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No Trade Deals in Trump Asia Trip? Excellent Decision.

by Michael Stumo, CEO of CPA

The chattering class was expressing worry and apprehension about the administration’s trade policy once again last week. Why, they asked, is Trump not negotiating trade deals with China during his recent trip through Asia? The answer is that any negotiations would have been a fruitless waste of time and a distraction. Instead, the US should act unilaterally to fix its trade problems just as China acted unilaterally on its road to economic dominance.

It is important to understand that trade agreements have very little correlation with increased prosperity. China rose through a strategic economic nationalism plan which included a mix of currency undervaluation, massive subsidies, intellectual property theft and a series of 5-year economic plans. Japan and South Korea grew from poor countries to relative prosperity through their own version of strategic economic plans implemented unilaterally. 

The U.S. government needs a similar plan to resign from its status as the “importer of last resort” for the rest of the world’s overproduction.  Our dollar is overvalued, subsidizing imports and taxing exports. We are allergic to an industrial strategy, leaving us without a plan in a world of strategic trading counterparties. The multinational import lobby works hard to persuade Congress that all imports are good for us and minimize the nation-building role of establishing and maintaining supply chains in this country to employ people, innovate and create wealth.

The Communist Party of China has two core objectives: (1) to achieve its rightful place as the next world superpower and (2) to increase employment and wages enough to stave off any revolt against government repression. Trade deals with China will not be allowed by their leaders to interfere with the achievement of these goals.  

For decades, US government officials believed that engagement with China would induce a convergence of China’s and the West’s views of the regional and global economic order. Our leaders believed China would become more democratic and adopt free market capitalism. In short, they believed China wanted to be just like us. They were wrong.

The Chinese Communist Party is tightening its authoritarian grip on culture, the economy and civil society, contrary to what we were promised when the U.S. facilitated China’s entry into the World Trade Organization.

Michael Pillsbury is a former diplomat who participated in the U.S.-China engagement efforts of the 1970’s and 80s. He used to believe that China’s rise would result only in future cooperation, a democratic society and free market capitalism. 

In a highly acclaimed book, “The Hundred-Year Marathon,” Pillsbury shows how he realized none of this was true. China-First nationalists, known as ying pai or “hawks” are the real power and voice of China. 

The ying pai are the Chinese officials… I know best because since 1973 the U.S. government has instructed me to work with them. Some of my colleagues wrongly dismiss the ying pai ad nuts. To me, they represent the real voice of China. 

The truth of Pillsbury’s words were further revealed this week. As President Xi consolidates his power, he elevated Wang Huning to the all-powerful seven man Politburo Standing Committee.  Wang is a powerful China-First strategist who has served the last three Chinese presidents according to the New York Times

[Mr. Wang] has long argued that China needs a strong, authoritarian state to restore it to national greatness after a century of humiliation by foreign powers. He has helped cast Mr. Xi as leading China into a “new era” of global ascendance by keeping society under the party’s tight control. 

The international press gushes over the words of President Xi Jinping about an open, collaborative and non-threatening China dedicated to free trade. Beijing teams up with Moscow to work against US interests in Syria. It enables Iran and North Korea. It grows its military might paid for courtesy of American consumers through our massive trade deficit.

Presidents Bush and Obama futilely spent four administrations on high level collaborative efforts with China. They branded the efforts “Strategic Economic Dialogue” or “Strategic and Economic Dialogue”. They issued statements about future cooperation after the talks concluded. But the trade relationship remained unbalanced and China never helped fix the North Korea problem.

The Trump Administration, last summer, put a toe in these same waters.  Commerce Secretary Wilbur Ross and Treasury Secretary Steven Mnuchin began a U.S.-China Comprehensive Economic Dialogue. In July, they said “China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve.” While minor deals on beef and LNG exports were finalized, most saw the effort as producing nothing of consequence.

Skeptics, saw the effort as China’s bid to “run out the clock” on the Trump administration. This would be consistent with their very “long game” view. Since then the U.S.-China trade deficit has increased.

President Trump’s November 10 speech at the Asia-Pacific Economic Cooperation summit was a broadside against the world trading system, citing the multiple ways the US played by the rules and others did not. He focused upon how other countries gamed the system to their benefit and benefited as a result. The speech was very detailed and accurate. 

The administration seems be putting little energy into continuing the Comprehensive Economic Dialogue. President Trump’s decision not to engage in bilateral trade negotiations with China avoided a reboot of efforts that would go nowhere.

The next test will be whether the President will craft a 21st Century economic and trade strategy. We need to learn from the Germans, South Koreans, Japanese and Chinese to develop an American strategy that will diminish and eliminate our job killing trade deficit, re-establish our productive capacity and achieve broadly shared prosperity. Trade deals had their day in the sun, but they failed to deliver.

 


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