This is the beginning of a multi part series on the quasi Cold War the US is currently in with the People’s Republic of China. Let’s begin with trade relations.
“We’re putting the trade war on hold,” Mnuchin said on Fox News Sunday, adding that the U.S. and China agreed to a framework whereby China would buy more goods from the U.S. in order to make up for the trade deficit between the two countries.
The announcement came after top Chinese officials visited Washington last week for negotiations on the Trump administration’s trade policies. The president had previously revealed plans to impose tariffs on $150 billion on Chinese imports, a move that angered conservatives economists and members of his own party on Capitol Hill. China responded at the time by threatening tariffs on American goods, which could have sparked an all-out trade war.
Mnuchin declined to discuss the details of the framework, which the White House and Beijing said included “meaningful increases in United States agriculture and energy exports.” In short, this means pork products, beef and soy, which sounds a bit like a colonial trade manifest to the mother country — and in this metaphor, we are not the mother country.
It would be a great thing for American farmers to sell more agricultural products to China, but that’s not enough.
Senate Minority Leader Chuck Schumer (D-N.Y.) released a statement on Sunday commending President Donald Trump but warned that the negotiators “shouldn’t blow it” by allowing intellectual-property concerns and Chinese telecommunications firm ZTE — which has been the target of and has violated U.S. sanctions — to go unaddressed.
“[Trump] could always decide to put the tariffs back on if China doesn’t go through with their commitment,” said Mnuchin, addressing concerns that a simple promise from China to buy more U.S. products wouldn’t be sufficient.
Larry Kudlow, Trump’s top economic adviser, said on ABC’s This Week that ZTE would not “get off scot-free,” but added that the U.S. was willing to work with China on “some small changes around the edges” to the company.
Is Intellectual Property Protection off the table?
Upon the news of this trade war pause, the stock market rallied, and investors appeared to take a breath. But though it is good news that we won’t see new tariffs, because they generally put distortionary measures into the economy, something else that can distort the market is uncertainty. And we still have that in abundance. Nothing stands in the way of these issues not rearing their heads again quickly.
So, what have we given up in the short term? To answer that, let’s take it back to IP again.
The question on American IP remains the biggest concern going forward. No one wants an all-out trade war but there are valid concerns about IP theft and lawlessness — ZTE needs more than a slap on the wrist. The White House needs to protect American innovation and address the predatory practices of Chinese mercantilism.
One point that seems to be getting lost in the lust for reducing the trade deficit, is the war for the future itself. China, not the U.S., is the world’s largest economy. Though the U.S. is still tops when measured at market-exchange rates, China is about 20 percent larger after adjusting for the lower cost of goods and services there. The latter metric is what really counts, both in terms of standards of living and, probably, in terms of military purchasing power.
Trump economic advisor Larry Kudlow claimed in media interviews that this administration intends to protect IP, but he appears to be at odds with the more appeasement like moves that Secretary Mnuchin is making.
The cost of doing business in China
Without going into great detail, for businesses to operate in China, they basically have to lift their innovative skirts as the price of admission. In order to build or sell anything in China, American companies must partner in Joint Ventures with local Chinese firms and the Chinese company must be the majority owner in the JV. This isn’t something the Chinese attempt to hide either—it is all laid out clearly in their strategic economic plans: Made in China 2025 and China 2050 which say that China intends to become the dominant technological manufacturer in the world.
One of the ways China will accomplish those lofty goals is by convincing naive Western companies to hand over their technology as the cost of gaining access to their consumer market.
But even more frightening is that where China once had to steal American IP in order to compete, they are now becoming a domestic innovation force to be reckoned with. They system use to be “we invent, and they take” but they are beginning to overtake us now.
Missing the forest for the trees
There is a holistic picture that is being missed here — one that is dangerous to ignore. This is not just about halting a potential trade war. You cannot isolate trade from the larger discussion of China’s strategic global military ambitions. Even while the Chinese trade delegation was sitting down at the table in Washington, Beijing was making ever more aggressive moves in the South China Sea. This was not an accident but rather as a check to see if we are paying attention to the entire game board.
Can we win the trade war?
We are still in the early stages and we have the weapons we need to win this war — tariffs. But whether or not we have the political will to do so is still up in the air. Every step the Chinese take is an effort to increase US dependency and interconnection on them. They have become so good at this tactic that the tumor has spread into American military readiness as well, with the Chinese so intricately intertwined into the production and supply chain as to affect our advanced weapons systems. This can be seen clearly in the way we have treated the use of rare earth minerals.
We will discuss the military side of this equation in more detail in The U.S. War with China: Global Military Dominance
Featured image kremlin.ru [CC BY 4.0], via Wikimedia Commons