The Trump transition team recently announced the appointment of Peter Navarro to a newly created post as the head of newly created National Trade Council.
Apparently this appointment will not require a Senate hearing and confirmation. Thus a lightweight could be rewarded for his loyalty and not risk embarrassing the new administration.
On the other hand, Trump could be seriously considering Navarro as his point person in trade negotiations with China. Either way, the possible involvement of Navarro on the most important bilateral relations of the world deserves serious analysis.
At one time, Navarro tried his hand at politics and ran for US Congress, mayor and city council. Each time he came up empty—a many-time loser.
Then he became a lame pundit who concentrated his vitriol on China mixed with questionable reasoning in economics.
As one indicator, Navarro chose Gordon G. Chang to write the forward to his recent book on China’s militarism. Chang was the pundit who predicted the collapse of China in 2001, only to see China’s economy double and then double again.
Navarro came to Chang’s rescue by blaming the Clinton Administration for letting China into the WTO and thus supposedly prevented Chang’s forecast of doom from coming true.
Then Navarro expressed his unreserved admiration for Harry Wu because Wu was a willing talking head in Navarro’s video interviews. Since his death, Wu’s sordid past of lying, stealing other people’s money and cheating on his wife have come to light.
Until Trump’s appointment, that’s the kind of company Navarro kept.
Apparently, he came to Trump’s attention when he said 4-5% GDP growth is possible under Trump’s administration, even while imposing import duties on goods made in China. If that’s really so, the economic growth would have to be increasing at better than twice the historic rate associated with a good year.
The simple but erroneous idea is that import tariff will protect jobs in the domestic market. It simply doesn’t work that way. It’s unbecoming for a Harvard PhD economist, like Navarro, to say so.
Ronald Reagan tried to protect America’s auto industry
A fairly recent example that comes to mind was when Reagan wanted to protect the American auto industry by imposing an import duty on cars made in Japan. The idea was to give the US carmakers breathing space to become more competitive.
Instead of taking advantage of the import barrier to work on their competitiveness, the US car companies simply took advantage of the new prices for imported Japanese cars by raising their own sticker price. It was only after the Japanese makers transferred their plants into the US—and thus avoided the import duty—that the American companies began the serious task of having to compete.
In effect, the import duty “protected” by allowing the American companies to remain inefficient. Only after the Japanese carmakers built their plants in the US that the American companies had to trim their workforce to compete. And by the way, the workforce that went to work for the Japanese carmakers were non-union and got lower pay.
Imposing import duty across the board on goods made in China would be wrong-headed and even more disastrous than asking the American consumer to pay more for their cars.
Most of the consumer goods made in China such as apparel, shoes, toys, and hardware haven’t been made in America in decades. There are no domestic industries to protect and the import tax would just add the daily cost of living for every American.
American companies did not establish plants in China just for low cost labor but also to serve a growing local market there. The personal computer is an illustrative example.
The PC used to be assembled in Taiwan and then the Taiwanese companies moved to the mainland because of the significant savings in labor. Economic pressures forced their component suppliers to follow them. Component suppliers for the PC came from Japan, Korea, Taiwan as well as the US.
Intel combined its China and US manufacturing to stay competitive
One of the US suppliers was Intel. They first set up an integrated circuit assembly and test plant in Chengdu to perform the final manufacturing steps on the microprocessors made in the US. The finished ICs were then shipped to the PC makers all over China.
Gradually as China became a major consumer of PCs, Intel expanded their operations in China, not only at Chengdu but also added a semiconductor fab operations in Dalian.
However, even today Intel continues to make 75% of their semiconductor chips in their US operations even as 75% of their market is outside of the US.
Intel’s total US manufacturing payroll is much higher than its payroll for their Chengdu operation, even though the number of workers employed in Chengdu is “orders of magnitude” bigger than the number engaged in the US—according to my source inside Intel.
The explanation is that the US manufacturing steps are technology intensive and highly automated. Not many workers are required but each has to be highly trained and very well paid. The Chengdu operations involving test and packaging require many workers, but each does not have to be highly technical nor highly paid.
