President Donald Trump’s rhetoric regarding trade, immigration, and other issues is often flawed or wrong, but a U-turn on his anti-China policy could help him realize his boast to “Make America Great Again.” History has shown that macho Marlboro Man-style US trade and foreign policies don’t bring the expected results. A trade and/or military war with China promises far worse results.
With the US being China’s biggest export destination, some analysts conclude China would lose far more than the US in a trade war. But that assessment is premature because tw0-third of the 18% of Chinese exports are produced by American firms. Chinese factories do not sell these goods to America — they were outsourcing contractors charging a fee for service. Imposing a 45% tariff on Chinese-made products could trigger an inflationary spiral, the last thing the US economy needs at a time of low annual consumer demand of less than 1% since the 2008 financial crisis. It was largely responsible for US unable to recover from the 2008 financial crisis because private consumption accounted for 70% of GDP.
Moreover, China would likely retaliate as it did in 2012 when president Obama imposed a tariff on Chinese tires to protect 1,200 jobs in Ohio in a re-election bid. It cost the US economy more than US$2.1 billion or at least 20,000 jobs due to higher tire prices at home and the retaliatory loss of chicken-parts exports to China. Obama abandoned the tariff after he was re-elected.
Large US firms enjoy clear benefits in China
Telling US firms not to invest in China won’t have the same effect as it would with Mexico because the Asian economic giant is the largest and most profitable market for many of America’s largest firms, including Boeing, General Motors, Apple. Indeed, Ford and Boeing are building plants in China to assemble SUVs and 737s aircraft, respectively. Apple is planning to establish four research and development centers in the country.
US firms invest in China because they can’t afford to ignore its huge domestic market, its manufacturing advantage, and its growing technological prowess. China is projected to become the world’s largest air-travel market, requiring thousands of planes. Indeed, China is a source of wealth for the Trump family, producing most of Ivanka’s clothing and shoe lines, investing in son-in-law Jared Kushner’s real-estate development empire, and approving his Trump-brand hotel name in the country.
China wasn’t deterred from entering the Korean War when the US bombed North Korean cities bordering China, so it is unlikely that it is afraid of US military coercion today. China’s military was weak then, armed with outdated weapons. But the country had the will to fight because the US was threatening its core interests. Today, China’s military might not be as advanced or as strong as the US, but it has enough firepower to inflict severe damage to the US and its Asian allies. Vietnam and Iraq show that superior military power doesn’t guarantee victory if war is waged for the wrong reason.
Costly wars waged for the wrong reasons
US determination to halt the spread of communism in Vietnam and to stop the use by Iraqi dictator Saddam Hussein of weapons of mass destruction were the reasons cited for those costly conflicts. The US lost 58,200 military personnel, suffered many more wounded, and cost Lyndon Johnson a second term as president. US bombing killed several million Vietnamese. More than 5,000 service personnel were killed in the Iraq war and it cost US taxpayers more than US$3 trillion. Iraq was left a dysfunctional country wrought by sectarian conflicts.
The American get-tough-on-China rhetoric has pushed traditional allies — the Philippines, Australia, and Malaysia — to adopt independent foreign policies. The Philippines, instead of confronting China over the Permanent Court of Arbitration’s ruling in Manila’s favor last year over disputed territory in the South China Sea, has opted for a cooperative relationship with China. Australia, a staunch US ally, is having a serious discussion about its relationship with America and China. Malaysia is not talking about territorial disputes, instead moving ahead on forging good China-Malaysia relations without moving away from America.
China is indispensable to these and other Asian countries’ economic well-being. Siding either with the US or China will not only be bad for business, but could also be disastrous militarily.
Chinese military spending persists
Increasing US military presence in Asia and pressuring allies to boost defense spending has prompted China to respond in kind, building nuclear submarines, stealth jet fighters, aircraft carriers, intercontinental ballistic missiles and other weapons of mass destruction. Blocking the sale of advanced technology has hastened China’s spending on research and development, increasing it from less than 1.5% to 2.5% of GDP by 2020. Disallowing China to participate in the international space station is behind China’s remarkable achievement in space exploration and technology, sending astronauts into space and building its own space station.
Last but not least, China’s “Plan B” promoting the One Belt One Road (OBOR) initiative and forging closer economic and geopolitical relations with Europe and other global regions, are bearing fruit. A number of countries, including staunch US allies, are signing onto OBOR and the Asian Infrastructure Investment Bank.
American enterprises took 90% of the profits, while Chinese manufacturers only earned 3% from US-China trade and outsourcing. Studies conducted by US think tanks indicated that the average American family’s real income has increased by US$1,000 from Chinese imports. The US-China trade and investment relationships has created millions of jobs in America. Investment from and trade with the United States played a pivotal role in China becoming the “factory of the world.” The relationship is a clear benefit for both countries.