Vitriol against US President Donald Trump is a daily staple of the Western media. Trump is unfit for office, a race-baiter, a sexist, inexperienced, and an outright embarrassment. Most Chinese probably would agree, but they are more dispassionate and pragmatic observers. They understand the true significance of Trump’s election. Says David Li, executive director of Shenzhen Open Innovation Lab, “From China’s perspective, Trump is actually the first US president to acknowledge it being an equal, not some poor nation to be educated and lectured.”
Trump got China’s attention with his “America First” approach to international trade. While significant, America’s trade deficit with China is only one of several structural financial and economic problems confronting the US. The country has a chronic budget deficit, an out-of-control national debt and massive so-called unfunded liabilities, all of which is charged to the next generation. Add to this the trillions of dollars needed to rebuild American infrastructure and it becomes clear that successive US administrations, and especially the last three, have engaged in gross mismanagement.
The US is living beyond its means. Even for a country the size of the US, the figures are mind-boggling. The US-China trade imbalance means that the US sends $1 billion (that is one thousand times one million dollars) each and every day to China to buy Chinese products. At Walmart, the largest retailer in the US, close to 90% of all goods sold are “Made in China.” The retail giant “shipped” an estimated 400,000 jobs to China over the past decade. The number of Chinese companies selling their products directly via Amazon exceeds 200,000 and is growing in leaps and bounds. China owns a cool trillion dollars in US debt.
Free trade myths
During the past 30 years, the Chinese welcomed American captains of industry eager to take advantage of China’s low-cost production base. American business leaders convinced the US electorate that “free trade” was a win-win proposition. The public bought it and elected and reelected politicians who accepted free trade as an article of faith. For Wall Street and Silicon Valley, the rustbelt, bankrupt cities and social dislocation were collateral damage far from home.
Free trade is a euphemism for complex trade agreements that typically cover thousands of words and involve dozens, if not hundreds, of corporate lobbyists. Free trade only exists between California and Texas, and between countries in the EU. All other trade is managed trade and – especially in the US – managed for the benefit of the few and to the long-term detriment of the many.
During the last three administrations, the US lost a good part of its manufacturing base to East Asia. While China lifted 600 million people out of poverty, wealth disparity in the US reached a level not seen since the days of the “robber barons” at the end of the 19th century. Under both Democratic and Republican administrations, the US descended from the largest creditor to the largest debtor nation in the world, while losing its leading position as a global tech exporter to China. Ironically, Trump, a minor modern-day robber baron, convinced American voters that its political and corporate establishment had been fooling them for the past 30 years.
“I think China is more worried about Trump than any of his predecessors,” says Li. “In the past 30 years, America has been running on the policy to make China rich, put a satellite dish on every roof in Shanghai and assume that democracy will come. It started with Bill Clinton’s most favored nation status for China and ended with the weak attempt by Obama to ‘contain’ China with the Trans-Pacific Partnership.”
One can only wonder who advised the previous US president. Japan, Korea, Taiwan, and Singapore are economically and culturally tied at the hip to China. Japan, like China, has a huge trade surplus with the US and, like China, owns a trillion dollars worth of US debt. In the 1980s, the Japanese nearly wiped out the US automobile industry and required “voluntary” export restriction of Japanese cars. That history would repeat itself with China did not require a crystal ball to predict.
The US corporate media is still litigating the last election and keeps viewers distracted with sex scandals and over-the-top identity politics – everything to avoid self-reflection and acknowledging that the misguided policies of previous administrations gave Trump an opening to become the most unlikely president in US history
The US corporate media is still litigating the last election and keeps viewers distracted with sex scandals and over-the-top identity politics – everything to avoid self-reflection and acknowledging that the misguided policies of previous administrations gave Trump an opening to become the most unlikely president in US history.
One of the first actions of the mercurial president was to revamp the US tax code, an archaic document that is the brain-child of corporate shills in the US Congress. The American tax code made it attractive for US companies to move their mobile assets abroad and leave immobile workers to fend for themselves. Tax benefits for foreign investment could exceed actual tax, meaning that in some cases the US government actually paid corporations to invest overseas.
It’s the infrastructure, stupid!
Li believes Trump’s tax cuts and the tax exemption to facilitate the repatriation of US corporate money to the US (an estimated trillion dollars) are needed to rebuild US infrastructure with help from the Chinese. And he is not alone. While much of the media focus is on Chinese tech companies, Li argues that the Chinese government attaches higher priority to its enormous state-owned enterprises (SOEs). “The crown jewels of China’s SOEs are all in infrastructures,” he says.
China’s SOEs dwarf its much-vaunted tech companies. CRRS, the world’s largest manufacturer of rolling stock, is gearing up to build trains in Springfield, Illinois. China’s SOEs are key players in the Belt and Road Initiative (BRI), the largest infrastructure project in the world, which could ultimately integrate the entire Eurasian continent into one large economic area. BRI presents a long-term danger to the role of the US dollar as the world’s reserve currency and thereby its control of the global financial system.
“According to the American Society of Civil Engineers (ASCE) 2017 Infrastructure Report Card assessment,” Siyi (Silvia) Sun writes, “infrastructure in the US had an overall D+ rating, with a B rating for railroad and D- for transit, indicating some areas are lacking investments. As calculated in the report, some of the economic consequences are: $3.9 trillion in losses to the US GDP by 2025; $7 trillion in lost business sales by 2025; 2.5 million lost American jobs in 2025.”
The US is China’s third-biggest trading partner (after Asia and Europe). The well-being of the US is crucial to China, as is the state of US infrastructure. Says Dominic Ng, chairman and CEO of East West Bank, points out: “China and the US are intimately tied to each other through $650 billion of annual trade and $60 billion of two-way FDI flows – what better to invest in than the most strategic trading and investment partner, and create goodwill in US communities? Moreover, China is trying to curb ‘irrational’ and risky overseas investment. Infrastructure projects that are supported by the US government are a great fit for Chinese investors seeking high-quality projects that offer low risk and stable returns.”
International trade is not fair. It is about leverage. Trump copies China’s playbook by implementing nationalist policies and by bringing US leverage to bear. China is responding in a way that had not been imaginable just a few years ago. “It’s all too easy to stereotype the Trump administration as a banana republic caricature and argue from that point of view,” says Li. “But that’s the same short-sighted view as analyzing China simply as an authoritarian state. The devil is in the detail.”
The shifting relationship between the US and China is not just a clash about trade. It is also a confrontation between democratic capitalism and a hybrid system of central control and free enterprise. Corporate America has been typically loyal to its shareholders rather than its communities, cities or country. China’s SOEs are loyal to China. Moreover, China’s continuous five-year plans, based on a long-term strategic vision, give it a considerable advantage over the US with its divisive four-year election cycles.
A joke that has long been making the rounds in China goes: ‘The Chinese can change policies but not political parties. The US can change parties but cannot changes policies.’
Trump may prove them wrong. He is mercurial and crude, but the world should hope the tussle between the two giants ends in a draw. The US and China are two mountain-climbers connected by a rope. If one falls, he will take the other – and the global economy – down with him.