Taking advantage of the comparative advantage (that’s jargon from Econ 101) of each place gives Intel the means to maintain their technical dominance over their competition. This is nothing to do with currency manipulation, just simple economics.
Most of the American companies that set up operations in China may have the low cost labor in mind initially but subsequently justified added investments because China had become a huge market in its own right.
In some cases, China did impose import duty on foreign made products and thus encouraged the American companies to operate inside China—just as Reagan’s import duty encourage Japan’s auto makers to move into the US.
In the end, the local investment benefited the foreign investor, but also China’s economy with a more skilled workforce. The same could apply in the reverse, i.e., as regards to China’s investments coming into the US.
Chinese companies are looking to invest in the US to be closer to the major markets here. They certainly wouldn’t be looking for lower cost of labor but would be paying higher salary for more technically demanding jobs. This could only benefit the local economy in the US.
Xenophobia and stupidity should not discourage these investments just because they are from China.
Navarro makes no bones about demonizing China in everything he has said, but is he really compatible with Donald Trump’s real personal interests?
Last month, a video of Trump’s granddaughter Arabella Kushner reciting a poem in Chinese won the hearts of millions of Chinese. This suggests that Trump’s daughter, Ivanka, and her husband, Jared Kushner, understand the importance of learning Chinese for their 5-year old daughter’s future. Surely they have more influence on Ivanka’s father than Navarro?
Sheldon Adelson has been one of Trump’s major supporters. His billions of net worth is tied to majority ownership of Las Vegas Sands and more than 60% of revenue and profits of the company is derived from Macau. He could hardly be pleased if Trump were to deliberately raise the tension between the US and China.
China exercises its international influence far differently from the American way of relying on military alliances. Close to 100 countries have China as their largest trading partner. Among them, some 60 plus are also members of the Asian Infrastructure Investment Bank or are recipients of AIIB investments. Their relationship with China is based on common economic interests.
The Trump Administration should also consider the merits of developing a bilateral relations based on shared economic interest.
Bilateral basis for common economic interest
Consider for example the economic benefits of tourism from China to the US Last year, less than 3% of China’s total outbound tourists came to the US and they spent over US$30 billion. That was the first full year when the Chinese were granted 10-year, multi-entry visas to visit the US.
The future impact of Chinese tourists on the American economy will continue to grow exponentially, provided of course that the US and China are not engaged in some mano a mano test of military armament.
There are over 330,000 Chinese students studying in the US in the academic year just past. According to the Department of Commerce, these students contributed US$11.4 billion to help prop up the finances of the US universities as well as the local economy.
Not to be overlooked another benefit of these students is that as much as 75% of the graduates would prefer to stay and work in the US if the US would permit.
China produces many more times graduates in science, technology, engineering and mathematics than the US can produce. They are just the talent pool American companies desperately need to keep their plants operating and not having to move them offshore.
Trump has to understand that America is losing jobs to automation and technological advances and not to China. Someday, for example, Uber is going to rely of self-drive cars and all the drivers will have to find another job. Amazon will use drones to deliver their packages and UPS will have to either operate the drones or else find some other line of work.
Encouraging the employment of Chinese graduates will buy Trump time to figure out how to save high paying jobs that will stay ahead of the technology evolution. America’s future lies in generating highly qualified and skilled workers and not in bringing back low paying jobs from overseas.
Thus, we hope that Trump will have the wisdom to look for the win-win approach with China. To promote Navarro’s line of military confrontation and restart the nuclear race can only lead to a lose-lose outcome and such outcomes would be devastating beyond imagination.
Erik Joseph The documentation on Wu the scoundrel can be found on http://www.atimes.com/the-contradictions-of-harry-wu/. Please read the exposé in full and then we can discuss in a civil manner.
Michael, to me it doesn’t have to be so… If China weren’t bent on destroying the US, but only interested in building its trade with Eurasian nations, the US could participate and wouldn’t be threatened.
