US President Donald Trump gestures as he talks to the media on South Lawn of the White House in Washington before his departure to Camp David on December 16, 2017. Photo: Reuters / Yuri Gripas
US President Donald Trump gestures as he talks to the media on South Lawn of the White House in Washington before his departure to Camp David on December 16, 2017. Photo: Reuters / Yuri Gripas

America’s apparent policy failures and declining global influence could trigger more intense criticism against China, blaming it for everything under he sun.

The first sign of this is US President Donald Trump accusing China of breaching United Nations Security Council (UNSC) sanctions against North Korea with the flimsiest of evidence. Second, the US neoconservative crowd appears to have ratcheted up its anti-China rhetoric. Third, tax cuts may not produce the results that Trump is expecting.

China-whipping seems a popular sport in the US, especially during election cycles, and it happens that 2018 will see midterm congressional elections.

Getting tough on China might win votes, but doing so is easier said than done.

Alleged Chinese breaches of UNSC sanctions

President Trump wasted no time – not bothering to check whether the allegation was true or not – in accusing China of breaching UNSC sanctions against North Korea. The “evidence” was a Hong Kong-registered ship chartered by a Taiwanese company unloading its cargo of refined petroleum products from a South Korean port on to a North Korean tanker. The cargo, supposedly destined for Taiwan, anchored in international waters alongside a North Korean tanker to offload it.

How this “proved” that China had contravened UN sanctions was never explained, but that did not stop Trump and some of the “objective and independent” US media from spreading the rumor as fact.

The Washington Examiner sensationalized the report, proclaiming that there was no question China had violated the sanctions. Trump threatened to “take off [his] nice-guy glove” and follow through on his election-campaign rhetoric of imposing “tough” trade policies against China.

However, imposing heavy trade barriers on Chinese “imports” to the US would be more harmful to the United States’ economy than to China’s. Most of these “imports” may be “made in China,” but “by America.” This amounts to taxing America’s own goods, which could culminate in inflation and loss of business for US retailers and manufacturers requiring parts from China.

Higher prices would reduce consumption further because of a personal-debt-to-income ratio of more than 100%. Costlier parts would erode US manufacturers’ competitiveness.

What’s more, China could retaliate as it did in 2012 against then-president Barack Obama’s decision to impose duties on Chinese-made tires to win votes in Ohio. That policy cost the US economy more than US$2.1 billion, a loss of $1 billion in chicken-parts exports and a $1.1 billion increase in tire prices.

China would also be hit, closing some factories and sending workers to the unemployment line in the short term. But the laid-off workers would return to their villages as they did during the 2008 financial crisis. Foreign investors who own most of the factories (such as Taiwan-owned Foxconn) to which US firms outsourced production would bear the blunt of America’s “tough” trade policy on China.

However, in the medium to longer term, China would recover, given its increasingly affluent 1.3-billion population, Belt and Road Initiative and growing economic relations with nations in Africa, Latin America and other countries not yet involved in the BRI.

As for North Korea’s nuclear program, blaming China for not “doing enough” on the issue might shift the blame from Washington to Beijing but would not deter the hermit kingdom from continuing with its nuclear-weapons programs. Having nuclear arms is its only insurance policy against a US invasion.

Neocons ratcheting up ‘China threat’ rhetoric

US neoconservatives and the Congress will demand tough policies on China, 2018 being in the midterm congressional election cycle. For example, Congress appears to want to pick a fight with China by passing the National Defense Authorization Act allowing US and Taiwanese naval vessels to visit each other’s ports.

However, China’s response was swift and clear: Any US naval vessel anchored at a Taiwan port would invoke its 2005 Anti-Secession Act, allowing the government to use “non-peaceful” means to reunify the island with the mainland.

Turning imagined threat into a real one

The “China threat” is becoming a self-fulfilling prophecy. According to Global Firepower, an international organization measuring a country’s military power, China has the world’s third-most-powerful military after the US and Russia.

The country has more than 2,500 combat-ready jet fighters and bombers, 300 warships and submarines, and thousands of short-, medium- and long-range ballistic missiles, some of which can carry up to 10 nuclear warheads. No one really knows how many nuclear warheads China has or their destructive power, with guesses ranging between 250 and 3,000. But precise numbers aside, attacking China could lead to a “mutual assured destruction” scenario.

China’s economic and geopolitical influence is rising in Africa, Latin America, and Central and Eastern Europe because of the investments  and trade opportunities it offers. Contrary to the charges of “neocolonialism,” China is actually helping these countries to develop. Building infrastructure, buying resources and investing in manufacturing and resource industries are largely responsible for some countries’ relatively high economic growth rates, exceeding 10% in Ethiopia, for example.

Perhaps the biggest Chinese challenge to US hegemony is in the financial sector. The yuan’s inclusion in the International Monetary Fund’s Special Drawing Rights (SDR) basket has elevated it to reserve-currency status. Beijing has also established “yuan hubs” in which a country can use the Chinese currency to settle trade transactions with China. Forming a “petro-yuan,” allowing oil to be traded in Chinese currency, would raise the yuan’s importance because that would allow such countries as Venezuela, Russia and Iran to bypass US sanctions.

Trump’s tax reforms 

It is true that consumption, the economy, stock prices and employment rose in the US at the end of 2017. But that might be a blip rather than a trend.

The rise in consumption took place near or during the Christmas holiday season, a time when people open their wallets. Most of the purchases were on credit, adding to the already heavy consumer debt burden.

The rises in stock prices were largely driven by Trump’s policy of reducing corporate tax from 35% to 21%, sending the message that corporate profits and by extension investment should increase. However, it will take time to rebuild America’s hollowed-out manufacturing sectors. What’s more, there is no reason to believe US businesses would relocate production from China to the US or discontinue automation. The Chinese manufacturing sector is highly efficient and its market too huge and profitable to abandon.

The US unemployment rate declined largely because of a falling participation rate, the percentage of working age people looking for work or already employed. The drop in the unemployment rate occurred near or during the Christmas holidays when people feel generous. What’s more, the employment gains were largely in low-paying service jobs, the reason wages were only marginally improved.

Further, cutting taxes for the richest 1% of Americans could further widen the rich-poor gap, reducing the middle class and increasing the impoverished population, culminating in less consumption. Since investment is largely influenced by demand, the rich might hoard rather than spend or invest their tax savings.

Blaming China will not deter its rise

Taking the debate to its logical conclusion, demonizing and blaming China for its economic woes and loss of global influence would not deter the “communist” country’s rise or increase that of the US. More and more countries, including staunch US allies such as Japan and the UK, find engaging China is more beneficial than confronting it.

China’s pro-globalization stance and leadership in tackling climate change have won most the world’s support and respect. The IMF and other organizations are predicting that China’s “new normal” annual growth rate of 6.5% is doable over the next five years if not longer.

Threatening trade wars and bullying nations into submission would push the US into isolation. As indicated earlier, the US needs external markets, particularly China’s, to reverse economic stagnation and spur long-term growth. Indeed, the IMF predicts a “new mediocrity” annual growth rate of between 1.5% and 2% for the Group of Seven nations (the US, the UK, Germany, France, Canada, Italy and Japan) should protectionism and populism continue.

Ken Moak

Ken Moak taught economic theory, public policy and globalization at university level for 33 years. He co-authored a book titled China's Economic Rise and Its Global Impact in 2015. His second book, Developed Nations and the Economic Impact of Globalization, was published by Palgrave McMillan Springer.

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