Donald Trump has been saying that China is “killing” the US and, if he’s president, we will “win” against China. Can The Donald actually do what he claims? Can he “win” against China? I would say the answer is “yes and no,” and depends to a large degree on how you define “win.” For the sake of argument, let’s say that Trump’s intent is to “get tough” with China on certain key issues. Is that advisable and what benefit might result? Below are some thoughts relative to the most contentious issues facing the US-Sino relationship.
Imports from China: We aren’t “losing” so don’t expect a “win” here
Don’t expect a big “win” here. Mr. Trump has been saying that China is manipulating its currency in order to unfairly support exports to the US and other markets. That is simply false. China’s currency had risen by about 30% over a 10 year period before the mild depreciation that happened last year. Plus, the fact is that, over the past year or so, the market has been pushing China’s currency lower and the Chinese have been supporting it, the exact opposite of Mr. Trump’s suggestion. If China were to actually stop intervening in the currency markets, the impact would likely be a depreciating which is exactly what Mr. Trump wants to avoid. Furthermore, a tariff won’t work because 1.) China would enact countermeasures that would lead to a trade conflict that hurts all involved; 2.) tariffs simply raise costs for US consumers and businesses which will negate any intended economic benefit.
Most importantly, the notion that imports and a trade deficit equate to net job losses is a fallacy. Most, though not all, of our trade deficit with China is due to natural market factors of which low cost labor is the most prominent. There are exceptions, like steel, where China has overinvested and then been accused of dumping product overseas. China’s overcapacity in steel warrants criticism and the dumping charges deserve attention. But the sector accounts for less than 3% of our trade with China.
It is difficult to see how trying to punish China for exporting to the US will yield any benefit to the US. For those looking to this approach for a “win,” disappointment is almost certain.
Exports to China: A Long-term Win
US exports to China is an area where improvement is worth fighting for. Since 1980 China has been engineering a gradual transition from communism to free market capitalism, along the way reducing trade restrictions, which is why China’s current overall tariff rate is roughly 9% and below that of India, Brazil, Russia, and most other developing countries. In the past US exports to China were limited primarily because China simply didn’t have the wealth to buy products and services from the US. As China has grown, our exports to China have grown as well. China’s economy still has too many restrictions that hinder US companies in China. Further eliminating some of those restrictions would be good for China and also good for the US. Keep in mind, the Chinese are known to be pretty good negotiators, so I’m not sure Mr. Trump will be as successful as he expects to be. But applying a little extra pressure on this issue certainly wouldn’t hurt.
Cyber Espionage: Getting tough easier than getting results
Another sensitive issue relative to our relationship with China is cyber espionage. First we need to distinguish between two separate aspects of this issue. First is government-to-government espionage, like the hack last year on the Office of Personnel Management. That we have to address the old-fashioned way—by our intelligence services and government doing a better job of protecting our assets and ensuring that we are “winning” whatever spy game is being played. The second aspect, which is a bit trickier, is China stealing technology and business secrets from US companies. We have warned China on this issue many times. China has both denied engaging in this activity and, recently, promised not to do it anymore. The challenge is making sure they keep their promise. American companies (and European and Japanese companies as well) can’t fight this battle on their own. The government needs to take a leadership role by both coordinating the US response and also by raising this as a critical trade issue with China. If Mr. Trump wants to put some weight behind our stance on this issue, that wouldn’t be a bad idea.
The South China Sea: Stay Resolute and Stay Together
Among a series of small islands, island chains, reefs, and tiny land masses in the Pacific there are numerous territorial disputes involving China, Japan, The Philippines, Vietnam, Indonesia, and Taiwan. Over the last few years China has undertaken a series of initiatives aimed at broadening its claim in those areas, including building out facilities on many of the land masses in question. The reaction has been anything but subtle. Japan decided, for the first time since World War II, to sell arms that it manufactures. The Philippines filed a formal complaint with an international tribunal. The Vietnamese people rioted when China put an oil rig too close to their coast, forcing three thousand Chinese living in Vietnam to evacuate. Indonesia just made a big deal of burning 23 Chinese fishing boats that it had seized for fishing in waters that Indonesia claims to control. All of those countries are also increasing their arms purchase, igniting a mini arms race in Asia. Meanwhile, America has contributed by flying its military planes and sailing its naval vessels where China says it shouldn’t, all for the express purpose of proving that we aren’t going to simply abide by rules that China makes up.
Some have argued America should do more. Maybe they’re right. But at the very least, America shouldn’t do less. In terms of global security and the balance of power in the Pacific, the South China Sea is not a make-or-break issue. It isn’t worth going to war. But principles are important. We ought to make it clear we won’t stand by while China unilaterally rewrites international norms. We should work with our allies and friends in the region, build stronger relationships, and hold the line without provoking conflict. That will take some toughness, and if The Donald wants to be the backbone in that effort, that would be welcome.