The joke is on China. Finally there is someone who understands China and will beat China at her own game. Trump has distasted of China for the last 30 years is well documented. The main reason for Trump to run for President is trade deals that destroyed American manufacturing. Trump won Presidency by the same people who are most affected by these trade deals. China is centered on these bad trade deals and Trump will do headon collsion with Beijing on trade, diplomacy, military…. because Trump considers Beijing is rigging the system for their benefit. Trump went all out attack Republicans, Democrats, The Bushes, The Clintons and Obama, media…. without any resevation. China would expect that worse will be unleashed from Trump once Jan 20, 2017 comes.
I apologize George, while India and Pakistan were accepted for membership in the SCO in Ufa Russia in 2015, their membership will not vbe finalized until a meeting in 2017.
KS Chin TPP is a reaction and a dumb idea as well. Trump is an advocate of the bilateral trade agreement as is China. Trump will not try to export American labor laws as the previous administrations have. You can assign evil intent if that is your inclination, but the US has been a force for good by trying to export its laws that protect the worker and the inventor of ideas. But clearly that is not the values of the world and is a waste of time and effort until sufficient workers and inventors in other countries insist on such practices.
Thing is, Walmart is not an American company.
Pardon me but aren’y you out of date? India and Pakistan were inducted more than a year ago in a Russian based meeting of the SCO.
I agree China did not steal jobs, but there is something wrong with the parity of currencies when China can be so modern and have so many milliuonaires and billionaires and rising middleclass, when wages are so much lower than American wages fr which Americans have less modern cities ad facilities. The multinationals were encouraged to seek less developed countries to teach skills and get cheap production in return. These countries benefitted as well because they improved quakity of production and became viable economies. It was felt by the globalists that there would be no war if economies were intermingled and interdependent. But that has not worked outr. People are warlike. All it changed was the nature of war which as China is demonstrating is now economic.
Art Laramee How about TPP?
A lot of talk, but hard to assign credibility when China’s economy grew from 6% of US GDP in 1984 to parity (or beyond) today.
Where then is the *mutual* advantage?
I would agree the fault isn’t China’s alone; the reality is that it is American corporations such as Walmart that drove this.
Whether Trump via Navarro changes the direction of this economic trend is difficult to say, but the fact that at least a significant number of Americans want this change, is not.
You’re far too parochial to be concerning yourself with affairs such as this. Don’t allow your personal dislike for Trump to drive you into the arms of dictators & those who write on their behalf. The nasty & highly personal attacks on one of the victims of the regime therein – a favourite pastime of those writing on the Party’s behalf – reveal this to be more than a mere anti-Navarro/pro-engagement piece. It’s out & out collaborationism. Wise up & learn to see the clues & other nuances lurking within these articles. In the case the Communist regime in China your ‘the enemy of your enemy’ is not your friend.
George,
This column is just disgraceful. It goes far beyond the bounds of the usual pro-engagement thought piece & reads more like a submission to the English edition of the ‘Global Times’ from a ‘好同志’ eager to score a few brownie points with the Party leadership. The calumnies aimed at Henry Wu are partucularly galling – and revealing. We all well know how keen the Party & its hangers-on are when going about the sordid business of verbally abusing & humiliating the victims of the regime. I can’t help but think this was put out by a CCP front organisation.
‘[Koo] is a member of the Committee of 100’
Oh. And so it was. If I were you I would distance myself from that disreputable & subversive group & rejoin decent society before its too late (Kissinger will not be around to patronize that group forever, after all). The American people will only tolerate so much shameless collaborationism & we are fast reaching our limit. 百人会 do need to be taught a proper lesson in good citizenship & loyalty to country for their own sake as well as for the good of the country.
Regards,
EJS
Art Laramee, who in your opinion are actually running the US?
I’m afraid the big picture is not what you take it to be, and the issue of de-dollarization, or plans thereof, is a lot more complex than you think.
China is being forced to play defense. Why do you think Russia has openly declared de-dollarization?
Mr. Laramee is quite astute to point out the looming Shanghai Cooperative Organization which will soon include India, Pakistan and Iran and cover a huge and strategic part of the globe. But there is one crucial difference: Namely SCO does not have any provisions for military alliances, just common economic interest.
KS Chin I am a news junkie. I don’t recohgnize your accusation. I wish you would back it up.
