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The spat with China shows the US no longer always gets its way

Trump’s readiness to use trade threats is not some new departure for US imperialism, as the decades-long blockade of Cuba shows, but in the past these threats were always directed at vastly weaker countries, with little or no leverage to hit back, writes KENNY COYLE

TRYING to make sense of US President Donald Trump’s foreign policy often seems more an area of expertise for child psychologists than political analysts.

If Trump seems permanently befuddled, this lack of direction is also a reflection of the serious policy divisions within not only the Republican Party but the broader US elite.

There are radically diverging differences emerging about how to handle a world that the US can no longer shape and channel as effectively as it once did.

A case in point has been the recent trade-war rhetoric with China.

While Trump had initially been banging the drum for draconian tariffs on Chinese imports, after talks with Chinese Vice Premier Liu He the two sides produced an anodyne statement.

Nonetheless, Trump was typically quick to claim this as a great deal.

There was even talk of China agreeing to cut the existing deficit by £150 billion by 2020.

In 2017, the US imported £378bn in Chinese goods and exported about £97bn back, a difference of about £281bn, according to US calculations.

Trump’s calculations not only bore no relation to China’s current level of demand, but also the US economy’s physical ability to meet that demand, as more than one US media commentator pointed out.

The public statement simply referred to a a consensus on taking measures to “substantially reduce the United States trade deficit in goods with China,” adding, “To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services.”

But China could pretty well have said that about any other country.

This was a point not lost on Trump’s many detractors both Republican and Democrat. Trump found himself under fire from both the Republican right and corporate liberals in the Democratic Party and mainstream media, whose message was simple. Trump blinked. China won.

Trump's former presidential nominee rival Marco Rubio tweeted: “#China is winning the negotiations. Their concessions are things they planned to do anyways. In exchange they get no tariffs, can keep stealing intellectual property and can keep blocking our companies while they invest in the US without limits. #Losing”.
 

Rubio is mostly right. As China's economy shifts gears and as domestic consumption rises, demand for US imports, primarily energy and foodstuffs, will naturally rise.

In any case, most of the trade deficit debate is based on misleading statistics.

The US still bases international trade data on a model that simply does not apply to many modern commodities. If it imports rice from China it can be assumed that this rice was Chinese grown but what about modern technology?

Take a typical smart phone imported from China into the US. The components may come from half a dozen different countries.

Design, development, marketing and software may be US based, displays may come from South Korea, ID sensors from Taiwan, batteries from Thailand or Malaysia.

These expensive components are then assembled in China. Assembly is a small fraction of the overall manufacturing cost but the phones that land at US docksides are considered as entirely Chinese imports nonetheless.

The OECD has developed more flexible calculation methods to take these complexities into account, and using them suggests that the real deficit is probably 40 per cent lower than Washington claims.
But if the anti-China lobby lacks sense, it more than makes up for it in fear.

Trump’s calculations not only bore no relation to China’s current level of demand, but also the US economy’s physical ability to meet that demand

The US is particularly sensitive about China’s technological progress which it views as both an economic and military threat.

The targeting of Chinese telecoms company ZTE is a good example.
The US fined ZTE $1.19 billion last year as part of a settlement after the company allegedly shipped equipment to Iran and North Korea.

Just last month, the US Commerce Department banned US firms from selling components to ZTE for seven years because it allegedly broke that deal.

However, in a May 13 tweet, Trump wrote: “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!”
The turnabout shocked many.

For example, Democrat Representative Adam Schiff took to Twitter, asserting: “Our intelligence agencies have warned that ZTE technology and phones pose a major cyber security threat. You [Trump] should care more about our national security than Chinese jobs.”

While protecting US workers’ jobs is undoubtedly a worthy cause, it is often a thin veneer to mask underlying concerns that US imperial interests (aka “national security”) are under increasing threat.

Trump, however, has not abandoned hawkish policies. Earlier this month, Trump took the decision to withdraw the US from the Joint Comprehensive Plan of Action on Iran, reimpose sanctions against Iran directly and on third parties trading with Iran.

This was not only a dangerous unilateral move against the Tehran regime, but also threw down a challenge to China and even its erstwhile European allies.

Of the six powers — the US, Russia, China, France, Britain and Germany — which sponsored the 2015 agreement, Russia is already on the receiving end of US-imposed sanctions. The Western European states have been contemptuously sidelined. This leaves China.

The message was simple:
Trump blinked. China won

 

US trade with Iran is infinitesimal. According to US figures exports to Iran in 2017 amounted to just £103 million, with £47m in imports from the country. Trade between the EU and Iran in the same year, by contrast, was made up of £9.7bn in exports and £9bn in imports, 90 per cent of which are oil and related products.

Chinese-Iranian trade was more substantial, worth an estimated £28bn in 2017, split equally between imports and experts. This represents a 19 per cent growth in trade from 2016. One recent estimate put the potential for trade deals between the two states to grow to £449bn over the next decade. Now all this is in doubt.

As Iran’s leading trade partner, China may be hit hardest by US threats to extend sanctions to third parties. China’s expanding economy still depends on vast volumes of oil imports.

Trump’s readiness to use trade threats is not some new departure for US imperialism, as the decades-long blockade of Cuba shows, but in the past these threats were always directed at vastly weaker countries, with little or no leverage to hit back at the US. China is different.

Many US companies depend on trade with China, including several US tech giants which supply ZTE.

Yet Washington is also saturated with lobbyists and think tanks urging US action against the Chinese IT threats.

A recent oft-quoted study is entitled China's Technology Transfer Strategy: How Chinese Investments in Emerging Technology Enable a Strategic Competitor to Access the Crown Jewels of US Innovation.

This linking of trade and espionage is not new. During the dying days of Bill Clinton's presidency in October 2000, the US Congress created the US-China Economic and Security Review Commission.

This body was given "the legislative mandate to monitor, investigate, and submit to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China, and to provide recommendations, where appropriate, to Congress for legislative and administrative action.”

One of the commission’s recent briefings stated the problem squarely: "The Chinese government has pursued comprehensive, long-term industrial strategies to build internationally competitive domestic firms and replace foreign technology and products with those designed and made by Chinese companies first at home and then abroad.

This state-led approach is enshrined in the “Made in China 2025” strategy—the government’s industrial blueprint designed to transform China into a technological powerhouse."

The March 2018 briefing continued: “Chinese government policies require US and other foreign firms to transfer technology, move manufacturing and assembly facilities to China, and collaborate with their future competitors (often as minority joint-venture partners) as the price of market entry, impacting US firms’ profitability, operations, and future competitiveness.”

The growing US consensus that China must be prevented from acquiring modern technology unless under US tutelage has not gone unnoticed.

In response to the US threats, China’s main English language newspaper China Daily wrote: “Targeting technology is like throttling the neck of the Chinese enterprises. The ZTE case should remind China's decision-makers of the urgency to become self-sufficient in core technologies.”

It’s difficult to know what lessons, if any, the US has drawn from this recent spat. For China, the answer is obvious: to continue to build its economy and to prevent it from dependence on an erratic administration.

The trade war has its truce for now, but there is no long-term peace in sight.

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