The trade war between the United States and China has hit business confidence. Photo: iStock
The trade war between the United States and China has hit the global economy. Image: iStock

US President Donald Trump should negotiate a trade agreement with China instead of mounting a trade war against it. Blaming China for America’s (and his own) policy failures will make America suffer, not “Great Again.”

His policies – imposing 25% tariffs on Chinese “imports,” playing the Taiwan card and increasing the military presence in the “Indo-Pacific region” – are not going to make China blink.

Further, authorizing his top diplomat, Secretary of State Mike Pompeo, to announce an initial investment of US$113 million to build infrastructure in the Indo-Pacific is becoming a joke in the region.

‘Make America Suffer Again’

Here are the reasons Trump’s China policies will only make America suffer.

First, Trump is barking at the wrong tree. America’s economic woes are of its own doing: relocating manufacturing offshore and automation were decisions made by corporate America. Adding salt to this wound, neither the business nor the political elite has made sufficient efforts to retrain workers who were displaced by globalization and automation.

On forced technology transfer, a recent seminar on US-China trade war held jointly by the Center for China and Globalization (CCG) and the US-based Hudson Institute revealed that Trump’s accusation that China was forcing technology transfer was far off the mark. The CCG’s Business Environment Survey showed that 81% of US-China Business Council members received no request from the Chinese government on the matter. The 19% that did receive such a request said  it was made by Chinese partners, not the government.

Second, Trump’s policies are politically motivated, pandering to his support base who blindly believe the rhetoric that China plays dirty and is out to supplant US influence and dominance.

With desperation and emotion running high among the misinformed elderly and less educated white male population due to lack of employment opportunities and the struggle to make ends meet, they believe the “fake news.” Seeing that most goods (which the US used to produce) on the shelves at the Walmart are “made in China” (but made by US companies or US-China joint ventures), they really believe that the “communist” country is responsible for their plight.

However, imposing tariffs on goods produced by US companies in China amounts to taxing American businesses and consumers, hurting the US economy as much as if not more than China’s, which could culminate in higher unemployment and inflation rates, a scenario known as stagflation that occurred in the 1970s in part because of the oil crisis.

Indeed, General Motors and other major auto producers are already downsizing their profit margins, suggesting layoffs are imminent. Consumer and food producers such as Coca-Cola are raising prices on their products.

Third, attempting to force China into total capitulation as the US did to Japan in the 1980s has proved counterproductive. China is not Japan, it has the resources or ability to push back US intrusion or interference. For example, it is applying a “tit-for-tat” policy on trade and strengthening defenses on the islands it built in the South China Sea in response to US freedom of navigation operations.

Trump’s policies appear to be failing

Trump’s claims that his tariff policies against China are working are dubious at best. One, the tariffs are having a marginal effect on the Chinese economy in that its second-quarter year-on-year growth was 6.7%, a slight decrease of 6.8% in the first quarter. Though a slight decline, it was still favorably compared with the United States’ 4.1%.

The US Department of Commerce revealed that growth in US gross domestic product was recorded at 4.1% in the second quarter, but many economists would argue that the figure will fall significantly in the future. The main reason for the “impressive” growth rate was farmers selling huge quantities of produce before China’s tariffs took effect. According to The Washington Post, that accounted for one full percentage point of the growth rate.

Indeed, many farmers are already experiencing financial hardships, prompting Trump to set up a $12 billion bailout to ease their pain. He may have to come up with many more billions of dollars in that beef and seafood producers from the US Midwest to the Atlantic and Alaska are also feeling the tariffs’ pinch because of Chinese retaliation.

Further, business giants such as Tesla are moving production to China and elsewhere is response to Trump’s trade policies. Large US companies – Boeing, GM, Ford, Apple and others – have profited hugely from the vast and growing China market. It would not be a surprise if they too were to leave America for a more competitive environment.

The German luxury-auto producer BMW is in fact relocating some production of its X5 model from the US to Thailand. Harley-Davidson, America’s motorcycle icon, is making similar plans. According to the CCG, Whirlpool Corporation has established a research and development center in Hefei, China. The organization also revealed that Volkswagen had rolled its energy-friendly JAC model out of its plant in Shanghai.

So instead of bringing back manufacturing to US soil, Trump’s policies may have the opposite effect.

It is ironic that Trump’s trade war is making his own re-election bid more expensive, raising the prices of US flags and other campaign materials such as hats.

US Taiwan and Indo-Pacific policies

There is no reason to believe that Trump’s geopolitical policies against China would be any more successful than those on trade.

Trump’s policies of encouraging official exchanges, military cooperation and posting US marines on the island might be welcomed by the pro-independence government of President Tsai Ing-wen, but could be opposed by the majority of the population.

A recent Taiwan Foundation for Democracy survey found that more than 90% of the island’s population preferred the status quo of maintaining de facto independence. Only 2.4% favored de jure or official independence. What’s more, while more than 67% would fight if China invaded the island, more than 56% would not if the government declared independence unilaterally. Indeed, a National Chengchi University survey revealed that most young Taiwanese would not fight China, believing they could not win.

The overwhelming support for Taiwan being part of China should not be a surprise. One, Taiwan’s economy is intrinsically linked to the mainland, to which the island sells more than 60% of its exports and where more than 2 million Taiwanese are studying, living and working, according to Taiwan’s Mainland Affairs Office.

Two, the economy under the two pro-independence Democratic Progressive Party governments sank. Unemployment rose, particularly for the young. An increasing number of the island’s best and brightest are in fact moving to the mainland for a better future.

For these reasons, Trump’s Taiwan policies could risk a backlash from the population because they risk the island’s security. China has already warned that it will intervene militarily if Trump follows through with his policies.

What’s more, Tsai’s approval rating plummeted in May, estimated at 24% by Apple Daily and 29% by United Daily News, because of her handling of the economy. Unless she pulls an economic miracle, Tsai may not get a second term.

Plans to revive the “diamond of democracies” comprising the US, Australia, Japan and India appears to be going nowhere. India and Japan seem to be making a U-turn, initiating closer relations with China. India is sending signals to address border disputes. Japan has invited Chinese Premier Li Keqiang to visit the country for fence-mending. Li is reported to have invited Japanese Prime Minister Shinzo Abe to China. Both countries appear to be aware that cutting off the hand that feeds you may not be a good idea.

Pompeo’s $113 million investment in the Indo-Pacific region is not taken seriously. It pales in comparison with China’s almost $1 trillion Belt and Road Initiative infrastructure investment.

A last word

Trump should abandon his “wars” against China and take up its proposal to negotiate a mutually acceptable trade agreement. Otherwise, although China stands to lose, so will America.

Trump might have come to the same conclusion, explaining why the US and China have held informal talks. Recent press reports revealed that US Treasury Secretary Steven Mnuchin and Chinese economic head Liu He have held informal talks on ending the stalemate. On the sidelines of the August ASEAN (Association of Southeast Asian Nations) meeting, Pompeo is said to have stated that the US does not want a trade or military conflict with China.

There may be hope that a disastrous US-China trade or geopolitical war will be averted.

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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