I too left out many details, but I agree with your analysis except for the idea that we could participate in the NSR. China has prevented particiation by the US, specifically. In fact China has concluded dozens of bilateral trade agreements where all transactions are in Yuan, gold or the local currency. Notice no dollars. China has been incluyded in the WTO. China has achieved acceptance of the Yuan in the bucket of acceptable currencies for the world’s reserve currencies. The AIIB is but one of 4 mega development funds available to Eurasia for development. The SCO is the key organization to watch.
And why doesnt China want to replace US trade especially when US keeps raising it as a weapon? The US uses the leverage it has, the US dollar, the IMF etc. So would any other country except when it comes to China, its an evil.
Yes, Mr Laramee,
China’s aggressive and constructive New Silk Road (NSR) project with financial foundation in the AIIB will help China and all its partners and participants. Not all will benefit equally of course, but those countries with wise and practical leaders should maximize their benefits. We Americans can also participate and benefit from the greatest infrastructure project ever developed by ManKind. But our world domination desires will not make it easy for us to play second fiddle on anything as grand as the NSR. The NSR is arguably a truly grand vision. But the problem is that it isn’t ours!
Unlike past international infrastructure projects, the design and intent of the NSR is for all participants to benefit. Of course the tall pole in the tent (China) may benefit more than others, but linking dozens (and more) developed nations by land and sea routes should be good for all participants. High speed rails bridging across from western Europe all the way across to western China and linked with ports southward to Africa, SE Asia and Australia will really impact trade like nothing in past history.
Our attempted TPP did not include China and today the TPP may disappear altogether as 6 of the 12 members have applied to join the AIIB, including Canada, Singapore, and Vietnam.
There are many reasons why the NSR with its AIIB is making good progress. China Is providing funding, technology (high speed railroad, power plants, new roads, port upgrades) and even labor, if needed. We have really nothing to match the proposal. As you know, 200 years ago, machines were invented in the West and that allowed us to dominate for a long time. Now, we no longer have a monopoly of technology and as the rest of the world catches up, we no longer have the pioneering energy continue our one country domination.
China does want to dominate, especially in Asia and now the Eastern Hemisphere. In her mind, she was the hegemon for a millennia before the West took control with technology, and now she is preparing to return as a hegemon, like in the good old days.
If we recover our economy as promised by President Elect DT, followed by future presidents who will follow through, we may remain competitive. But, if we continue to bicker in Washington and allow special interests to control our national priorities, we make it easier for China and Russia and other nations to gain power and dominate our future world. It would be very hard for anymore to dominate us, unless we cooperate and weaken America so that we cannot compete at the global level.
To keep my response concise, many details are not included in this reply.
This is a good analysis of economic interdependency between the US and China. With cooperation, we get win-win, confrontation, lose-lose. American companies moved their operations to locations with cheaper labor costs, first to Japan, then Korea, Taiwan, Hong Kong before China. Now they are moving to Vietnam, India and other even cheaper places. That’s the law of economics. So China did not steal American jobs. If China was not the cheapest, jobs will just move somewhere else. It doesn’t matter where jobs move to, they don’t stay in America.–Ruby Tsao
This is a very self serving article if you are a Chinese citizen. The United States has become hollow in that we don’t make much of what we consume. That wouldn’t be so bad if China were simply developing Eurasia to improve its ability to trade with China. But that is not the ultimate reason for China’s AIIB. China intends to replace trade from the United States with Eurasian trade and ramped up domestic consumption. While they are doing this they are excluding the International Dollar from financial transactions with the intention of replacing the dollar with the Yuan as the world’s reserve currency. They have stockpiled gold. Thus they will be in a position of destroying the economy of the US by demanding gold, Yuan or land as payment for the goods the US no longer makes but depends on and we won’t be in a position to do anything about it. Then what will be the cost of imported goods… Phenomenal!
The US was instrumental in helping China to gain the dominant position it has achieved. But there is no good will in China’s quest for world dominance towards any other country and God help those in its way.
The only solution for the US is to revitalize its ability to support itself through a resurgance in manufacturing. Things will cost more but not more than they will under China’s New Silk Road vision.
And as for China’s investments in the US. They are of no benefit to American citizens, only to China.