Why Did China Precede Trump’s Rose Garden Emergency Declaration?
When Trump traipsed into the Rose Garden last Friday, to announce his imaginary national emergency supposedly requiring construction of a Southern border wall, he delayed a few moments, before declaring that emergency, to first brag about how great trade negotiations with China are going. Except for some pronouns, proper nouns, articles and other incidental parts of speech, Trump’s China remarks were 100% false. Here is what Trump said about China trade talks, with (parenthetical bold italic) fact checking added by your obedient servant --
Thank you very much, everybody. Before we begin, I’d like to just say that we have a large team of very talented people in China (well, not really, given that we sent Steven Mnuchin). We’ve had a negotiation going on for about two days (as in we’ve been talking on and off for a total of more than two weeks without agreeing on anything; see timeline below). It’s going extremely well (we’re less than two calendar weeks from our truce deadline and we haven’t even agreed on what to talk about). Who knows what that means, because it only matters if we get it done (actually, it matters bigly if you don’t get it done, with US agriculture cut off from the world’s largest emerging market etc). But we’re very much working very closely with China and President Xi, who I respect a lot. Very good relationship that we have. And we’re a lot closer than we ever were in this country with having a real trade deal (China and the US both belong to the WTO, so there is a pretty real framework for US/China trade).
We’re covering everything -- all of the points that people have been talking about for years that said couldn’t be done, whether it was theft or anything. Anything. The unfairness (not really; the US has made it clear that they’d like to get Chinese concessions in a number of matters; China has made it clear that it only wants to negotiate about lifting Trump’s arbitrary tariffs). We’ve been losing, on average, $375 billion a year with China. A lot of people think it’s $506 billion. Some people think it’s much more than that (OK, this is just like Tail Gunner Joe McCarthy,, raving about an ever changing number of Communists in the State Department, in the Red Hunts of the 1950s; the supposed $375 billion ‘average’ is actually the all time high, reached in 2017, the average US/China trade deficit being much lower). We’re going to be leveling the playing field (sayeth Mercantilist sage Donald Trump, more on this later).
The tariffs are hurting China very badly (maybe a little, but lots of things could impact China GDP and trade growth more than Trump’s tariff pinpricks). They don’t want them. And frankly, if we can make the deal, it’d be my honor to remove them. But otherwise, we’re having many billions of dollars pouring into our Treasury (those billions of dollars are coming directly from the pockets of US businesses and consumers). We’ve never had that before with China. It’s been very much of a one-way street (but only if you disregard the $1.138 trillion that China has lent to the US government, not even counting other Chinese investment in the US).
So, that’s happening. And the relationship with China is very good (perhaps, though relations are undeniably deteriorating), but I think they finally respect our country. They haven’t respected us for a long time. Not for a long time (way too much to unpack here; suffice to note that Obama led a very strong effort to develop relations with China based upon mutual respect and shared interests).
But consider that Trump’s China trade remarks, so important that they caused him to delay declaring a national emergency, didn’t contain a single true statement. One cannot help but wonder, then, what the heck is really going on with China trade under this cockamamie President?
Donald Trump and Mercantilism
Donald Trump’s hatred of trade deficits and love of tariffs have provided the main props of his so-called America First policies, along with his racist wall, I suppose. Actually, the China trade mess and the border wall fracas have another thing in common — they all arise from basic failures of Donald Trump’s cognition. He wants a wall because of imaginary hordes of caravan-riding, terrorist, drug-dealing traffickers in duct-taped-women roaring across the unfenced frontier in supertrucks. He wants to use tariffs to eliminate trade deficits because everything he knows about economics he learned in a single undergraduate lecture.
OK. That last part was mere deduction, but stay with me. Why else would Donald Trump devote himself to solving 21st Century global trade problems with 18th Century tools. So, one can theorize that Donald Trump probably attended some of lectures when he was schlepping to his only earned degree, a B.S. in Finance from Penn, where his Daddy Fred bought him in, after a couple of desultory years by the younger Trump at Fordham. We know Trump doesn’t read, is incurious and receives instruction poorly. He was probably no better at such things when younger. So why his embrace of an obsolete economic theory, Mercantilism? This school of economic thinking arose from a feudalistic past, then faded when more evolved economic theories overshadowed its practices, during and after the Industrial Revolution, ideas like Communism and Capitalism. Why would Donald Trump, know anything about Mercantilism? That’s why I figure that Trump must have attended at least part of an undergraduate lecture on the history of economics at college and this stuff is all he remembers; or maybe Putin said something during one of their secret conversations. Just sayin’. But it doesn’t matter.
What does matter is that Trump is, indeed, attempting to use tariffs to reduce trade deficits.
But what might this seemingly quaint eighteenth-century stance have to do with our present and increasingly uncertain American economic moment? To begin a proper answer, the commendably seamless arguments of Adam Smith remain a reflexive mainstay of modern political conservatives. Never a plutocrat, Smith reasoned persuasively that various arrangements of private wealth maximization could still permit the poor to live tolerably. Rejecting his contemporary Jean Jacques Rousseau’s very contrary position —that is, that “the privileged few . . . gorge themselves with superfluities, while the starving multitude are in want of the bare necessities of life”—he foresaw in capitalism not just an enviably rising productivity, but also the indispensable foundations for ensuing political liberty.
But, as with all things touching upon Trump, the news is even worse. He has extended his use of the tool of the tariff far beyond any role it ever played historically. Using the dull and obsolete tool of tariffs, Trump now attempts to blackmail China into making concessions on internal matters that appear largely impervious to tariffs, perhaps impervious to any diplomatic or trade tool in existence.
