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Tuesday, August 13, 2019

ANALYSIS/OPINION:

To listen to the White House, America is winning the trade war with China, but like other great struggles, a few battles won does not necessarily equate with victory. And progress in trade wars is not like military operations where victories can be measured by territories gained and populations pacified.

Let’s be clear about the objective. China runs an economic system antithetical to American democratic capitalism.  


Beijing flaunts WTO rules and other norms. It promotes private theft and lies to steal factories, jobs and intellectual property. It uses the money and technology gained to build a modern navy and finance its Belt and Road initiatives. Together, those threaten security in the Pacific, undermine democratic values in developing nations and support authoritarian regimes in places like the Philippines and Venezuela.

President Trump aims to convince or compel Beijing to stop commercial tactics that undermine American prosperity and global geopolitical interests. And that requires systemic changes in China’s socialist-market economy.

I see no evidence of progress. If Mr. Trump turns the screws hard enough, he may yet get President Xi Jinping to relent but not before the 2020 election.

Mr. Xi sits atop a Communist oligarchy with a long history of breaking its word and has exhibited no intention of negotiating in good faith. On several occasions, he has persuaded Mr. Trump to postpone tariffs to initiate yet another round of protracted talks that end with the Chinese offering little.

We are at a stalemate, and the lesson for Mr. Trump should be clear — incrementalism does not work. Threats followed by postponed actions and raising tariffs on selective portions of Chinese exports and in steps are a fool’s journey. Similarly, announcing sweeping sanctions against ZTE and Huawei followed by some easing back.

It’s aggrandizement at the White House to attribute the slowing the Chinese economy to those limited measures and to claim Americans are not paying the tariffs. 

China’s economic model was hitting barriers even before President Trump joined the war. It lacks sufficient overseas markets to sell all the stuff its subsidized factories crank out, and President’s Xi efforts to shift leadership to state enterprises from private businesses impose terrible inefficiencies.

Neither the Chinese nor Americans pay all the costs of the tariffs. Anyone who has taken Principles of Economics knows that taxes are partially borne by producers — they accept some price cuts — and by consumers — they pay the differences between the tariffs and those price reductions. Anti-Trump economists who state otherwise should be defrocked.

Foreign investors are moving supply chains out of China to avoid the uncertainty of American ire. The next president, like Messrs. Trump, Obama and Bush, will face the same economic and geopolitical challenges posed by Beijing’s obsession with creating an Imperial China on the global stage. One that compels other nations to dance to its tune.

Contrary to the promises of White House trade adviser Peter Navarro, factories leaving China are not moving to America but to other Asian locations. Chinese wages and bureaucratic risks are now too high even without Mr. Trump’s tariffs, and his trade war is accelerating a trend not instigating it.

American farmers are getting clobbered by Chinese targeted retaliation. Beijing is a lot smarter about how it turns the screws than a divided White House with doves like Secretary Steve Mnuchin preaching appeasement and undercutting Trade Representative Robert Lighthizer. Designating China a currency manipulator is largely a symbolic gesture.

China has enormous wealth and staying power and a stubborn oligarchy that will hold Mr. Xi’s feet to the fire. Meanwhile, opportunist Democratic presidential hopefuls — like Joe Biden and Kamala Harris — are offering to sell out American interests.

Mr. Xi sees this, and Mr. Trump will have to hit him a lot harder to get results.

Mr. Trump could impose a system of mandatory import licenses that ends the $320 billion bilateral trade imbalance. Issue U.S. exporters resalable licenses to purchase goods from China in proportion to their sales there. The more China buys in America, the more it can sell here, but if it retaliates against American farmers, then it must sell less here. And implement tough financial sanctions against technology pirates like Huawei and their banks.

A few skirmishes a victory does not make, and it’s hard to have confidence in a divided White House that does not know fact from fiction or have the stomach to act decisively.  

Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. 


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