make U.S. imports from China artificially cheap and our exports more expensive.
But there is an easy way to deal with this. As any economist knows, our Treasury Department and Federal Reserve can control the value of the dollar against foreign currencies, like any other country’s central financial institutions can.
Blaming China for the value of the dollar against its currency is therefore mistaken.
The reason that our government doesn’t intervene to push down the value of the dollar is that powerful U.S. transnational corporations like Wal-Mart prefer a strong dollar because it makes imports and overseas labor cheaper for them.
The financial sector also prefers it because it lowers inflation. These people don’t care about manufacturing jobs in America.
When our government has negotiated with China over economic issues, it has fought for things that profit U.S. corporations, like more patent and copyright protection and greater access for our financial corporations.
Ironically, China has actually been intervening to keep its own currency from falling and has burned through about a quarter of its international reserves since June 2015 in the process.
At this point, the Chinese would likely welcome our intervention in the same direction, at least to keep the dollar from rising further.
So we will soon see if our new presidential administration actually wants to do anything to preserve American manufacturing jobs.
In the meantime, picking a fight with China over Taiwan is about the worst way a new presidency could start out, short of actual warfare.