Art of the Fail: The Overplayed Hand
Also as with all problems with Trump, the China trade cacophony consists entirely of compositions by Trump, himself. His talent for injury to American interests continues to thrive. For those who have not followed US-China trade relations’ descent into darkness, a brief primer may be in order. Prior to March 2018, going back to Trump’s campaign, there had been a lot of posturing about China trade. Trump accused China of being the World’s greatest thief and of currency manipulation. Trump seemed to soften on China after taking office, for about a year, then things went over the cliff —
US-China Trade Timeline
Date |
Event |
March 22, 2018 |
Trump Orders China Tariffs. |
April 2, 2018 |
China begins cascade of counter-tariffs. |
May 3-7, 2018 |
Trade talks start with US demand to reduce China trade deficit by over 50%; no results* |
June 4-5, 2018 |
More talks; no results.* |
June 16, 2018 |
China expands counter-tariffs on US to 25% on 545 products, esp. hitting US soybeans. |
July 6, 2018 |
US starts collection of 1st round of anti-China tariffs |
August 7, 2018 |
Trump proposes more anti-China tariffs |
August 14, 2018 |
China challenges Trump tariff at WTO |
August 22-23, 2018 |
US China trade envoys hold 1st meeting since May; no results |
September 17, 2018 |
US finalizes tariffs on $200 billion of Chinese goods |
September 18, 2018 |
China announces further counter-tariffs |
September 22, 2018 |
China cancels trade talks |
November 9, 2018 |
US-China trade officials resume talks; no results.* |
December 2, 2018 |
US and China declare trade truce to talk about what to talk about for 120 days |
December 14, 2018 |
China eases tariffs on US autos and buys some US soybeans |
January 7-9, 2019 |
More trade talks, in Beijing; no results* |
January 30-31, 2019 |
More trade talks in Washington; no results* |
February 11-15, 2019 |
More trade talks in Beijing; no results* |
february 15 2019 |
Donald Trump brags about progress in China Trade talks as preface to Rose Garden Declaration of National Emergency |
* = The US and China have not even agreed, yet, on what it is that they are negotiating about, i.e. an agenda. After six rounds and 17 days of meetings. With less than two weeks to go until the end of the December truce.
But Trump’s tariffs, even if they totally snuffed out US China trade, would never provide a sufficiently robust weapon to wobble the Chinese economy significantly. The Chinese consumer market consists of 1.4 billion people. The Chinese economy, measured by GDP, weighs in at $13.5 trillion. Trump, is attempting to use the obsolete and nearly useless tool of tariffs, in the amount of $200 billion, to force changes in Chinese domestic policy. Those numbers boil down to a pinprick to the Chinese economy and amount to trying to bring down a charging rhino with a pea shooter.
If you twitched a bit at the part about Trump attempting to change Chinese domestic policy, you’re still paying attention. What Donald Trump’s China negotiators really want to change is not only how China buys and sells goods to the World. They want to change how China regulates its domestic enterprises and to change how China regulates ventures by foreign investors desiring to do business in China. Trump’s negotiators wish to change fundamental principles of the operation of the Chinese Communist State. Fat chance.
Here are some details you may not know about how foreign companies do business in China. Let’s say you are an American investor interested in the manufacture of widgets in China. You’ve already been in the widget business elsewhere, so China knows you’re not just some con artist selling blue sky. You know how to make widgets cheaply if you can get access to cheap land, cheap construction and relatively low wage workers. Yum! So, you come into China with your idea for a widget factory to supply the Chinese and international widget market.
Only one problem. Most domestic Chinese enterprises, even widget makers, are state owned enterprises. Those SOEs have intellectual property, too, but, of course, it necessarily belongs to the State as well. So, to keep playing fields level in the domestic Chinese economy, foreign businesses wishing to legally do business in China, must do so with a domestic Chinese partner, usually an SOE, and with full sharing of the Intellectual property involved in the enterprise.
The oligarchs who rock Trump’s World intensely dislike China’s insistence that foreign enterprises, wishing to invest in the largest emerging economy, should operate on the same terms as other enterprises in that economy, with the Chinese State having the same rights, as with the Chinese partner, over the intellectual property involved in the enterprise. For its part, China figures that if foreign businesses wish to retain exclusive access to their intellectual property, they are welcome to forego doing business there. The practice in question is called Forced Technology Transfer, by experts and economists. It is called theft by Trump and whiney capitalists.
Which brings us back to Trump’s idiotic tariffs on $200 billion of Chinese goods. Even at the height of the bygone Age of Mercantilism, when protectionism and tariffs dominated the largest economies in Europe, never has any nation attempted to use tariffs to shape the internal economic institutions of a major trading partner; never, until Trump.
In effect, Trump is telling China that it must cease to be a planned and managed economy with State ownership of enterprises. Trump is insisting that China stop being Communist, for the sake of US tariffs and trade amounting to a mere sliver of the rapidly growing Chinese economy. That is never going to happen, during the current talks or any other.
Trump will fail to get his touted China trade deal; and American agriculture, along with the other Americans who depend upon Chinese products, will pay for his failure.
"The inability of the two sides to make progress in several rounds of negotiations points to a limited deal when it finally happens," said Derek Scissors, a China expert at the conservative-learning American Enterprise Institute.
China has expressed a willingness to work toward reducing its bilateral trade surplus with the US, offering to increase purchases of American products like soybeans and semiconductors.
But it has denied engaging in practices Washington wants to change, including the forced transfer of American trade secrets. On vows to rein in state support for high-tech and industrial companies, another sticking point, key details remain elusive.
Of course, Trump might also accept China’s offer to reinstate and even increase soybean purchases, plus their offer to buy some semiconductors. He can drop his tariffs and declare victory. But he doesn’t seem that smart. In the meantime, Trump’s Bull in a China Shop China Policy continues leaving a trail of wreckage. The Art of the Fail, indeed.